Secondhand. Profits in Paradise. Maybe.
Credit: Instagram / @bellahadid

Secondhand. Profits in Paradise. Maybe.

Thank you everyone for all of the feedback on my recent post about the second hand fashion market. As mentioned, that was first in a series. Today I am looking at market segmentation and business models. Next week I am going to deep dive into the six leading marketplaces and why they are different. After that, I will look at the role of technology and partnerships, and then we’ll wrap up with a three year outlook and trends to watch out for. Come with me, and we can all be experts on the fashion resale market.

The business of selling preloved clothes via digital channels is still pretty new, and there is no truly established best practice yet. The big marketplace players in this space - ThredUp, Vinted, Depop, Vestiaire Collective and The RealReal were all founded at pretty much the same time, between 2009 and 2011. In 2009, eBay launched Fashion Outlet and apparel became a major category on their platform. An industry was born. Now, 15 years later, only one of those startups is profitable, Vinted, one has been acquired, Depop (by Etsy), and the rest continue to fight the good fight. Meanwhile, eBay has become a $10bn gorilla. Why? What will happen next?

There has been a huge amount to learn. Companies have been selling ready made garments since the Industrial Revolution, and by the late 19th century we had mass retail and department stores. Clothes as a widely adopted form of expression blew up in the 1960s and 70s, which in turn led to brands building global fashion empires. The infamous New York Times article that coined the term ‘fast fashion’ was written in 1992 about Zara. That was before Internet. Since then, ecommerce has accelerated fashion sales in a way that nobody even contemplated a very short time ago.

The point of this is that we have spent centuries working on the playbook for selling new fashion. The industry relies on strategies like market research and trend forecasting, data-driven demand planning, lean manufacturing, flexible supply chains, huge marketing spend, and a lot of last mile challenges. None of those strategies apply in the secondary market, so there is a vast amount for new entrants to test and learn.

And test and learn they will, because the opportunity and growth in second hand sales is mind boggling. The ThredUp Resale Report 2024 (which is excellent and well worth downloading from their site if you are interested in this topic) estimates that the global second hand clothes market will reach $230bn in 2024 and $350bn in 2028 - 300% of the growth of new apparel (from a much lower base).

Combine all of that cash with the societal changes that seem to have arrived, and it is easy to see why the VCs want to fund the marketplaces, and why more recently all of the brands appear to want to participate directly in the market. This growth is not just about availability or affordability. There is a demonstrable generational shift in attitude towards used clothes. Before there was a stigma, now there is an embrace. Bella Hadid, above, does not appear to care if something is new. She cares about waste, about value, about fun, and about aesthetics, and that seems to be true for tens of millions of other people too. The stigma of used clothes is gone. In its place, opportunity and a lot of existing stock that could potentially attract a financial return.

But with all the excitement, also comes new concerns. In our own lifetimes, we have seen the secondary economy make a massive leap from being something that took place in not for profit charity thrift shops where you looked through a jumble of quite tired, old clothes, to now being something you do at a glossy digital marketplace that has millions of items in stock, thousands of employees and hundreds of millions of dollars of venture capital. Can these businesses - ThredUp, Vinted, Depop, Vestiaire Collective, The RealReal - possibly turn a profit out of a traditionally ragbag industry where every product is different apart from the margins, which are always razor thin if not negative? Are we creating a global clearing house for rubbish counterfeits? What is really the motivation of the big brands to get involved in this? Are they trying to save the planet, or is it a green marketing campaign or even a gateway back to sales of new? It’s easy to see Chanel’s motivation, but how does a brand like Zara ever make money from the secondary marketplace? Will companies really participate if they are not showing a profit on their activity? Is that what their shareholders would want?

Well, one way of assessing the answers to those questions is to follow the money. In April of this year, Vinted posted a profit for the first time - €18m on a turnover of €596m. A dramatic achievement in a complex market. The gorilla, eBay, is massively profitable - net profit of 26% on revenues of $10bn. They don’t break out apparel into a separate line, but analysts assume that fashion is ~20% of eBay’s gross merchandise volume. If it was hurting profits they would shut that down. So it appears there is a route to a strong business out of facilitating the sale of second hand clothes. How do you do that? To help answer that, I have unpicked the offer, the process and the revenue projections at the main players. Rather than write the world’s longest LinkedIn post I will return to this topic next week, and profile the leaders in one segment - ThredUp, Vinted and Depop - before looking upscale at how Vestiare Collective and The RealReal are approaching this space. If there’s room, we will look at some of the brands like Zara Pre-Owned and Patagonia Worn Wear too. They are fascinating businesses. So much to talk about! See you there.

Very interesting. Although there are variations between ie Vestiaire and EBay and brands own attempts, there seem to be issues of understanding the underlying financials of things and investors willingness to take risk and invest. Price points, volumes and operating costs are critical to understand. Getting control over data points and digitalization of the process is critical to reduce operating costs and finding market opportunities.

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Raj Koushik

Head of Application Operations @ H&M Group

4mo

Good one Cyrus Gilbert-Rolfe, interesting deep dive into the secondhand fashion market's growth, challenges, and opportunities—looking forward to the next segment! 😀

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Güneri Tugcu

Innovation for the new normal | Digital Transformation Lead | eCommerce, Fashion, Retail, CPG | Brand Integrity | Strategic Partnerships Evangelist | Podcast Host | Ex-Amazon

4mo

Great article, Cyrus! I'd maybe even add Amazon to this with their new launched reselling store for fashion and luxury but it's spot on! Best part: "Bella Hadid, above, does not appear to care if something is new. She cares about waste, about value, about fun, and about aesthetics, and that seems to be true for tens of millions of other people too. The stigma of used clothes is gone." *If Bella Hadid doesn't care, we all could reconsider our commercial behavior and approach to this industry..

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