How thredUP LUXE and other retailers capitalize on pre-owned luxury

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Granted, there’s bound to be a surprise or two in any bag of items sent to online consignment retailer thredUP.

But when thredUP began receiving goods for its new LUXE designer segment late this summer, even founder and CEO James Reinhart was caught unaware.

“The response has been amazing, frankly,” he says. “We’ve really seen a lot of demand, more than expected, and are now rapidly scaling up our team and our operations to handle that volume … . It’s clear that people know our brand, they’ve worked with us before in a different capacity, so I’m excited. It’s fun. I spent so many years telling people, ‘We’ll get there. We’ll get there. We’ll get there.’ And now it’s here.”

“Here” is still relatively novel ground. Online resale of luxury items is not new — Vestiaire Collective launched in 2009, The RealReal in 2011. What’s fresh is the broader reach into the mainstream. These companies and others like them are receiving millions in funding from venture capitalists, and some are moving from ecommerce pure play to opening physical stores.

And consider that when those bags come in for LUXE, only half the items inside are typically designer. It’s not that there’s confusion about what luxury is, Reinhart says, but rather that women’s closets today more likely contain a mix of “high” and “low.”

“We’ve had a lot of customers over the years say, ‘You guys don’t really focus on luxury … but I have a few luxury things, and I would love to send to you,’” he says. The bread and butter of the business has been the J.Crew/Banana Republic shopper, but these shoppers were still buying luxury items — and sending them somewhere else to resell.

“At some point,” he says, “the drum beat gets loud enough. We realized that now would be a great time.”

Fung Global Retail & Technology expects the online resale market to increase from $18 billion in 2016 to $33 billion in 2021.

Luxury vs. vintage

Pam Danziger is quick to point out that, regardless of the current growth, there’s still a very real difference between used luxury items and vintage pieces. What we’re seeing now is definitely in the used category, says the speaker, author and luxury market researcher — even if it’s lovingly called “pre-owned.”

It’s driven by the desire for a “good deal,” and the way Danziger sees it, the availability of such goods speaks to some challenges in the industry as a whole.

“The fashion industry wants you to buy a whole new wardrobe every season, like you need that,” she says. “But one of the things that has made traditional luxury, luxury, particularly in fashion apparel, is that it’s classic, and never really goes out of style. That’s different from what luxury has become today, which is that you’ve got to change it up every season so you don’t look like last season.

“I don’t think the luxury industry has really come to terms with this … . Today, luxury brands are much heavier on marketing and pushing stuff out than on trying to maintain authenticity and the real quality that made luxury great in the first place.”

Consumer awareness

It wasn’t that long ago that it was hard to imagine any sort of luxury being sold in the “Wild West” of ecommerce — much less items that had been pre-owned. But several things have happened since. The recession helped change perceptions about value and buying at a discount. As a culture, we’ve lost much of our wariness about shopping online. We’re not only more likely to trust an online retailer — but also more likely to trust the retailer will offer authenticated, quality goods.

We’ve also become more aware of environmental and social concerns — and, for the most part, grown in our desire to simplify, declutter, reuse and recycle.

That combination has helped online consignment grow by leaps and bounds; thredUP’s annual resale report expects the online resale market to increase from $18 billion in 2016 to $33 billion in 2021.

As for luxury consignment in particular, Aaron Cheris, who heads Bain & Company’s Americas retail practice, notes that more than half of luxury pre-owned sales in the United States are now online rather than in bricks-and-mortar stores.

“That’s wildly different than new luxury goods,” he says. “There, less than 10 percent are sold online and 90 percent in stores.”

What’s surprising to him is that legacy online retailers like eBay — which makes up close to a third of the used luxury market in the U.S., he says — haven’t yet created a secondary label to handle these goods.

“There’s no reason legacy e-tailers couldn’t do it,” he says, rather than being disrupted by something like LUXE. eBay did announce at the start of the year that it would soon roll out an authentication service, which could be their way of seizing the opportunity. How it will impact confidence in luxury ecommerce resale overall remains to be seen.

