The Outside View: Tech-Turbocharged Thrift Has Only One Way to Go
Tech-turbocharged thrift has only one way to go — but which way? And why?
It’s no longer called “thrift” but “re-commerce” and the “circular economy.” The buying and selling of pre-loved (aka “used”) products has gone through dramatic, digital- and mobile-accelerated changes in the last few years. It’s no longer the domain of the flea market, yard sale, consignment store, or eBay. Neither is it marginalized, with consumer adoption rates skyrocketing and shares of newly IPO’d companies doing the same.
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But can actual sales volumes and profits sustainably deliver on and justify the rocket-high valuations these newly minted companies are getting? A simple back of the envelope puts things in perspective. The combined market cap of The RealReal, ThredUp and Poshmark is around $7.5 billion, with combined annual sales of $526 million in 2020. By comparison, the combined market cap of Macy’s Inc., Kohl’s Corp. and Nordstrom Inc. weighs in at around $14.2 billion, while their combined 2020 sales topped $52 billion. While the Old Guard must really be feeling unloved, all signs would indicate that the resellers are another internet asset bubble ready to burst and what seems to account for their high valuations is a Silicon Valley zip code, whether Redwood City or San Francisco. Is there a snowball’s chance that the disruptors’ sales will ever meet the promise of their current market caps? Let’s take a closer look.
As I recently discovered while chatting about this with my Gen Z colleague Juliette Rolnick, there’s more than one way to assess potential here. And these companies could deliver on their promise, if not their sky-high valuations. Juliette and I had different ideas about what was driving the growth trajectory of these companies. My being Gen X, these could have been classic intergenerational differences. To Juliette, the primary trigger for the exploding popularity of this category was a consciousness around sustainability and reduction of waste. That may account for part of it, but I think there’s more going on.
I’d make the case that digital commerce has been a massive accelerator capable of multiplying an attractive age-old proposition: the price-value equation, i.e., getting lots of stuff for relatively little money. Add to that the fact that technology enables these transactions to take place en masse, with relatively low labor and inventory costs and a lack of need for the traditional retail intermediaries, i.e., salespeople and real estate.
The circular economy experienced strong growth before, during, and I postulate after the COVID-19 pandemic. Re-commerce has grown more than 20 times faster than the new apparel market in the last three years — granted off a relatively small base — and industry leader ThredUp projects that it will double in the next five years to be a $50 billion marketplace (ThredUp, 2020 Resale Report).
In other words, the circular economy is not only here to stay, but is poised to sustain substantial growth for the foreseeable future, due to several fundamental factors that define it. These include the price-value equation, mobile and social technology, a broad shift to remote work and school, and — yes, Juliette — the environmental benefits it holds out.
Millennials and Generation Z are becoming increasingly sensitive to troubling statistics, such as the growth of global e-waste, which is predicted to surpass 57 million tons in 2021, according to Brook Larmer in The New York Times. And all consumers are becoming increasingly aware of the long-term neurological damage caused to workers who sort dangerous e-waste materials with contaminants like mercury, lead, and arsenic. (EPA, Cleaning Up Electronic Waste).
Even fast fashion has taken a hit as shoppers have learned that the supply chain is contributing to environmental pollution and excessive water waste — but that is not the only factor.
As a former off-price retailer (I spent a few years at Rue Gilt Groupe managing the men’s full- and off-price businesses), my default rationalization for the growth of re-commerce is the price-value equation. During times of economic uncertainty, consumers frequently turn to value for money purchases, where secondhand has always played an important role in purchasing behavior. Product scarcity (e.g., vintage apparel, an out-of-production guitars, etc.) has also played a key role.
However, re-commerce has been embraced by such a wide range of consumers — notably those ages 18 to 29, but we’re also seeing penetration growth through 60-plus shoppers — that neither Juliette nor I can deny that other factors must be in play.
Re-commerce as a Deliberate Purchasing Behavior
Interestingly, the price-value equation has also evolved to include re-commerce as a driver of future purchases, both new products and old. In a sense, it’s using re-commerce to help clean out a closet to make room for new purchases. The chicken-and-egg also works in the other direction for a growing number of shoppers today who are purchasing new goods (sometimes even at full price) with the understanding that they can recapture some of the purchase price later through resale on a marketplace.
Branded product is another key to resale. My team’s research highlights that consumer confidence in branded products continues to dominate interest in secondhand items.
Due to the rise in luxury consignment and resale platforms like The RealReal or sneaker resale sites like StockX and Goat, the term “re-commerce” has evolved. Younger generations increasingly associate the word with quality brands, sustainability, uniqueness and community. As the purchasing power of younger generations continues to rise, factors like community, in addition to the environment, will play increasingly prominent roles in converting customers to re-commerce.
In addition to environmental benefits and the price-value equation, I believe the impact of technology, social and mobility as well as the shift to remote work and school are also fundamental factors in the trend of re-commerce becoming a deliberate purchasing behavior.
Technology, Social and Mobility Will Continue to Drive Re-commerce Growth and Adoption
While individuals have bought new and resold later for decades — one need only think of collectors and collectibles — the increase in interest, especially for younger generations, can be credited to the fact that this practice has more recently been made far easier. While thrift and consignment stores boast a lengthy history, the digitalization of the secondhand “store” through mobile apps and direct-to-consumer companies has made re-commerce seamless and rampant.
On the seller end, all one needs now is a smartphone and access to an application on that smartphone. With those tools, the seller can photograph and upload a product from his or her own closet. He or she may also benefit from enhanced social media and a personal brand.
An ever-growing number of demographic-specific apps are popping up, including ThredUp, Poshmark, Depop, Mercari, Tradesy, Rebag and more. Subsequently, many resellers have become minor celebrities, positioning themselves as designers and fashion consultants. These “celebrities” continue to spur re-commerce demand through their influence on social media, adding fuel to the flames. This can be seen as just as much of a draw as sustainability for many Millennials and Generation Z users. It carries not only the attraction of social recognition, but the potential to turn their reselling into a lucrative “side hustle” or full-time opportunity.
Videos and video campaigns of social media influencers “unboxing” their used clothing and technology purchases indicate where consumers’ heads are at, as well as how quick businesses are to catch on. Videos like StockX sneaker “unboxings” on YouTube emphasize the exclusivity and scarcity factor of re-commerce; each model is its own unique commodity, reflective of the aesthetic preferences of a given generation at a given time.
The COVID-19 pandemic and global shutdowns have caused many consumers to crave community and social interaction more than ever. The idea of community is strongly tied in with consumer-to-consumer marketplaces like eBay, Facebook Marketplace and others, as consumers are forced to interact, negotiate, and even meet. In addition, each resold good inherently contains the sentiment that another once owned it, tying together uniqueness and community.
What This Adds Up To
The COVID-19 pandemic has disrupted lives and commerce. As we look ahead, re-commerce is a growth opportunity model. Increased sustainability-driven content on social media, price sensitivity, high demand for all things work-from-home, and desire for connection and community will help re-commerce marketplaces thrive. Whatever the driver, businesses should be thinking about ways to adopt their own take on re-commerce and implant a concept for implementing it, because not only is the circular economy here to stay, it’s poised to enjoy substantial growth in the foreseeable future.
Chris Ventry is a vice president at SSA & Company, a management consulting firm serving CEOs and the C-suite.
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