Controversial

Is Online Consignment The Future Of E-tail?

Digital commerce is somewhat obsessed with the new. The newest gadget, the latest look, the niftiest way to pay – even PYMNTS built “What’s next” into our tagline.

And while the obsessive attention to novelty in the realm of eCommerce is understandable – as its biggest devotees also tend to be somewhat younger and earlier adopting than the average American consumer – it tends to obscure the growing market on in the world of eCommerce for the not exactly new.

Take used clothes, for instance.

Consignment sites have had a quietly impressive run in the last year. In April 2015 alone, luxury consignment site The RealReal picked up $40 million in funding, while Dubai’s The Luxury Closet snapped up $2.2 million in Series A funding. Tradesy secured $30 million to kick off the year in January – almost exactly one year after Twice raised $18.5 million. The year 2014 also saw ThredUp bag $23 million in funding – which briefly (in July of 2014) made it the best capitalized consignment company in the field. And these serious amounts of money are being put up by some very serious players, including Greycroft, Andreessen Horowitz, Kleiner Perkins and some fairly famous investors – such as Richard Branson.

“When I started in eCommerce, there was not a lot of clutter because there were not a lot of companies,” RealReal CEO Julie Wainwright noted in an interview with Forbes. Wainwright was the CEO of both Reel.com, a Netflix forerunner that was eventually acquired, and Pets.com, a late ’90s eCommerce effort that went bust post-IPO.

“Nowadays, you have to have a pretty serious moat around your business to compete with Amazon, Walmart and even Alibaba online,” Wainwright added. “You really need a unique selling proposition and people need to care about that unique selling proposition.”

And consignment is a unique selling proposition. Or as PYMNTS discovered while making an intensive study of consignment e-tail (for journalism, we were in no way just shopping for new clothes and purses), we discovered that online consignment is actually a collection of unique selling propositions. While these businesses can be placed under a general heading of allowing people to make money reselling their old fashion items – they all operate differently, target different goods – and (in at least one case) aren’t even really in it for the retail.

So what’s the deal with consignment retail on the Web? PYMNTS has the guide you didn’t know you needed right here.

Luxe Life

In the real world, consignment shopping can mean all kinds of things. It could refer to picking up crushingly expensive (but still discounted) designer, high-end fashion items at La Boutique Resale on Madison Avenue in New York.

Alternately, consignment shopping could involve a scene that looks identical to Macklemore’s Thrift Shop Video.

The online world of fashion retail is similarly bifurcated when it comes to what exactly is being sold.

On one side of the coin are sites like The RealReal that focus exclusively on lightly-used luxury apparel. And while The RealReal is the most well known (and as of press time the best funded), it’s certainly not alone, as Jill’s Closet, CoutureUSA.com, The Luxury Closet, reFINEstyle and Eclectic are all in the upscale goods business – though with variations. The Luxury Closet only does accessories,Eclectic specializes in “funky” or unusual designer items whereas reFINEstyle specializes in breadth of designers on offer. And while none of these sites will quite let a shopper buy “Prada on a Target budget” as one fashion blogger rather enthusiastically claimed, they all specialize in lightly used, verifiable designer goods and tap into what The RealReal’s Wainwright luxury retails rather sluggish transition into eCommerce.

“It’s really hard to create a fashion brand online and very difficult to find some very desirable brands when shopping on the Web,” she said. “There’s certainly a lot of opportunity right now for anyone selling high fashion online.”

Fast Fashion

While finding that Prada purse for a good deal is certainly one vision of living the dream when it comes to consignment online – there is also a market for resold fast fashion items, even from retailers that weren’t actually expensive to start with. The largest online consignment store in the U.S., ThredUp, doesn’t want your designer items – they often even reject Tommy Hilfiger for being too high-end – and are instead focused on picking up pre-worn clothing from Old Navy, Forever21 and H&M, because they believe this is where the demand exists.

“I think it has to do with the fact that they’re very trendy styles, and people are probably cycling through them quickly,” said ThredUp spokeswoman Farrell Klein, according to SF Chronicle. “You’re seeing things that were very recently in the store.”

And while ThredUp admittedly has a more expansive bar than some of its competitors in the fast fashion consignment race – Twice, also a San Francisco based consignment brand – tends to reject makers like H&M and Old Navy.

They’re really great brands, but they tend not to last,” said Chris Luhur, Twice’s director of marketing and community. “Something that was really hot last season people don’t really want to buy anymore.”

But, while there is some variety in the brands they accept – both Twice and ThredUp think that consignment shoppers are looking more to shop for everyday fashions than they are to shop for haute couture.

“When I started, I was more into more edgy brands,” said Twice’s operations manager Erica Setness, who counts Isabel Marant among her favorite fashion designers. “Now I get most excited about J.Crew.”

Who Cares About Fashion? Data Is What’s Sexy!

The interesting thing about selling fashion items online is that it is more than a chance to connect consumers with an opportunity to expand their wardrobes. It is also a chance to learn an awful lot about them – how they’re buying, where they’re buying, what brands they are focused on and what resells the best.

Tradesy, an online consignment shop, has come around to realizing all of that aggregated data also has value, and they’re gathering up information on brand preferences, style, sizing, and frequency of making purchases and selling. This last point means knowing how quickly people tire of particular products, and who the secondary customer is.

Tradesy strictly uses that data for curation and personalization purposes, but that is soon to change, according to CEO and founder Tracy DiNunzio, as the site is next looking to partner with retailers.

“Retailers can benefit from having a relationship with the secondary markets for their goods in many ways, such as price-tracking, establishing relationships with entry-level customers who don’t enter retail stores, and even streamlining production based on the data we can provide. It could be seen as contradictory — these are obviously highly sought-after products, yet they have a shorter-than-typical lifespan in a woman’s closet. We don’t try to guess at the meaning, we just [think] about what the brands and retailers themselves might be able to do with the data, and it’s very promising,” DiNunzio said.

In fact, much on online consignment seems “very promising” – as it does provide that moat around an eCommerce startup that helps it fend off the mega-competitors in the field like Amazon or Alibaba. It remains to be seen, however, if all of these e-tailers will be able to exist in the same eCommerce ecosystem — or if some will turn out to be just a little more in fashion with consumers than others.

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