Setting standards

It’s not the only question related to the future of online luxury consignment. Cheris wonders whether it will expand to other segments such as used high-end art or furniture. Jewelry raises other concerns, again related to the level of authentication involved.

That’s one reason jewelry is not part of the picture for LUXE — at least for now, Reinhart says. There was a strong desire to start things off right; other LUXE rules include no men’s clothing, formal gowns, items with signs of wear, counterfeits — or items over 10 years old. (Once again, think pre-owned but not vintage.)

“Any time you launch a product like this with very expensive things, it’s worth taking the time to get it right. We’ve built a process, and then we really engage with the customer. If we have any questions about whether something is real, we reach out to them and we ask questions about the item,” he says.

“We’re taking a very deliberate approach to ensure that the consignor is getting a great service, and that the buyer can trust the experience. We certainly don’t want to participate in anything that’s fraudulent. It’s an area where we’ve invested a lot of time, and it’s an area where we’ll continue to get smarter.”

A list of the brands LUXE will accept is provided online; Reinhart says it was developed by paying close attention to what others have successfully set as standards — there’s no use in reinventing the wheel.

He feels the high-low balance will set thredUP’s offering apart from competitors, along with the ability of the consumer to buy and sell with ease across multiple price points. Sites that are solely dedicated to luxury resale “will find it hard to compete,” he says.

“We’re taking a very deliberate approach to ensure that the consignor is getting a great service, and that the buyer can trust the experience. It’s an area where we’ve invested a lot of time, and it’s an area where we’ll continue to get smarter.”
— James Reinhart, thredUP

Some buy, some sell

There has been a recent trend of luxury consignment sites — which some call luxury “re-commerce” — presenting themselves first as technology companies. Fung noted in its February 2017 report, “Deep Dive: Fashion Re-Commerce Evolution,” that investors had poured more than half a billion dollars into the online fashion consignment industry overall since 2009, an indicator of market value and growth.

Vestiaire Collective, according to the report, had received $130 million in five funding rounds by that point; The RealReal had raised $122 million since 2011.

Sites like these may well include advanced platforms and beautiful interfaces aimed at stellar customer service. Even so, analysts say, placing the technology first may be nothing more than a tactic to gain higher investments.
Besides, Cheris says, what sets a company like The RealReal apart is that it offers a white glove in-home pickup service. “It’s the non-tech part of that business that’s hard to copy,” he says.

One other mystery that’s yet to sort itself out: whether buyers and sellers will increasingly merge into one and the same as the industry grows. Some already view online consignment as similar to a rental mechanism, in which clothes are bought, used for a short period of time and then resold.

Conversely, it may be that the seller market is concentrated among what Cheris calls the “rich fashionistas,” who will purchase and sell, but not likely buy used from the same site.

Meanwhile, Reinhart is not sure he cares. There has always been a segment that buys, a segment that sells and a segment that does both, “and everyone can get along together,” he says.

‘Room for growth’

It’s important to note that even with the recent growth, it’s still a fairly minute segment of the market overall: Less than 20 percent of U.S. households buy any luxury at all, Cheris says — online or not.

“There is lots of room for growth,” he says. “We’ll see if it happens. In the sense that most people don’t wear the things that are in their wardrobe, they have a bunch of extra stuff sitting in there, and it’s probably recent enough that it would be fine.”

Danziger is of like mind: “We all have too much stuff,” she says. “We’ve reached the point we want to be rid of it. We want to lighten our load, keep what’s worthwhile and be done with the rest.”

And folks like Reinhart will be ready to receive it — no matter how luxurious.

“I do have my doubts about how big luxury consignment can be in general,” Reinhart admits.

“The whole point of luxury is to have some constraint on the number of things,” he says. “Luxury players will be smart, over time, to ensure the integrity of their brand and not overproduce. As for us, luxury consignment will be a growing part of our business, but the bulk of our business forever will be in the more mainstream, traditional brands, because of the apparel that’s in the market.”

Fiona Soltes, a freelancer based near Nashville, Tenn., loves a good bargain almost as much as she loves
a good story.

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