The RealReal has been doing a lot of cleanup in 2023, and the luxury consignment shop is hopeful to see the fruits of its labor in the first half of 2024. This update comes directly from the company, which released its earnings report on Tuesday (Nov 7).
“I think that there’s still improvements, and we talked about at the beginning of this year that the changes that we have made, you’re going to see really impact the second half of 2023,” said John Koryl, CEO of The RealReal.
This is largely attributed to the changes in the commission structure and rate card introduced on Nov 1. which has yet to be fully actualized yet. However, the company noted that these changes have resulted in a decline in both low- and mid-value sales, prompting the company to transition to a more focused strategy to stimulate demand.
Additionally, over the past two to three quarters, the company has noticed a steady increase in the profit margins of its direct business. This period coincided with its efforts to reduce outdated inventory and lower their overall inventory levels, which involved significant discounts on the direct inventory.
Another change, which may seem minor to some but could have a significant impact, is the company’s initiative to integrate third-party advertising. This development was originally covered by PYMNTS in August, raising questions about whether consumers would perceive the experience as intrusive or relevant.
“Do you click on third-party ads? Whatever your answer may be, it’s a part of The RealReal’s 2023 reconfiguration strategy,” PYMNTS said in the report.
Per PYMNTS, consumers exhibit caution when it comes to spending, especially when indulging in luxury items. This apprehension extends to prestigious brands, which are contemplating the whereabouts of aspirational shoppers. Additionally, PYMNTS reported at the time that these consumers have redirected their attention to prioritizing travel, resulting in a boost to the travel industry.
During the conference call, The RealReal discussed the prevailing economic conditions and their influence on consumer purchasing choices. The RealReal recognized a complex scenario. It noted that the supply side of its business is robust.
In addition, the company indicated that consumer demand seems strong, particularly for items such as fine jewelry, watches and handbags. Nevertheless, the company did mention some weakness in the ready-to-wear category and pointed out that consumers appear to be more responsive to promotional offers in this particular segment. Although this heightened sensitivity to promotions doesn’t raise any immediate concerns, the company believes it’s prudent to factor this information into their guidance.
The RealReal’s Q3 2023 financial performance showed an 8% decrease in gross merchandise value, totaling $408 million, and a 7% drop in total revenue, to $133 million, compared to the same period in 2022. However, gross margin rose by 1,053 basis points.
Their net loss decreased to $(22.9) million, representing 17.2% of total revenue, while adjusted EBITDA improved to $(7.0) million or (5.2)% of total revenue, reflecting more favorable results compared to the same period in 2022.
The company also reported an increase in trailing 12 months active buyers, reaching 954,000, and a rise in average order value by 11% to $513, driven by a shift toward higher-value items. On the downside, orders decreased by 17%.