Is Resale Losing Its Appeal as Consumers Cut Back on Spending?

Despite being in operation for 12 years, The RealReal has yet to achieve profitability. However, other brands and retailers have observed the popularity of resale and are embracing it. This leads to the question of whether the efforts put into resale initiatives are truly worthwhile.

While consumers express a desire for sustainable and cost-effective shopping options, challenges such as the overcrowded resale space, inflation and the resumption of student loan payments, all pose obstacles to growth of resale. Moreover, resale endeavors often demand higher overhead costs while yielding limited returns.

So, did resale miss its moment in time? Or is resale an overcrowded space and really just for a select few?

Recent Resale Boom-esque Events

In March, Vestiaire Collective, a Paris-based resale platform, expanded its reach through the acquisition of the American company Tradesy. Then in October, Goat, a sneaker reseller, bought its competitor Grailed. And in late 2021, Etsy acquired Depop. Additionally, in the same month, the South Korean internet conglomerate Naver made headlines by acquiring Poshmark for a whopping $1.2 billion.

Read also: Naver Completes Acquisition of Poshmark and Aims to Grow Globally

These moves follow the forecast that the secondhand apparel market is projected to almost double by 2027.

According to a report by thredUP, published in early April, the market for resale is projected to double in value from $177 billion in 2022 to $351 billion by 2027. The secondhand clothing market in the U.S. is expected to expand from $39 billion in 2022 to $70 billion by 2027.

“Resale is starting to blossom globally, with many of the largest retailers in the world adopting more circular business models,” thredUP CEO James Reinhart said in the report. “While value continues to be a key driver that motivates consumers to think secondhand first, global climate issues have increased awareness of resale’s potential to reduce fashion’s impact on the environment.”

In a Q4 2022 earnings call, The RealReal CEO John Koryl assured investors that the company’s days of financial losses were soon to be over.

“I have no illusions that The RealReal’s path to profitability will be achieved overnight, or with only minimal effort,” Koryl said at the time. “But based on what I’ve seen in my first month … I am confident we can achieve profitability in the near future.”

But in Q1 2023, the resale marketplace continues to report losses.

According to a report by PYMNTS in March, the luxury resale marketplace made a strategic decision to reallocate its resources from its direct business to its luxury consignment business. As part of this shift, the company announced the discontinuation of its beauty products category after a successful five-year run. The luxury reseller and retailer also expressed its intention to gradually phase out its offerings in this particular category.

See also: The RealReal Sharpens Focus on Consignment, Shrinks Direct Business

In the company’s Q4 earnings call, Koryl addressed investors and described the company as a “bifurcated business,” with two-thirds of the company growing while the remaining one-third faced challenges. During the call, it was revealed the company had an annual loss of $196 million.

Why Resale May Not Have a Place Yet

Resale initiatives, while potentially beneficial in the long run, often require significant upfront investments. Establishing a successful resale platform involves infrastructure development, operational costs, marketing efforts, and acquiring inventory. In a struggling retail market, where many retailers are already grappling with declining sales and thin profit margins, investing in resale can be risky.

Moreover, brands and retailers must also consider the potential cannibalization of their primary sales channels. By promoting resale, they run the risk of diverting customers away from purchasing new products at full price.

Why Resale May Work for Some

REI has built a reputation for not only for its outdoor gear but also for its dedication to environmental stewardship and sustainability. When consumers learn about REI resale, it resonates as a genuine offering that aligns with the consumers’ perception of REI.

In 2018, REI launched its online reCommerce business. Despite a challenging retail environment, the online business alone experienced a nearly 100% increase compared to the previous year. This growth was fueled, in part, by the demand from millennial customers who prioritized renting or purchasing used gear over buying new items.

“Our reCommerce business continues to exceed our expectations,” said Ken Voeller, REI manager of new business development and reCommerce in 2020. “We see many benefits to expanding this business. First, as an opportunity to introduce our members to more outdoor activities through lower priced products. Also, having a robust used gear business helps reduce the co-op’s overall impact on the environment as we work to achieve our climate and zero waste objectives.”

Then there are brands like Brooks Running, which may have embraced sustainability as a fundamental principle but its offering might pose some challenges. This month, Brooks Running launched its reCommerce program in the U.S., to resell gently used footwear.

Toms Shoes has also joined the resale movement by introducing a dedicated website section called (re)Wear Good powered by thredUP. This section aims to offer customers a range of gently used items as well as products that are “new with tags.”

However, even though the shoes sold through the resale program are intended to be gently used or new, the concept of purchasing used shoes can pose a potential hurdle for consumers, which may require some adjustment.

Read more: Footwear Retailers Launch Branded Resale, but Who’s Buying?