I’ve seen the financial statements of a number of SecondHand clothes stores and they’re never very appealing. It’s a challenging business for a number of reasons. Store rents are quite high. The quality of products depend on what people give to the store. Garments get overpriced and underpriced all the time since it’s up to store personnel to judge their value.
Now the business is changing. The combination of millennial customers’ attitudes and the boom of online shopping are creating a threat to some retail models that isn’t going away. There’s a report out this morning from thredUp, a fashion resale website, that highlights what’s happening in the market.
Where Is The Growth?
As I write, I am in South Africa on safari. My prize possession on this trip is my camera. I bought it online secondhand, and I bought a zoom lens for it online secondhand too and they work fantastically well, literally good as new. But electronics are only 10% of the resale market. The big opportunity is in clothing, footwear and accessories as those items account for about half the resale market.
Secondhand apparel, offline and online, is an $18 billion industry and forecast to grow by about 11% per year and become a $33 billion industry by 2021. In a world where apparel sales are declining for the big retailers, that’s huge growth in market share.
Where is this growth coming from? Primarily from the online resale sector. The traditional thrift store market is growing by 8% per year but the online resale market is growing more than four times faster at 35% per year. That’s 17 times faster than the broader apparel market overall.
Why is this happening now? The women who have the highest likelihood of shopping for secondhand clothes are women over 65 and women 18-24. Both groups are motivated by the savings but the younger consumers are almost 2.5 times more likely to be motivated by environmental consciousness when shopping for secondhand clothes. More than half of those women have shopped secondhand in the last 12 months or say they will in the next 12 months. A majority of women 18-24 say they consider the resale value of an item before they purchase something new. The training that retailers have given consumers to shop only when the price is reduced has also helped power the growth in secondhand — 94% of women say they rarely buy clothing that’s not reduced in price.
The secondhand customer is not what you typically picture as the thrift store consumer, down on their luck. The shoppers with the highest likelihood to shop secondhand are those with incomes above $125,000. Seventy-seven percent of thredUP’s customers are working professionals and 71% own their own home. Those customers are twice as likely to shop secondhand online than to buy new products online.
Shopping As Entertainment Is Back
At thredUP, the peak shopping time is 9-10pm and 71% is done on mobile. Sixty-three percent of shoppers say they’d rather shop while drinking wine and 85% say they’d rather shop on their couch than go to the mall.
Online resale shopping is giving other forms of online entertainment a run for the money. Online apparel holds users’ attention for an average of nine minutes. Online resale averages 45 minutes. Compare that to Facebook, which averages 35 minutes a visit, and you can easily see that online resale is taking time away from other online recreation.
How Big Is SecondHand Right Now?
thredUP doesn’t release numbers, but they’ve said publicly they recently had a day where they processed 100,000 garments. It seems that they have the potential to do hundreds of millions of dollars in revenue. For the last four years, they’ve been growing at over 100% per year, if they keep that up they’ll certainly reach the hundreds of millions soon. Consider the great bargain on premium denim. The average price of premium denim on thredUP is 80% off retail. With those kinds of prices and the proven desire of consumers for off-price product, it’s hard to imagine this business isn’t poised for continued, massive growth.
Who Should Be Worried About SecondHand?
The discount market is growing and companies like TJX and Ross Stores are leading the market. But they have no response to the growth of secondhand online apparel sales and it’s inevitable that this will impact their market share. Half of thredUP customers say their secondhand purchases replace what they would have bought at TJ Maxx or Marshall’s. It’s probably not true that every TJ Maxx customer would shop on thredUP. But you can argue that every thredUP customer that would shop at TJ Maxx and is shopping less there and at Marshalls and Ross Stores because of thredUP. The impact of online secondhand shopping is only growing.
Of course, Amazon is the leader in online retail. But they have no capacity to compete in this sector right now. They can’t handle secondhand clothes being sent to them, don’t have a system to evaluate each garment’s price and have no facility for handling 100,000 garments a day where each one is unique and not in a new package. They are behind in the secondhand market and it is a danger.
eBay, which will handle about $90 billion worth of product this year, has moved away from secondhand product. Over 80% of products sold on eBay today are new. They are ceding this market to comers like thredUP, The RealReal and MaterialWorld. Start-ups with new solutions for the brands are also arriving to the market.
As the market for online secondhand grows, there will be more companies that are threatened. Macy’s has expanded its effort in off-price and Nordstrom Rack and Neiman’s are putting more effort into it too. As more companies enter the off-price market, they will be affected by increased competition and the new business models like thredUP that are taking market share.
My firm, Triangle Capital LLC, does mergers, acquisitions and capital-raising for companies in fashion, retail, apparel, accessories and consumer products.
Copyright : Richard Kestenbaum, Forbes