Madison Reed has raised $32.1 million since launching 15 months ago.
Dozens of online resale shops have launched since the recession, and sales for the leaders in the space are growing quickly.
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.