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When The RealReal filed to go public in the summer of 2019, its pitch to investors included a warning: “We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward,” the company said in a pre-IPO filing.

It was a routine statement from a not-yet-profitable e-commerce start-up. The implied proposition was that the company may be operating in the red today, but once it consolidated the market for secondhand luxury fashion, the economies of scale would kick in. It worked for Amazon, why not The RealReal?

The IPO went forward that fall and was soon followed by Poshmark and ThredUp, resale platforms specialising in more-affordable clothes, each with its own disclaimers regarding profitability. All three companies have seen double-digit percentage sales growth since going public. All three reported losses in their most recent quarter. Investors are losing patience: shares in all three companies are down by about two-thirds from a year ago. Last month, The RealReal said it was on track to become profitable, or adjusted EBITDA positive, in 2024. That prompted Credit Suisse to downgrade the company’s stock.

It turns out, making money off of other people’s clothing is hard. Processing and listing thousands of unique items requires complicated logistics that can’t easily be automated. Consolidation has proven elusive; while a few sites have been acquired or folded, more have launched, including fashion resale ventures from e-commerce giants like Farfetch and individual brands like Coach and Oscar de la Renta.

That’s forced resale platforms into a cutthroat battle for both buyers and sellers as they open stores, advertise on television and reduce commissions to draw in customers. In its most recent quarter, Poshmark spent the equivalent of nearly 44 percent of its revenue on marketing.

“There’s this idea that [resale] companies can be fast-growing and reap the rewards of market dominance once they reach a level of scale,” said Charles Gorra, founder and chief executive of accessories resale site Rebag. “But the question is, at what point do you start reaping the rewards?”

Rebag itself is not yet profitable, but close to it, Gorra said.

Still, the market opportunity remains gargantuan. In the US alone, the secondhand fashion market could grow up to 20 percent between 2020 and 2025 to reach $67 billion in size, according to estimates by BoF Insights. The RealReal and Poshmark combined only make up about 9 percent of the market.

“If you look at our businesses today, against the market opportunity, we’re all still quite small,” said Max Bittner, chief executive of Vestiaire Collective, which recently acquired Los Angeles-based Tradesy.

He said a growing focus by consumers and regulators on reducing fashion waste will help drive more customers to resale.

“The market is coming to us. We’re not building the market,” Bittner said.

Future Postponed

The mechanics of resale have proven stubbornly resistant to scale.

When a traditional retailer wants to sell a dress, it can post a few photos and a product description on its website that only need to be tweaked if a new style is added or the price changes. The dresses are shipped in bulk from the manufacturer to warehouses and stores, in identical condition and wrapped in identical packaging

When customers resell those same dresses, secondhand platforms must treat each one as unique. At The RealReal, for example, every item is authenticated, priced, photographed and given its own listing page.

“The technology should have scaled more than it has,” said Karin Dillie, vice president of partnerships at Recurate, a company that runs resale marketplaces on behalf of brands like Rachel Comey and Re/Done, and former director of business development at The RealReal.

This is less of an issue when the item is a $10,000 watch as opposed to a $150 dress. Fashionphile, a resale website that specialises in big-ticket handbags and accessories, has been profitable since its inception in 1999, according to founder Sarah Davis.

Vestiaire Collective manages costs by allowing users the option of receiving a product directly from the seller or paying a $15 fee to have it authenticated by the platform. Today, about 65 percent of its transactions are directly shipped from seller to buyer without passing through Vestiaire’s facilities.

Resellers are also introducing automation into the process. In a March presentation to investors, The RealReal spoke publicly for the first time about its auto-authentication tools, Vision and Shield. Vision allows authenticators to use a programme to analyse microscopic images of handbags to verify they are genuine. Shield pre-authenticates items by reviewing the seller’s profile and assessing risk factors. Since 2019, these efforts have resulted in increasing productivity by 15 percent, according to Rati Sahi Levesque, president at The RealReal.

Finding Customers

Many of the customers most likely to embrace resale have already opted in. Keeping up the rate of growth seen in the category’s early years means luring those who aren’t interested in sustainability, or are still wary of pre-worn apparel.

“The low-hanging fruit has been plucked,” said Graham Wetzbarger, an authentication expert and luxury resale consultant. “Now, we have to work for that luxury consumer who doesn’t want to part ways with their things because they live in Texas and have the largest closet in the world.”

The RealReal has invested in services designed to make selling easier, including picking up clothes at sellers’ homes and opening stores. The RealReal now has 19 physical locations, which allows sellers to drop off items they want to sell without making an appointment or having to ship a package.

“We made the right investments during Covid,” Levesque said, pointing to store openings and a new distribution centre in Arizona. “We now believe we can leverage these investments.”

The ads and stores aren’t cheap, but they may have done their job: resale has gone from a niche still associated with musty thrift shops to part of the fashion mainstream.

“Maybe the hard part is over,” said Cowen analyst Oliver Chen. “A few years ago, if you mentioned The RealReal, not everybody would know it. Now, everyone is like, ‘Oh yeah. The RealReal, of course.’”