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Resale Sites Prepare for Battle

Armed with millions of dollars of venture money, a handful of fashion ‘re-commerce’ sites are gearing up for a ‘winner-takes-all’ fight.
Photo Illustration: BoF

LOS ANGELES, United States — On Monday, Santa Monica, California-based Tradesy, an e-commerce marketplace that sells second-hand clothing and accessories, announced that the company had raised a $30 million Series C funding round from new investor Wildcat Capital Management — the family investment firm of David Bonderman, founding partner of TPG Capital — along with existing investors billionaire entrepreneur Richard Branson, Kleiner Perkins Caufield & Byers and Rincon Venture Partners.

Despite a more challenging venture capital market for e-commerce start-ups, this was not a down round, meaning the company's valuation rose, said a spokesperson for Tradesy. The terms of the transaction were not disclosed, but Tradesy has quadrupled revenue since January 2015, when it raised a $30 million Series B round led by Kleiner Perkins Caufield & Byers, which valued the company at about $100 million.

But Tradesy is not the first “re-commerce” player to announce yet another round of new investment, as a handful of heavily-funded competitors gear up for what Tradesy founder and chief executive Tracy DiNunzio called a “winner-takes-all” battle for second-hand clothing start-ups.

In September 2015, thredUP — which bills itself as the "largest online consignment and thrift store" — announced an $81 million Series E round led by Goldman Sachs. That same month, the Paris-based luxury re-commerce site Vestiaire Collective raised a 33 million euros (about $37 million) Series D round led by Eurazeo. Then, in December 2015, Lithuanian swap site Vinted raised $27 million. And, just last month, US luxury consignment e-tailer The RealReal announced a $40 million investment, followed a few days later by peer-to-peer selling app Poshmark, which announced a $25 million round led by GGV Capital. (Since 2009, a total of about half a billion dollars of venture money has been poured into re-commerce companies, much of this within the last year.)

The RealReal expects to generate $400 million in gross merchandise value in 2016, while Vestiaire Collective reported gross merchandise value of 78 million euros in 2015, proving the potential of a space that's growing as second-hand clothing sales rise, driven by factors ranging from the lingering frugality of a post-recessionary consumer mindset to the movement to de-clutter closets (à la Marie Kondo's The Life-Changing Magic of Tidying Up) to increased demand for frequent outfits changes, sparked by the rise of social media and selfie culture. Indeed, some consumers, who continually refresh their closets, have adopted a "one in, one out" rule.

Raising large sums of money has certainly allowed leading re-commerce companies to scale, leaving those that took a more conservative approach behind. “It’s a momentum businesses,” says Tradesy’s DiNunzio. “Buyers tend to go where they can find the most product, sellers tend to go where they know they can reach the most buyers. So they tend to gravitate toward those who execute more quickly and used their capital wisely.”

Fashion re-sale is a challenging business, not least because it requires a high level of consumer participation.

At one point, there were well over 30 start-ups operating in a space that has seen major consolidation. The UK site Covetique, backed by ASOS, shut down in June 2015 after four years in business. The New York-based Bib + Tuck, which encouraged shoppers to swap products without ever exchanging cash, was acquired by second-hand chain Crossroads Trading Co. in August 2015 and immediately shuttered. Tradesy acquired luxury re-seller Shop Hers in November 2015. (Founder and chief executive Jaclyn Shanfeld now runs Tradesy for Business, a programme for professional sellers.)

And while Vaunte is still in operation, the future of the high-profile luxury re-seller, which differentiated itself by profiling its socialite sellers, is increasingly unclear. Co-founders Andy Shin and Christian Leone left the company some time ago, while chief executive Leah Park recently launched a new venture, Project September, with former Gilt Group colleague Alexis Maybank. (Park did not respond to a request for comment.) Then there’s the San Francisco-based consignment shop Threadflip, which raised more than $20 million before being absorbed by clothing-rental site Le Tote in January 2016. “It’s a competitive space,” Le Tote co-founder Brett Northart told TechCrunch at the time of the acquisition. “It’s tough operationally and you have to fill both sides of the marketplace.”

Indeed, fashion re-sale is a challenging business, not least because it requires a high level of consumer participation. On many re-sale sites — including eBay, the longstanding goliath in the market for vintage clothing and accessories — a seller must photograph, post and ship products. But some sites have worked hard to make the process more frictionless.

