Consignment Gets Fashionable

Here’s a problem for a luxury consumer:

Say she’s got a Chanel bag that she bought for $4,000 or a pair of Christian Louboutin boots that cost her $1,500. For reasons of evolving personal preference, she no longer makes use of these items or perhaps many others that came with equivalent price tags. Just because the woman is a fashionista, though, that doesn’t mean she’s prone to effectively throwing away money. After all, that’s money that she could put towards buying new and different high-end goods.

What are her options for reselling, though? EBay? A garage sale? She’s going to put several thousand dollars’ worth of luxury items on her front yard and engage in haggling over prices with passing strangers like she’s on ‘Pawn Stars?’ That’s uncouth.

There is, at last, another path by which the high-end consumer can participate in the sharing economy: luxury consignment. A burgeoning retail business model, it appeals to both high-end buyers and sellers, and it is poised to disrupt the high-end fashion space.

Late last month, luxury consignment startup The RealReal expanded on a partnership with Neiman Marcus through which the sophisticated retailer will — in 34 locations nationwide — offer its consumers the opportunity to resell their items via the service. Should the shopper opt to consign with The RealReal, she can accept payment in the form of a Neiman Marcus gift card, which would earn her an additional 10 percent on top of the 60 percent of the selling price of the item that consignors receive under The RealReal’s existing arrangement (that percentage increases to 70 once a consigner with The RealReal has reached sales totaling $7,500).

Even prior to teaming up with Neiman Marcus, The RealReal was already well on the way to proving that “high-end consumers” and “value shoppers” are not mutually exclusive categories.

Founded in 2011 by Julie Wainwright (previously the CEO of Pets.com and, before that, the CEO of Reel.com — no relation), in its first year of business, the startup achieved $500,000 in sales from a customer base whose tendency for purchasing top-shelf items had previously lent itself to the perception that it was not necessarily interested in selling those items or in getting pre-owned ones at below cost. Last year, Wainwright’s company made $100 million, and the founder has designs on doubling that figure in 2015. Its funding should certainly help in that effort: To date, The RealReal has raised $83 million, with almost half of that coming in a Series D round just this past April.

Part of the secret to its success comes from cultivating a community that offers both buyers and sellers an exclusive and fashion-forward experience. The site’s layout is more akin to Vogue than eBay, and many of the services offered are referred to as “white glove” and “by appointment only.” Consignors enjoy a concierge experience, barely lifting a finger from the moment their items are picked up, appraised, photographed for posting on The RealReal site and ultimately delivered to their new owner. All of this — plus the added benefit of providing customer anonymity throughout the process — bears out that The RealReal knows its target consigner market.

With momentum like that, it follows, then, that major high-end retailers such as Neiman Marcus are standing up and taking notice of the great potential of the space. Of her motivation for getting into business with Neiman’s, Wainwright explained, “We learned that over 40 percent of our consignor base was interested in receiving their payment in the form of gift cards to their favorite luxury retailers.” She added that she was “thrilled” that the retailer “enabled us to immediately offer this service to our consignors.”

A partnership with a company like The RealReal is a win for Neiman Marcus as well. The retail giant grossed $4.8 billion in sales in 2014 and understands what high-ticket-price consumers are worth to its margins. If Neiman’s, and leading retailers like them, can help introduce their high-end clientele to this new and reputable luxury consignment offering, they also make them more open to the idea of spending more on their initial purchase — given that, in a year or two, shoppers will be able to recoup some of that initial cost through consignment.

Although Neiman Marcus is the first luxury retailer in The RealReal’s in-store consignment program, Wainwright makes it clear that it’s only a jumping-off point for the next phase of the business, which includes expanding its range of products that are available to be bought and sold.

By borrowing the brand cache of established fashion retailers like Neiman Marcus, The RealReal wins trust from potential buyers and incentivizes consignors who are already familiar and have an affinity for the established retailer. As Fortune pointed out earlier this year (when covering The RealReal’s aforementioned $100 million annual sales milestone), “there are plenty of places to buy a used Chanel bag online. There are also plenty of places that will sell you a fake. Winning hearts and minds is important in an industry that is founded on authenticity.”

True to its name, the “sharing economy” is for everyone. And when you’re dealing with fashion items that are sometimes worth more than a used car, luxury consignment sure as heck beats a garage sale.