Categories: Earnings

Supply Chain Hiccups Sink The RealReal’s Q2

The pandemic weighed heavily on The RealReal’s second-quarter earnings announced Thursday (Aug. 6), leading to a steep drop in its results.

The drop was tied to closings at its two New York City physical locations and reduced supply for its consignment business model in New York and Los Angeles.

The RealReal operates four stores, two in New York and one each in Los Angeles and San Francisco. However, all of them were closed from the beginning of the pandemic through mid-June.

The company also sells online, with inventory from designers who are unloading goods and individual sellers who consign high-end fashion apparel. But supply problems from sellers were a substantial issue for the company during the quarter. It saw a 29 percent year-over-year decrease in the number of units shipped to eCommerce processing facilities.

"While Q2 was challenging, the pandemic has been a catalyst for reinvention and innovation at The RealReal," CEO and Founder Julie Wainwright said during an earnings call. "With the normalization of our processing capacity and the evolution of our supply acquisition strategy, we are now laser focused on returning to sustained growth.”

Wainwright said she is optimistic that the company could return to 2019 sales levels in Q3 and is confident that 2020 will end on a positive note. She said the firm’s New York stores have operated at around 80 percent of pre-pandemic levels since reopening.

“We're getting appointments for consignments, and curbside drop off for consignments was tracking pretty close to the demand. So, we're encouraged by the stores,” Wainwright said on the call. “And Los Angeles is picking up. Again, remember we only have four stores, but we are so encouraged by the stores that you can expect that we are going to open one more store before the end of the year.”

She said the company plans to move forward with previously announced plans to open a Chicago store.

“We are going to go ahead and open it to take advantage of the holiday selling season, which also is a great time for us to get consignment,” Wainwright said.

However, a shareholder letter that accompanied the earnings release noted that the company’s New York locations provided significant headwinds during the quarter due to the amount of suppliers that temporarily left the city to flee the pandemic. So, while the store results were encouraging, the company doesn’t expect its important consigners to return to town until the end of the summer.

But Wainwright remains optimistic that the pandemic will lead to innovations at The RealReal.

“The innovations that have come as a result of COVID … have been focused in our sales organization having to reinvent our supply acquisition strategy altogether, leading into virtual appointments, and adding in self scheduling,” she said. “That doesn't necessarily mean we invest more in sales, but we're getting the returns from our technology investments. So, we're emboldened to continue leading in there. But over time, I think what we're experiencing during COVID is that we see a path to potentially stronger unit economics in the longer term as a result of efficiencies that we've gained during COVID.”

All in, the company’s quarterly revenue declined 21 percent from a year earlier to $57.4 million. Gross merchandise value also decreased 20 percent to $182.8 million, while The RealReal’s net loss widened to $42.9 million from $26.9 million for the same period last year.

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