The RealReal, which consigns luxury goods, provides pre-paid shipping labels for products, which are routed to its warehouses where they are appraised, authenticated, photographed and published to the site. When items are sold, the company ships them to buyers in its own branded packaging. The seller remains anonymous and is paid by The RealReal, not the buyer, when an item is sold. "I wanted to solve a problem that eBay couldn't solve," says the company's chief executive, Julie Wainwright. (Even with the launch of eBay Valet in 2015 — a service meant to compete more directly with the wave of full-service, curated vintage sites like The RealReal — the marketplace has very little curation, takes no responsibility for quality assurance and is not particularly easy to use.) "I knew we had to make it really easy, offering free pickup in major cities and inspecting and authenticating every single piece. If we were going to deal in the luxury space, it would require a level of trust. Half of our consignors have never consigned before."

But shipping and handling items like this is expensive. And unlike traditional e-tailers, most of which offer free shipping these days, re-commerce sites aren’t making wholesale-sized margins. (For instance, if an item sells for $70 on Poshmark, the company receives just $14. If a traditional retailer sells something at full price for $70, it typically earns more than $31.)

This is a particular problem for re-sellers that deal primarily in lower-priced goods, and therefore require an extremely high volume of sales to make any sort of profit. Poshmark has encouraged sellers to look beyond their own closets when sourcing inventory. “Many women begin their boutique journey on the app by simply listing items for sale out of their closet,” explains chief executive and co-founder Manish Chandra. “When they run out of inventory, they want to keep selling their style and begin sourcing new merchandise from various channels including consignment shops, sample sales, trade shows and wholesale markets.” At the end of 2015, Poshmark launched an in-app wholesale marketplace in order to help its sellers source new inventory. Since then, over 60 independent fashion brands have joined up.

It's true that most re-commerce sites aren't buying and holding inventory, which dramatically reduces risk and overhead. (ThredUP is the exception: it buys items priced under $70 outright from sellers; everything above $70 is consignment.) However, these businesses also have less control over the inventory they get to sell. Gucci loafers might be in-demand, but who is willing to sell them?

Most sites educate sellers by releasing information on which items have the highest resale value. The RealReal, for instance, releases an annual report for consignors. But the best way to increase product volume is to recruit more sellers. Vestiaire Collective accepts products from sellers in more than 17 countries, resulting in about 4,000 new products hitting the site every day. (And the company still rejects 30 percent of submitted products.) “Having 17 countries supplying this marketplace gives us agility on the type of product,” Fabre says.

The RealReal also plans on recruiting more sellers. (The site currently ships internationally, but only works with sellers in the United States.) Right now, however, it is doubling down on its home market. (After all, it has new competition: Vestiaire says it has dedicated 20 million euros of its last 33 million euros raised to help further penetrate the US market.) “Given our lead here, it was better for us to really focus on the US for the next 12 months,” Wainwright says. That means opening more physical valuation offices, where sellers can go to have products appraised. (There are already four open: New York, Chicago, Los Angeles, San Francisco.) “We want to remove friction, and give someone ability to have that conversation,” she adds.

Re-sale sites also need to brand their platforms. High-end players like The RealReal and Vestiaire have a simpler time with this because luxury consumers shop with more intention. For those selling at every price point, it can be more difficult. “How do you brand a platform that serves all these very diverse customers, with all kinds of designers at all kinds of price points?” asks Tradesy’s DiNunzio. “An area of focus for me right now is building a brand where the word ‘Tradesy’ is almost a verb. It’s an ongoing challenge and opportunity.”

But the biggest challenge of all is profitability. To be sure, all the major contenders in the space boast impressive growth numbers. But as the venture capital market for e-commerce tightens, investors are increasingly looking for companies with profitable businesses to match their valuations. ThredUP chief executive James Reinhart insists that the company chooses not to be profitable and continues to focus on scale. “We could be profitable right now if we wanted to be,” he says. The RealReal expects to cross over into profitability in the fourth quarter of 2016, while Tradesy has its sights on 2017.

The only way they’ll get there, however, will be to ensure every moving part of these logistics-heavy businesses is running as efficiently as possible. “It really comes down to having a tailored back end system, which keeps costs lowers,” Wainwright says. “That, and keeping the quality of the product high.”


The Future of Fashion Resale Report — BoF Insights

BoF’s definitive guide to fashion resale, covering the evolution of the market, its growth and upside, consumer behaviours and recommendations for crafting a data-driven resale strategy. To explore the full report click here.

The Future of Fashion Resale is the first in-depth analysis to be published by the BoF Insights Lab, a new data and analysis unit at The Business of Fashion providing business leaders with proprietary and data-driven research to navigate the fast-changing global fashion industry.

Related Articles:

With a Flurry of Activity, Online Vintage Heats Up

Inside the Booming Vintage Luxury Fashion Market

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