Do you click on third-party ads? Whatever your answer may be, it’s a part of The RealReal’s 2023 reconfiguration strategy.
The resale platform is planning to intensify its third-party advertising. During the company’s second quarter earnings call on Tuesday (Aug. 8), John Koryl, The RealReal’s CEO, spoke of the company’s intention to bring in brands that align with the interests of The RealReal’s customer profiles, whether that be airlines or luxury labels.
But will these advertisements enhance or impede the customer’s experience?
In 1994, when HotWired introduced banner ads, they achieved an average click-through rate of 78%. Fast forward to 2011, when Facebook incorporated banner ads into its platform, the company encountered an average click-through rate of 0.05%.
A parallel narrative unfolds within email marketing. As consumers encounter an increasing abundance of similar content and less originality, a decrease in engagement becomes evident. According to eMarketer, global email click-through rates fell from 14% in 2007 to 11.2% in 2009. These days it’s 2.3%.
What happened? According to Andrew Chen, a partner at Andreessen Horowitz, with the introduction of novel marketing channels, their effectiveness typically diminishes as time passes, leading to a decline in click-through rates.
Consumers are hesitant to spend, particularly indulging in luxury products. This concerns even prestigious brands, which ponder the whereabouts of the aspirational shoppers. According to PYMNTS, these consumers have now shifted their focus to prioritize travel, leading to a surge in the travel industry.
Read also: The Aspiration Shopper May Be Straying From Luxury and Turning to Travel
Consequently, eCommerce brands find themselves compelled to explore alternative approaches to maintain visibility in the market. Among these approaches is third-party advertising.
Third-party advertising enables brands to tap into new audiences, offering unique value propositions that cater to the evolving consumer mindset.
When it comes to consumer engagement with third-party ads, relevancy is key. Advertisements that align with consumer preferences, needs and aspirations stand a better chance of capturing attention. Personalization and targeting play significant roles in enhancing the effectiveness of third-party ads.
In the second quarter concluding June 30, The RealReal recorded net losses amounting to $41.3 million, compared to $53.2 million year over year (YoY). Net losses were $82.5 million last quarter, which included a restructuring expense of $36.4 million. Total revenue fell 15%, from $154 million to $131 million YoY.
Adjusted losses before factoring in interest, taxes, depreciation and amortization reduced to $22.3 million, showing improvement from the $28.8 million (18.7% of total revenue) YoY.
After becoming CEO in February, Koryl initiated a range of measures, including cutting about 230 positions and closing two flagship stores in San Francisco and Chicago. The company’s priority is optimizing its product assortment to align with its objectives.
“During the second quarter, we continued to transition away from company-owned inventory and consigned items that sell for under $100, which are not profitable for The RealReal,” said Koryl in a statement. “These actions resulted in higher average order value, a higher gross margin rate, reduced company-owned inventory, and a smaller adjusted EBITDA loss compared to the prior year.
“We view the shift to a higher gross margin rate as a structural change to our business model. Therefore, we believe the changes implemented in 2023 will reset the company to a slightly smaller but more profitable business. With this new margin structure, we expect to return to profitable top-line growth next year and we continue to project that we are on track to achieve adjusted EBITDA profitability on a full-year basis in 2024.”
Prioritizing high-margin consignment items, The RealReal observed a 7% decline in gross merchandise volume, which totaled $423 million, a decrease from the previous $454 million. However, the number of active buyers rose 11% YoY, reaching 985,000. The average order value increased 10%, to $537.
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