3/03/14

‘Pre-owned’ sales soar online

Dozens of online resale shops have launched since the recession, and sales for the leaders in the space are growing quickly.

By Ann Meyer

Used or “pre-owned” goods are getting a fresh life online.

Take The RealReal Inc., which sells used luxury apparel, shoes and accessories by designers such as Louis Vuitton and Hermes. Thanks to its well-honed back-end operations, such as its order fulfillment and inventory management systems and an easily navigable site, the online retailer grew its online sales from $500,000 in 2011, the year it launched, to $15.1 million in 2012. That made it the 553rd largest North American e-retailer, according to Internet Retailer’s Top500Guide.com. And last year the retailer’s revenue jumped 231% to more than $50 million. It also expanded internationally, launching a Japanese web site.

The retailer’s rapid growth has helped it raise about $22 million in venture capital, which it is using to bolster its infrastructure and support its growth, including adding art to its offerings.

While TheRealReal.com is the largest upscale e-retail site, it is far from alone. Operating online turns what otherwise would be a very local network of sellers and buyers into a national, or even global one, and is turning resale into a big business. Dozens of online resale shops have launched since the recession, and the success of leaders like The RealReal demonstrates how careful inventory control and an easy-to-use web site can help merchants carve out profitable niches online.

“People have been consigning for years, but it has been a highly inefficient and fragmented market,” says Keval Desai, a RealReal board member and a partner at venture capital firm InterWest Partners, which has invested in the retailer. While consumers used to have to take their unwanted goods to a bricks-and-mortar merchant, online retailers make it convenient to ship items for resale. And they can reach a much larger audience than a local resale store merchant.

Used goods’ online growth comes amid a broader rise in the used goods market that began when the recession drove many bargain-hunting shoppers to non-conventional retail channels. Indirect sales outlets such as online auction houses, pawn shops, flea markets and charities represented $163.8 billion in revenue in 2012, up 35% from $121.4 billion in 2008, according to researchers at the University of Nevada, Rutgers University and Arizona State University. The growth stems from increasingly cost-conscious consumers looking to find ways to save, says researcher Zachary Rogers, a doctoral student in supply chain management. “Sometimes it takes an event like that to act like a catalyst, and it’s been a market shift.”

Despite some consumers’ growing interest in buying used goods online, others are skeptical about the quality of the items for sale. That means retailers in the space don’t just have to master traditional marketing techniques; they also have to reassure uncertain consumers, says Sharon Schneider, co-founder and CEO of MoxieJean.com, which specializes in used children’s apparel. The e-retailer offers a money-back guarantee to help convince uncertain shoppers to buy, and offers free shipping on orders of more than $50. “It definitely can be a challenge to get buyers comfortable if their experience was of garage sales,” Schneider says. “We have to help them give it a try.”

YoogisCloset.com, a 5-year-old online reseller of designer handbags, similarly offers buyers a 30-day money-back guarantee. The retailer also seeks to quell consumers’ concerns by authenticating its merchandise to guard against counterfeits. It uses a checklist that includes examining craftsmanship and serial numbers. “It slows down the number of SKUs and goods we can publish on our web site, but it’s a requirement,” co-founder Simon Han says.

While tedious, the process helps drive customer satisfaction, Han says. “The buyers are happy because all of a sudden they get a Chanel bag that typically never goes on sale at a fair price and it’s authenticated,” he says.

MoxieJean, which Schneider launched with her sister in 2012, seeks to keep shoppers happy with its site design. The site, which runs on the Shopify e-commerce platform, features clear photographs of products neatly hung on wooden hangers, and consumers can enlarge an image to get an up-close view of its condition before making a purchase. Consumers can also navigate the site by gender, brand, type of clothing, season and size.

The site features about 25,000 unique SKUs and uploads 750 to 1,000 new items twice a week on Mondays and Thursdays. The regularity is designed to encourage shoppers to check back frequently for new merchandise.

The 20,000 customers who have signed up for new inventory alerts also receive e-mails that feature recommendations based on a combination of their prior purchases and products that are currently popular on the site. The recommendation technology, provided by vendor SimpleRelevance, plugs data from the retailer’s e-commerce platform into MailChimp, which MoxieJean uses for e-mail marketing.

For example, the e-retailer will alert a shopper who recently purchased items for a size 3T girl that new 3T girls’ items have arrived, and add a recommendation for a 4T product to account for growing kids. The company also uses Facebook, Twitter and other social media to notify followers of new arrivals and promotions.

Of course, second-hand stores don’t just have to attract shoppers, they also have to attract consumers looking to sell their used items online. Finding an efficient way to do so is critical to having a steady flow of inventory, says Michele Hofherr, CEO of home furnishings resale site PreviouslyOwnedByAGayMan.com, which serves sellers and buyers in the San Francisco Bay area. (Despite its name, the e-retailer welcomes merchandise from all sellers.) Hofherr and partner Lindsay Snyder arrange to pick up and deliver items sold on the site. “To get good inventory, we needed to offer that option,” she says.

Consumers can request MoxieJean send them large postage-paid bags that they can then fill with clothing. It accepts about 65% of the merchandise it receives from individuals, sorting and rating it through its 9,000-square foot studio. Items are inspected and rated on a 10-point scale, with 10 being new with the tags on. Items that rate below 8.5 don’t make it onto the site.

