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The other day in the trampoline class—yes, it’s great cardio, I’m glad I told you about it—my intern friend, who runs a hedge fund, raised The RealReal between swings. She noted that interest in fashion resale site debt is increasing. While her company wasn’t booming, she knew many who were interested in stocking multiple locations.
The vultures are out for a reason. The company currently has a market cap of nearly $120 million, and its stock is up more than 90 percent from (absolutely unnatural, but real) peak levels. It has been downgraded by almost all analysts covering the stock. Operating at a loss, The RealReal had $450 million in convertible debt at the end of 2022, with an accumulated deficit of $950 million.
At some point, Real Real will have to find a buyer to take it private, or to restructure and file for bankruptcy protection. and then Find a buyer. I doubt it’s closed though. In the year In contrast to traditional but popular retailers like Barneys New York, which unfortunately created 2019, The Real Real feels real. Important For many of its users. It’s a great product with an unproven business model. Hopefully one of the debt vultures might be the savior.
350 billion dollars
When The RealReal was founded, in 2011, shopping for second-hand clothing was a hobbyist sport. (As a teenager growing up in the suburbs of Pittsburgh in the 90s, my friends and I made buying Goodwill for vintage prom dresses an “option.” Clothes at Target and Walmart were both brand new. And Cheap, so why bother sifting through the musty-smelling shelves.
I’m not sure what changed a decade ago, other than technology and acceptance and, perhaps, an extended generational recession that hurt consumers. And perhaps the rise of fast fashion, which has made it easier to fill your closet with cheap and cool clothes, has made oddly designed second-hand items more appealing. Soon thrift became part of the customer “journey” in America, something else you do when you’re looking for a dress to wear to a wedding, or a pair of shoes or a shirt. blue.
According to the annual consumer trends report released by online secondhand retailer thredUP, the overall market for secondhand clothing is expected to double to $350 billion by 2027. And yet, despite the demand, it’s hard to make at least some money from pre-owned clothes. The logistics are labor intensive and human intensive. The brilliance of traditional peer-to-peer marketplaces like eBay is that demand determines price, and labor is not a fixed cost: the seller usually ships the item to the buyer.
RealReal operates on a drop-shipping model, which means a seller ships the product to a warehouse. From there, a price is determined based on quality, scarcity, popularity, etc. The seller then earns a commission on each purchase: the more expensive the item, the higher the commission. Business models are everything, and this one has a lot of drain.
When I interviewed the founder of Real Real Julie Wainwright In the year In 2012, my first story to explore this burgeoning market, the former CEO of Web 1.0 horror story Pets.com was in the process of rebranding herself after a failed foray. But she was making some of the same mistakes that plagued her back then. She was adamant that the company would win and scale very quickly because she would make a lot of money. In the year In 2012, she already collected 8.5 million dollars for Real Real, and in 2018 she will earn 288 million dollars.
Apparently, this was an excellent answer to a reverse money-losing business that didn’t age well. Raising more money on such a model has led to more costs and losses, and then there is the issue of fakes, or misidentification of products – when my friend said they bought a special leather bag for $30,000 for $400 – honestly, I don’t even know if they can control it any better than they already do. They think. (This is a risk associated with buying second-hand, if difficult to mitigate.)
But overall, this has created a false market, where consumers get things cheaper than they really are worth and expectations are skewed. I thought something like Vestiaire might have a better shot, where the items are sold peer-to-peer, but if they’re over $1,000 they go through verification. But the business remains unprofitable, and faces many of the same challenges as real estate. It is a promotion in certain regions, a lot of money is packed into operations – and because the UK was a big market for them, Brexit had a big impact on business. (They just opened an authentication center there recently.)
Maximilian Bittner, Vestier’s current CEO, who joined (and invested in) the business in 2019 after it sold Southeast Asian online marketplace Lazada.com to Alibaba, argues that this narrative is false. He told me that Vestier’s model is unique and that the company could be profitable in “three or four months” if it wanted to, but that it chose to invest in new technology and business, such as opening new markets. Showing profitability per unit.
While Bittner may disagree, one former employee called Vestier’s strategy “chaotic” and “short-term,” saying the luxury segment of the second-hand car market is still small and trying to weigh it against the amount of money they’ve raised—up from $700 million, including an $80 million revolving credit line late last year. Dollars will be more difficult. “I don’t think they have a clear vision of what makes it profitable or how it works,” the man said. “It costs a lot, and it also depends on it [sellers] To take good pictures and sell things properly.
What’s next?
So what happens to these businesses? The market is already consolidating, picking up Vestier Trades in 2022 as a mid-tier rival to The RealReal in the US. (Bittner calls the two business models “complementary.”)
I asked both The RealReal and Vestiaire how they planned to be profitable. The team at The RealReal sent me a very thorough explanation. Rati Sahi LevskThe company’s chief operating officer, who has been with Reel since the beginning and is a big reason why it is so popular.
In short, Levesque believes reselling can be more profitable if it’s more efficient, which includes reducing processing times (so more content gets to the page faster) and adjusting the pricing model to reduce costs related to verification and mining new revenue streams. , as advertised on display. “We believe wholeheartedly that we can do this,” she said. “It’s a matter of time”
Meanwhile, Bittner told me there are three big things he’s done to transition to profitability: creating an intimate customer experience with lower logistics costs; increase engagement (peer-to-peer selling is inherently social); And build a business based on circularity (which the fashion industry likes to use when talking about clothing because it has an endless life cycle). He also argued that Vestiaire is far less promotional than many of its competitors, especially outside the US.
One industry insider offered a different take on what seems to be the right direction: The key for individual brands is to own a secondary experience, as the auto industry has done for generations, and the TV business has done to some extent with all of them. I’ve seen that come to life in a seductive way, like in the Dries Van Noten store in Los Angeles, where there’s a room full of pieces from past seasons. Valentino has partnered with vintage stores around the world, such as Los Angeles’ Recess and Tokyo’s Vintage Dress, to create boutiques filled with upcycled items. Coach sells secondhand handbags under the Reloved moniker, and a two-year-old sub-brand, Coachtopia, features accessories, bags and apparel made from recycled materials.
If this is the case, Real Real and Vestair can be beneficial to existing players due to their existing technology, supply networks and know-how. But in the meantime, hedge funds will continue to hover.
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