The Future of Resale and Rental Fashion

Evan Clark
·7 min read

Resale and rental occupy a curious spot in the fashion market.

The pioneers that charged out ahead and into the public markets — including Rent the Runway Inc., ThredUp Inc. and The RealReal Inc. — have all struggled with investors, who are no longer willing to settle for growth and want actual profits.

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Still, brands and retailers keep jumping in, pumping more heat into a resale and rental sector that is sometimes seen as a kind of sustainable savior, a single-item logistics nightmare or just a black hole for money.

Maybe it’s a little bit of all of those, but certainly big companies are very much still paying attention.

Zara launched a pre-owned platform in 14 European markets in December. And Amazon Luxury Stores recently entered resale with Hardly Ever Worn It in the U.K., Germany, France, Italy and Spain.

Urban Outfitters Inc.’s Nuuly rental platform drove $65.5 million in revenues in the third quarter, an 86 percent increase from a year earlier that produced operating profits.

“With the strong partnership of our sister brands Anthropologie, Free People, FP Movement and Urban Outfitters as well as over 400 other partner brands, we have curated what we believe is the most compelling rental clothing assortment on the market,” crowed David Hayne, Urban’s chief technology officer, to analysts last year.

Just where all these resale and rental efforts lead remains to be seen. But the sense is, they’re going somewhere.

“We’re kind of in the messy, let’s figure it out [stage], because brands and companies all realize now, yes, it’s a real market,” said Cara Smyth, chair of Fashion Makes Change at the Rockefeller Philanthropy Advisors.

“Resale grew five times faster than the regular retail clothing sector in 2022,” Smyth said. “There’s money to be made. There are consumers that are interested in it and it’s a new channel. You can’t establish a new channel in such a short time. We are in this: How do we make it work? How do we deal with single [stock keeping units]? There’s a lot of technical portions as well, a data portion to make it function.”

And consumers seem to be ready for it.

The ThredUp platform counted 1.8 million active buyers in the third quarter while luxury specialist The RealReal said its active buyers over the past year tallied 954,000.

ThredUp’s annual Resale Report last year projected that the global secondhand market would nearly double by 2027, reaching $350 billion. Within that, the secondhand apparel market is seen growing three times faster than the apparel market overall.

“There is a market for it. It is a growing market. And it’s really important,” said Adam Davis, who is managing director at Wells Fargo Retail Finance and works with both retailers and resellers.

“That’s why you’ve seen major brands like Levi’s and Lululemon and Rolex adopting the concept of pre-owned,” he said. “They have their own reasons. They want to control their product distribution, they want to build that relationship with the consumer. There’s probably a profitability thing there, and then there’s a lower entry point for consumers.”

But when brands adopt resale, they’re largely bolting a new model onto their existing, generally healthy business that’s already converting consumer dollars into profits.

“When you think of retailers, they’re buying from a manufacturer, they’re getting 30, 60, 90 days of payables,” Davis said. “So they’re able to kind of play with the working capital. Some of those [resale] models don’t allow for that. So they are paying cash and they have to try to sell this product as quickly as possible.

“The ones that have done it well have shrunk their sku list for the higher-velocity turning items,” he said. “The Louis Vuitton Speedy is going to sell, and you can get a whole slew of those because you can get ’em in Japan through some of the brokers … that item turns really quickly. So rather than trying to sell everything, you start to shrink down to focus on the items that turn really quickly.”

Davis said there were private companies that were making the resale model work.

The luxury resale platform Vestiaire Collective, for instance, was just valued at 1.1 billion euros in November and is eyeing the prospects of an IPO in the not-too-distant future.

Chief executive officer Maximilian Bittner told WWD recently, “We’re still very conservative with regard to our planning for 2024, but despite that conservative planning, we think we will approach the profitability toward the end of this year.”

Vestiaire Collective’s revenue increased by 25 percent last year.

“The resale idea is a hot idea among consumers,” said Jessica Ramírez, an analyst at Jane Hali & Associates. “We have a lot of platforms in the U.S. and Europe. There’s a lot of competition, it’s just a very crowded space.

“A lot of the brands started to bring resale into their own vertical,” Ramírez said. “It’s been a lot of changes that have happened in the resale market that have made it difficult to succeed.”

Part of the sector’s PR problem is that some of the most high-profile players are struggling mightily.

Rent the Runway, ThredUp, The RealReal and Poshmark, before its buyout, all had splashy, headline-making debuts. But then they were tripped up by the changing sentiment in the stock market.

“The VC money dried up, they try to solve it with debt, and then the IPO markets opened up and they were able to go public and that’s how they ended up funding their business,” Wells Fargo’s Davis said.  “They’re in the public eye … their expense structures are just completely out of whack.”

That’s changing as the public players have all moved to rightsize their spending and are increasingly focusing on where their models work best.

But it’s still been a long journey and investors aren’t necessarily hanging around. Rent the Runway’s market capitalization has fallen to just under $36 million, while RealReal and ThredUp are trading closer to $200 million.

Edward Yruma, an equity analyst at Piper Sandler & Co. who covers the sector, said: “I don’t think these companies are maybe going to be as profitable as we would have hoped a number of years ago.”

The back-of-house operations account for some of that. In some cases, it’s a problem of consumer demand.

Yruma said shoppers still seem to be looking for value before they look for sustainability.

“Even though the Millennials and Gen Z are really concerned about the environment, it is still questionable how that links back to their purchasing behavior,” he said.

The public players in the space have all made progress cutting costs. But Yruma said, “People want to understand when they achieve profitability, but then, what’s the longer-term profitability of these models? These have become show-me stories.”

That means investors are holding back, waiting for signs of traction before jumping back in.

And some believers have lost faith.

“I’ve been a student of the space forever,” said Michael Prendergast, managing director in Alvarez & Marsal’s consumer and retail group. “I always thought it was very cool. It’s interesting, but not sustainable.”

That’s not sustainable as in eco-friendly, but sustainable in a business sense — at least as currently structured.

“The attraction is this broad breadth of skus across brands and exclusivity in product,” Prendergast said of the sector. “That sounds fine, but the problem is when you’re running a retail business, what are the main things you need? You need sales. You need efficiency. You need operations that turn and have a supply chain that is very supportive.”

Prendergast said he had something like the perfect resale consumer experience — once. He went to a store and found a perfect Moncler jacket at 25 percent of what he would have paid for it new.

“This is the best thing ever,” he thought, getting hooked into resale. But then, he went back to the store repeatedly and “never found anything else.”

“They’ve got some real issues when it comes to assortment planning, demand planning and what I would call consistency in skus,” he said. “The behind-the-scenes is very complicated for these companies.”

That sets the scene for continued evolution in the market and, maybe, some more collaborations and combinations as the players feel their way toward better businesses.

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