Children’s and women’s apparel retailer ThredUp.com also sends postage-paid bags for sellers to fill and return. ThredUp primarily sells goods from mass-market brands like The Gap and J. Crew, and consequently has to inspect, catalog and manage a lot of inventory. About 20,000 items arrive each day and about half are accepted for resale after passing a 12-point inspection, says Anthony Marino, chief marketing officer. (Items not accepted for resale are donated or returned to the consumers who sent them for a $12.99 fee.)

On Thredup.com, the e-retailer explains to consumers considering selling their clothing its requirements regarding the brands, styles, sizes and condition products must meet for ThredUp to buy them. “We want the customer to find inventory that’s relevant to them,” Marino says. “It’s also a process of communicating to our [consumer] suppliers, here are the things we’re looking for.”

Offering sellers better financial terms than they might get from local resale shops also opens the door to acquiring desirable inventory. That’s the tack taken by high-end online watch consignment site Crown & Caliber, which launched in January 2012, to scale up its inventory.

With resale prices that can sometimes be more than $100,000, the company’s primary competitors for reselling these high-end watches are auction houses and bricks-and-mortar dealers, says Hamilton Powell, the retailer’s founder and CEO. But Crown & Caliber offers a larger commission to sellers. Crown & Caliber keeps 19.5% of the purchase price as its consignment fee, which is considerably lower than the 50% commission many bricks-and-mortar consignment shops rely on, he says. “We want to develop a reputation quickly,” he says. “We think we can do so with a much lower rate.”
By accepting merchandise on consignment, merchants like Crown & Caliber don’t have their capital tied up in inventory. Yet some online resellers see advantages to purchasing product outright from sellers.

Yoogi’s Closet offers sellers a choice between consignment, with the retailer taking a 30% commission fee, or direct purchase, with the site paying the seller at least 60% of the expected selling price of the item up front. Less than 10% of sellers opt for consignment, Han says. “They want cash now,” he says.

The 60% payout is at the high end of what bricks-and-mortar resale shops might offer sellers. A typical commission fee for resale stores is 50% to 60%, although it is less for high-end items, according to Adele Meyer, executive director of NARTS: The Association of Resale Professionals, an association that represents resale professionals. Han says by offering better terms for merchandise than many bricks-and-mortar consignment stores, Yoogi’s Closet improves the flow of inventory, which keeps buyers and sellers coming back. “Sellers are intelligent,” Han says. “They can figure out the average selling price by going to eBay. The last thing we want to do is offer an unfair payout.” He notes that the company is on track to gross more than $10 million this year.

By offering experiences similar to first-run high-end retail sites, upscale resale sites are pitching to consumers the fact that they offer first-rate items at a fraction of the price. And that’s a value proposition many consumers are buying.

Ann Meyer is a freelance writer based in Wilmette, Ill.

 


Poshmark gives fashions a second life

Poshmark Inc. CEO Manish Chandra knows fashion-conscious women are passionate about their smartphones.

That’s why Chandra chose to go mobile from the start with Poshmark, a smartphone app that allows women to turn their closets into virtual resale boutiques on the company’s platform. Individual sellers use their iPhones or Android smartphones to photograph the apparel, jewelry and accessories they want to sell. Then they upload the photos, write brief product descriptions and post prices to their resale accounts—called “closets”—on Poshmark.

The platform launched as an iPhone app in 2011, then added a web site in late 2012 and introduced the app for Android smartphones last November. About 90% of the company’s sales are from the apps.

“We make it very easy to manage [shopping] while you are on the go,” Chandra says. When a buyer purchases an item, Poshmark notifies the seller and sends a mailing label for the seller to print out and put on the package. Once the buyer accepts the item, Poshmark sends a check to the seller.

Poshmark, which keeps 20% of the selling price on completed transactions and gives 80% to sellers, features more than 300,000 resale closets. For the first eight months of 2013, more than 1 million items were sold on Poshmark, Chandra says. But he says the company is only scratching the surface of what he estimates is a $35 billion resale apparel market.

About 70% of Poshmark’s customers also sell merchandise on the platform. Chandra calls the sellers “closet entrepreneurs,” with some generating $70,000 or more annually. “Many of these women started with their closet and found they were really good at it,” he says. Now they are sourcing merchandise to sell on the platform.

Chandra, who previously founded social shopping site Kaboodle Inc., launched Poshmark after looking at the clothes in his wife’s closet and finding many items still in bags and that hadn’t ever been worn. He saw a business opportunity. By allowing women to serve as merchandisers, Poshmark provides an incentive for sellers to do their own marketing, largely using social media. The platform also hosts “posh parties,” which often focus on a specific designer or category of clothing, where buyers and sellers connect virtually at a set time.

The company has raised $15.5 million in venture capital from Mayfield Fund, Menlo Venture and SoftTech VC and individual investors, including stylist Rachel Zoe. The funds have allowed Poshmark to improve its systems and launch its Android app. The company’s streamlined system, including a Share button that makes it simple to posts merchandise photos to Instagram, Pinterest or Facebook, has helped to create a community of loyal users.

“It’s selling, but it’s also self expression,” Chandra says. “I don’t think [other] people have focused on women and their closets and mobile the way we have.” — Ann Meyer

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