Retail

Re-commerce: Luxury’s Next Big Thing?

by

Alexander Wei | October 30, 2020

From ThredUp’s pending initial public offering to Gucci’s partnership with The RealReal, the luxury online re-commerce business is finding its space in the market with the support of both investors and brands.

The COVID-19 pandemic has undoubtedly been the greatest setback faced by the luxury industry in this century, with luxury conglomerates and brands reporting revenue declines in varying percentages within the first two quarters of the year. In LVMH’s just-released third-quarter results, recorded revenues in the first nine months of 2020 fell 21 per cent year-over-year, despite this quarter’s revenue boost. With a new wave of the coronavirus hitting European countries and the ever-growing number of cases in the U.S., the impact of this epidemic may last longer than the market initially estimated.

COVID-19 has not only shaken businesses but also inspired shifts in consumer behaviour. Following the global outbreak in March, downturns across various sectors resulted in an overall erosion of consumer confidence. But amidst it all, the online luxury resale market has emerged as a silent winner: In these uncertain times, luxury consumers have been turning to second-hand retail as a more affordable and more accessible option. The 2020 Resale Report, released by the luxury resale platform The RealReal, showed an increase in first-time buyers of high-value items during COVID-19.

Major brands that used to distance themselves from the second-hand market have since jumped on the bandwagon. In early October, The RealReal announced a partnership with Gucci, to open a branded e-shop by the end of the year, featuring 2,000 products from third-party consignors and merchandise directly sourced from the brand. In addition, for every Gucci item bought or sold on the platform, The RealReal will plant a tree through non-profit organisation One Tree Planted in an effort to fight climate change.

Given the impact of the epidemic on companies and individuals, and the change in perception from key luxury brands, is resale the “new normal” that the luxury industry needs to embrace?

Money Talks

Of course, the resale industry is not completely immune to the pandemic’s effects. According to The RealReal’s second-quarter financial statements, gross merchandise value (GMV) was at $182.8 million – down 20 per cent from last year. Total revenue recorded slid about 21 per cent to $57 million, and net loss was at $42.9 million, placing it above analysts’ initial estimate of $35.5 million.

But other data displayed the platform’s resilience: Active buyers grew for the 11th consecutive quarter (at an annual rate of 24 per cent), and the platform gained 10,000 users in the second quarter despite reduced media budgets. The RealReal’s customer stickiness is also encouraging, with 82.3 per cent of GMV coming from repeat buyers, further demonstrating its growing traction in the market.

The RealReal’s curbside drop-off at Manhattan during the pandemicCredit: Associated Press

Online re-commerce players in the market have been drawing investor attention of late. Vestiaire Collective, a French second-hand luxury platform, raised $64.2 million in a new funding round in April this year; second-hand bags and accessories e-commerce portal Rebag, pulled $15 million in a Series D round of funding in May; while Huda Beauty’s investment arm took an undisclosed stake in Dubai-based clothing resale company, The Luxury Closet. More recently, online second-hand retailer, ThredUp filed confidentially for an initial public offering in the US, according to a statement released on 21 October. While the number of shares and the price range of the offering has yet to be determined, the listing is estimated to raise between $200 to $300 million for the company.

Enabling The Circular Economy

The pandemic might have been the catalyst in getting some consumers to shop second-hand, but it isn’t the only factor. The recent focus on circularity and sustainability within the fashion industry played a major role in pushing this business model forward as well.

According to a report by McKinsey & Company and Global Fashion Agenda, every percentage point increase in the circular economy market – including renting, reselling, repairing, refurbishing – could save 13 million tonnes of CO2 equivalent. This model is expected to reduce the fashion industry’s emissions by 13 million tonnes of CO2 equivalent by 2030, which accounts for 8.5 per cent of the total global emissions reduction planned.

Credit: The RealReal

The impact of the circular economy has gradually trickled down from the corporate level to consumer behaviours. Educated consumers are not only choosing brands with sustainable practices, but also participating in the circular economy themselves. Fortuitously, the very nature of the resale industry is in alignment with the younger generation’s growing sense of environmental consciousness and price sensitivity. As Erin Wallace, Vice President of Integrated Marketing at ThredUp, said: “Today, every dollar is spent intentionally – whether that’s to save money or the planet – and thrift enables consumers to have more but waste far less.”

The Industry Needs Big Players

The Internet has allowed mom-and-pop consignment stores to go global. But for the luxury segment to find greater traction, support from the top of the supply chain (i.e. the luxury brands themselves) must be in place. Gucci’s partnership with The RealReal is an indication of the Italian fashion house’s commitment to sustainability, and an encouraging step in the right direction. The platform has also worked with Burberry and Stella McCartney previously.

For The RealReal, a brand’s official debut on the platform helps to build consumer perception, guarantee authenticity and ultimately, retain shoppers. Although The RealReal constantly advertises that their products are “100% Real” and often highlights the capabilities of its authentication team, consignors and buyers on platform’s have been challenging the site's quality control. Chanel, one of the most desired brands in the luxury resale sphere, has previously sued The RealReal with allegations of trademark infringement, counterfeiting, false advertising claims.

The presence of Gucci is certainly a reassuring sign of mainstream luxury brands’ burgeoning interest in online resale platforms. However, the resale business in the ready-to-wear, footwear, accessory categories is still in its early stages. The resale market for hard luxury products like watches and jewellery, however, has been steadily growing. This is, in part, also due to the support of big players: In 2018, Swiss luxury group Richemont acquired UK-based pre-owned luxury watch platform Watchfinder & Co. and officially entered the second-hand watch space. According to Credit Suisse's estimation, second-hand watch sales amount to $3.3 billion a year, equivalent to 10 per cent of the entire market – much higher than the 1 to 2 per cent market share of the soft luxury second-hand market (including ready-to-wear, footwear, and leather goods).

Credit: Image: Geniuswave Films

Luxury watches, due to their collectability, high value, and low depreciation rate, are far more sought after than soft luxury goods in the secondary market. But as the soft luxury market matures and the concept of sustainability grows, consumer willingness to consign or buy second-hand goods will naturally strengthen. The industry still holds considerable room for growth and according to GlobalData, the resale industry is likely to reach a value of $36 billion by 2024 – quintuple the $7 billion in 2019.

Not only luxury brands choosing to plunge into re-commerce – mid-range brands like COS and Levi’s have already launched brand-owned resale platforms. Whatever the motivation is – the pandemic, sustainability or pure profitability – the future of fashion resale is looking promising indeed.

Cover Image: The RealReal

E-commerce | Second-hand | Sustainability