Demand in pre-owned luxury or so-called 're-commerce' is so great that even bigger and more traditional companies like the US department store Neiman Marcus are entering into the arena. The company recently acquired a minority stake in Fashionphile, an online seller of pre-owned luxury designer bags and accessories. Fashionphile's main competitor is the The RealReal, which recently raised $300 million in its initial public offering on June 28, a move that was welcomed by the markets. Its shares jumped by nearly 50 percent in the first minutes of trading.
Likewise, StockX, an online marketplace specialising in the resale of sneakers, was recently valued at $1 billion, meanwhile Paris-based platform Vestiaire Collective completed a €40 million round of financing in June, which it plans to use to launch new technology and further expand its reach in Asia and the Middle East.
These latest announcements in the market are adding to the heightened interest in the second hand luxury market, which is expected to said to be growing year on year at a steady compounded annual growth rate of 10.8 percent and is touted to be worth $45 billion (€40 billion euro) by 2023, according to a report by KDMarketinsights.
Secondary Market Accommodates Buying Power
Contrary to popular belief that millennials don’t love luxury, the success of such pre-owned luxury businesses proves that millennials do want luxury goods, just that most truly can’t afford them. Pre-owned luxury businesses offer a solution. With added quality measures of intense verification, quality storage, luxury fashion goods at such businesses can be had at a fraction of the original cost. And while some luxury brands such as Giorgio Armani and Louis Vuitton may not welcome this news, given their reservations in the past about reselling goods on pre-owned luxury websites, the opportunity that resale sites presents offers too good of an opportunity to pass up particularly in newer markets.
While in the US, pre-owned luxury is already a large market, globally, the category is gathering pace and growing in popularity. For instance, in Hong Kong, traditionally consumers may have held superstitions that owning preowned goods brought bad luck, but not anymore. After the US and Europe, China and India are considered to be next two largest markets for second hand luxury.
While China already has a thriving luxury and pre-owned luxury market, India is still considered to be in its nascent stage.
Traditionally, India has always been a very price sensitive market. As such, the advent of the pre-owned luxury market in India will help boost the brands’ position further. Global startups such as Confidential Couture and Farfetch are helping luxury fashion become more accessible to a larger demographic. Tourneau, Watchfinder, and Chronoexpert allow luxury watch fans to purchase authentic and verified second-hand Rolexes, Omegas and Cartiers at a fraction of the original price.
As per a Mckinsey report written and published in partnership with the Business of Fashion in November 2018, it sees the end of ownership in fashion as pre-owned, refurbished, rental and repair models evolve. And it makes sense. Pre-owned luxury market offers original goods that are more affordable and accessible for a larger demographic. In the automobile industry, Audi and BMW already offer pre-owned luxury cars to consumers globally which have helped them increase sales and grow their businesses. While 2018 may not have been a great year for luxury car sales globally, the pre-owned luxury car segment has done considerably better.
Millennials will soon represent more than 40 percent of the global personal luxury goods market, and Chinese and Indian millennials, in particular, are a promising demographic for the luxury industry in the future. Digitally savvy with higher disposable incomes, the demographic is known to be an informed customer base that understands the value that a luxury good offers. So, with the continued prosperity of the younger generations, online sales, and growing interest in sales at auction houses, the pre-owned luxury goods market looks increasingly positive and ready to expand.
Challenges of Authenticity and Merchandising
Despite this strong growth across markets, the pre-owned luxury goods market still needs to resolve the problems of counterfeited goods and the acquisition of the merchandise.
Chanel recently sued The RealReal stating that the company was selling fakes on its platform. Additionally, the lawsuit states that Realreal’s team did not have the requisite expertise required to authenticate Chanel goods. While the lawsuit will take its own course, this once again brings to the forefront the challenge of counterfeits and how serious the problem has become for brands across the world.
Blockchain technology could offer a solution in authenticating and verifying original goods, however, a commercial application of the technology is still a few years away. Additionally, paying a shopper on the spot for used items can lead to a downward pricing spiral. The second-hand luxury goods market is dependant on purchasing goods from shoppers who in-turn would expect top dollar for their goods. In turn, these goods need to be sold by the retailer at prices that would make sense to buyers.
Matching the two expectations for a luxury retailer would then become a humungous challenge. Neiman Marcus’s foray into pre-owned luxury goods will be a test for the industry and the business model they finally use to become successful in this industry would pave the way for future brands. Whether they would be successful in this venture, only time will tell. But the fact remains that pre-owned luxury is becoming an important market and brands that jump in early will have a clear advantage.