The future of resale and rental fashion

Resale and rental occupy a strange place in the fashion market.

The pioneers who pushed ahead and entered the public markets – including Rent the Runway Inc., ThredUp Inc. and The RealReal Inc. – have all struggled with investors, who are no longer willing to settle for growth and want actual profits.

More from WWD

Yet brands and retailers continue to step in and pump more energy into a resale and rental industry that is sometimes seen as some kind of sustainable savior, a one-item logistics nightmare or simply a cash black hole.

Maybe it’s a little bit of all that, but big companies are certainly still paying close attention.

Zara launched a second-hand platform in 14 European markets in December. And Amazon Luxury Stores recently went on sale with Hardly Ever Worn It in Britain, Germany, France, Italy and Spain.

Urban Outfitters Inc.’s Nuuly rental platform generated revenue of $65.5 million in the third quarter, an increase of 86 percent from a year earlier, when operating profits were recorded.

“Thanks to the strong partnership of our sister brands Anthropologie, Free People, FP Movement and Urban Outfitters and more than 400 other partner brands, we have created what we believe to be the most compelling range of rental clothing on the market,” David Hayne, Urban’s Chief Technology Officer, crowed last year to analysts.

Where all these resale and rental efforts lead remains to be seen. But the feeling is that they are going somewhere.

‘We’re in quite a bit of trouble, let’s find out [stage]because brands and companies are now all realizing: yes, it is a real market,” said Cara Smyth, president of Fashion Makes Change at Rockefeller Philanthropy Advisors.

“Resales will grow five times faster than the mainstream clothing sector by 2022,” Smyth said. “There is money to be made. There are consumers who are interested in it and it is a new channel. You can’t set up a new channel in such a short time. We are in this: how do we make it work? How do we deal with singles? [stock keeping units]? There are also a lot of technical parts, a data part to make it work.’

And consumers seem to be ready for it.

The ThredUp platform had 1.8 million active buyers in the third quarter, while luxury specialist The RealReal said its active buyers stood at 954,000 last year.

ThredUp’s annual Resale Report predicted last year that the global secondhand market would nearly double to $350 billion by 2027. Within this, the market for second-hand clothing is growing three times faster than the clothing market as a whole.

“There is a market for it. It is a growing market. And it’s very important,” says Adam Davis, managing director at Wells Fargo Retail Finance who works with both retailers and resellers.

“That’s why you’ve seen big brands like Levi’s, Lululemon and Rolex embrace the concept of pre-owned,” he said. “They have their own reasons. They want to control their product distribution, they want to build that relationship with the consumer. There’s probably profitability, and then there’s a lower entry point for consumers.”

But when brands adopt resale, they are largely building a new model onto their existing, generally healthy business, which is already turning consumer dollars into profits.

“If you think about retailers, they buy from a manufacturer and they end up with 30, 60, 90 days of debt,” Davis said. “So they can play a bit with working capital. A few of those [resale] models do not allow that. So they pay cash and have to try to sell this product as quickly as possible.

“Those that have done well have reduced their sku list for the higher speed rotating items,” he said. “The Louis Vuitton Speedy is going to sell, and you can get a whole range of them because you can get them in Japan through a number of brokers… that item turns very quickly. So instead of trying to sell everything, you start downsizing and focusing on the items that are turning over very quickly.”

Davis said there were private companies that made the resale model work.

For example, luxury resale platform Vestiaire Collective was just valued at €1.1 billion in November and is eyeing an IPO in the not-too-distant future.

Chief executive officer Maximilian Bittner recently told WWD: “We are still very conservative with regard to our 2024 planning, but despite that conservative planning, we believe we will approach profitability by the end of this year.”

Vestiaire Collective’s turnover increased by 25 percent last year.

“The resale idea is a popular one among consumers,” said Jessica Ramírez, an analyst at Jane Hali & Associates. “We have many platforms in the US and Europe. There’s a lot of competition, it’s just a very busy space.

“A lot of brands started bringing resale into their own industry,” Ramírez said. “There have been many changes in the resale market that have made it difficult to succeed.”

Part of the industry’s PR problem is that some of its most prominent players are struggling.

Rent the Runway, ThredUp, The RealReal and Poshmark all had splashy debuts that made headlines before the acquisition. But then they were caught off guard by the changing sentiment in the stock market.

“The venture capital dried up, they tried to solve it with debt, and then the IPO markets opened up and they were able to go public and that’s how they ended up financing their company,” Wells Fargo’s Davis said. “They are in the public eye… their cost structures are just completely out of order.”

That’s changing as public players have all adjusted their spending and increasingly focused on where their models work best.

But it’s still been a long journey and investors aren’t necessarily sticking around. Rent the Runway’s market cap has fallen to just under $36 million, while RealReal and ThredUp are trading closer to $200 million.

Edward Yruma, an equity analyst at Piper Sandler & Co. who covers the sector, said: “I don’t think these companies may be as profitable as we might have hoped a number of years ago.”

The back-of-house activities are responsible for part of this. In some cases it is a consumer demand problem.

Yruma said shoppers still seem to be looking for value before looking for sustainability.

“While Millennials and Gen Z are really concerned about the environment, the question is still how that relates to their purchasing behavior,” he said.

The public players in the space have all made progress in reducing costs. But Yruma said: “People want to understand when they reach profitability, but then what is the profitability of these models in the longer term? They have become ‘show-me stories’.”

That means investors are holding back and waiting for signs of recovery before jumping in again.

And some believers have lost faith.

“I’ve always been a student of space,” says Michael Prendergast, managing director of Alvarez & Marsal’s consumer and retail group. “I always thought it was really cool. It is interesting, but not sustainable.”

That is not sustainable in the environmental sense, but sustainable in the business sense – at least as currently structured.

“The appeal is this broad breadth of SKUs across brands and exclusivity in products,” Prendergast said of the sector. “That sounds great, but the problem is if you run a retail business, what are the most important things you need? You need turnover. You need efficiency. You need operations that are running and have a supply chain that is very supportive.”

Prendergast said he once had something called the perfect resale consumer experience. He went to a store and found a perfect Moncler jacket for 25 percent of what he would have paid for it new.

“This is the best thing ever,” he thought, as he got caught up in the resale. But then he went back to the store repeatedly and “never found anything else.”

“They have some real issues when it comes to assortment planning, demand planning and what I would call consistency in SKUs,” he said. “The behind the scenes is very complicated for these companies.”

That sets the stage for continued evolution in the market and perhaps even more collaborations and combinations as the players build their way into better companies.

The best of WWD

Leave a Comment