The Outside View: With Resale Growing Fast, Why Are So Many Brands Handing Their Customers to Third-Party Marketplaces?

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Way back in 2001, when I was leading strategy for Walmart, a well-respected retail executive told me that e-commerce was “nothing more than a mail order catalogue on a screen.” Those catalogues never made up more than 3 percent to 5 percent of retail sales, he went on to explain, and neither would e-commerce.

Obviously, his prediction was…a little off.

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E-commerce continues to massively disrupt retail and its share of sales has only accelerated since the start of the pandemic. But even two decades ago, the fundamental differences between e-commerce and print catalogues were apparent. The executive I spoke with, and plenty of other retail leaders, simply missed — or chose to dismiss — them. They had too narrow a view of how a new shopping channel and behavior would change the industry and what they should do to take advantage of the opportunity in front of them.

Today, many in the industry are making a similar mistake with resale — because there will be a day in the not-too-distant future when resale will account for one in four items sold, and possibly more in some categories.

According to Cowen, recommerce will account for 14 percent of clothing, footwear and accessories sales by 2024. Boston Consulting Group estimates the resale market for those categories reached $30 billion to $40 billion globally in 2020 and that it will grow at a compound annual growth rate of 15 percent to 20 percent through 2025. GlobalData forecasts the secondhand market for apparel, footwear and accessories will reach $64 billion in 2024 in the U.S. alone, making resale the fastest-growing channel in retail today.

Nearly all of that growth is happening online, enabled by a slew of new direct-to-consumer marketplaces that make it easier than ever for consumers to both trade in and shop used items. The VC dollars that have poured into the space over the past three years are reason enough to know the resale channel is primed to continue growing — and for good reason.

Resale Drives Discovery, Value and Sustainability

It’s not hard to understand why customers choose resale. The cultural barrier between new and used has largely evaporated and many younger shoppers actually prefer to shop secondhand for the thrill of the hunt. A recent BCG survey found that, among secondhand shoppers, 66 percent had discovered or bought a brand for the first time when shopping used, making resale an invaluable discovery channel for brands. Resale also now offers all the hallmarks that make for an excellent retail experience, including stunning photography, detailed product descriptions, two-day shipping, easy returns and great value.

Furthermore, resale has huge appeal for those seeking more sustainable commerce options. At a time when consumers are, on average, wearing items half as many times as they did 10 years ago, buying a used garment rather than a new one can reduce the carbon footprint of an item by roughly 40 percent.

Consider a Patagonia jacket that’s worn by four kids over the course of 10 years. The resources needed to produce the jacket are spread over far more ski trips, hikes, and walks to and from school than if it were worn by only one child who outgrew it after two seasons. And that single Patagonia jacket takes the place of several other, lower-quality jackets that never need to be sourced, produced and transported around the world. Resale allows all of us to get far more use out of what we’ve made.

High-Engagement Brands Will Be the Biggest Winners in Resale

Brand positioning in the resale market will help determine the big winners and losers, just as it has in e-commerce over the past 20 years. The online channel has long favored beloved heritage brands — those with a loyal customer base and high-quality and desirable products that hold their own compared to similarly featured knock-offs that shoppers find on Amazon or Walmart’s marketplace. This trend is even more apparent in the resale market, where brands are increasingly competing with their own products from prior seasons that are being promoted on third-party platforms. In many ways, this is alarming for brands and retailers, which fear being disintermediated by the marketplaces.

That fear isn’t wholly unfounded. Unlike with wholesale or discount channels, brands don’t have a say in who sells their products secondhand or in how they’re sold. Marketplaces source items from consumers — and they win by growing their own customer bases and building awareness of their own third-party platform. In the short term, it may appear that marketplaces selling used items are aligned with the brands that produced those items originally, but the platforms’ priority is adding new shoppers, not protecting brands’ hard-earned reputations and customer relationships.

In the early 2000s, brands justified handing their e-commerce sales over to Amazon by saying, “They’re the experts. It’s too much work to sell online on our own and it’s not core to our business.” Today, some retailers and brands are telling themselves the same thing, that working with a third-party marketplace is just like selling through a wholesaler.

The problem is that’s just not true. At best, these are marketing relationships of convenience. The long-term incentives of brands and the platforms are not aligned and while the relationships work for the marketplaces, they’ll ultimately hurt every one of the brands that chose to hand over their resale channels to a third party.

That’s why brands need to control the resale experience and, even more crucially, the trade-in experience. Brands such as Patagonia, Eileen Fisher, Levi’s, REI, Arc’teryx and Lululemon are among the sustainability visionaries that are already giving their customers the option to trade in items they no longer wear for credit. And they’re making it easy for customers to do that both online and in-store. In doing so, they’re cementing the idea that their high-quality products have a long lifecycle and setting the expectation that customers will be rewarded for helping create a more circular fashion economy. Equally as important in the long term, they’re maintaining control of their heritage and brand equity by making sure their products don’t end up on resale marketplaces.

Premium brands that take control of their take-back channels can choose where and how to resell their own items, and generate net margins from resale that are similar to those of their mainline business. Just as with e-commerce, there are new opportunities emerging for brands to accelerate the shift toward resale, attract new customers and build loyalty with existing customers while doing it.

For brands that produce quality items, the obvious question is: Why sell an item once when you can sell it multiple times?

Trove CEO Andy Ruben. - Credit: Courtesy
Trove CEO Andy Ruben. - Credit: Courtesy

Courtesy

The Takeaway

Looking back, there’s no question that Walmart and nearly every other brick-and-mortar retailer would have chosen a more aggressive e-commerce strategy in the early 2000s if they had accurately assessed the channel’s growth potential. While Walmart did launch its own e-commerce platform in 2009, many other retailers and brands simply decided to let Amazon handle their online customers and sales.

In retrospect, it seems crazy that major players like Toys “R” Us and Barnes & Noble handed over their e-com reins to a third party. But today, dismayingly, too many retail executives are making the same mistake with resale. The truth is that resale is here to stay, just like e-commerce was — and for brands, controlling where and how their product is recaptured and resold, as well as its pricing and the customer experience, has never been more important.

Andy Ruben is CEO of Trove, which provides white-label technology and end-to-end operations that power circular shopping for premium brands, allowing them to take control of their resale marketplaces, deepen customer loyalty and generate new profits.

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