ThredUp’s James Reinhart on IPO, Resale and Sustainability
James Reinhart brought his part of the resale revolution to Wall Street on Friday, taking ThredUp public with a pitch to make the fashion world more sustainable.
Shares of ThredUp, which helps consumers clean out their closets and sell secondhand, jumped 42.9 percent from the initial public offering price of $14 to trade at $20 at the close on Friday.
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That gave the company a valuation of $1.8 billion and a new kind of currency since it will be able to more easily use shares to pay executives, cut deals and wield its financial strength.
The company joins luxury specialty The RealReal Inc. and social selling platform Poshmark in the market, forming the public-facing front of the quickly growing resale sector. From the perspective of market capitalization, ThredUp is coming in just behind Poshmark, valued at $3 billion, and RealReal, valued at $2 billion.
But there seems to be plenty of room in the sector. The GlobalData Market Survey has predicted resale overall will grow to $36 billion in 2024, up from $7 billion in 2019.
“I don’t know what it looks like in 2030,” said Reinhart, cofounder and chief executive officer, speaking to WWD shortly after ringing the opening bell on the Nasdaq stock exchange. “The data shows [resale] is growing 25-times faster than the retail industry average.”
Reinhart said resale has been consistently underestimated, but the industry is starting to get it more as consumers push for more sustainable fashion options.
Last year, the companies’ revenues rose 14 percent to $186 million, with 1.24 million active buyers. Net losses tallied $47.9 million as the company prioritized grabbing a bigger part of that market by working directly with consumers and powering resale at major retailers, including Walmart Inc., Gap Inc., Madewell Inc. and Reformation.
ThredUp has come a long way since the Oakland, Calif.-based company was founded in 2009 and Reinhart said it is “more ambitious than ever.”
“When you think about what it takes to build a disruptive business that really disrupts categories, it takes time,” the CEO said. “We’ve spent the last 10 years getting people to understand how consumer behavior is changing and how the industry can innovate. It’s pretty exciting.”
Reinhart compared fashion to the auto industry, where “certified pre-owned” cars make up a big part of the market and resale value is carefully factored into purchases.
“There’s an opportunity over the next 10 years where new clothes can be sold at potentially higher prices, be made of higher quality, have better residual value — and secondhand can be accretive to those businesses,” he said.
ThredUp has built an extensive back office to send consumers Clean Out bags to clear their closets and sort out some of that mass of fashion for recycling while preparing the rest for sale on consignment.
The more the company expands and brings on new retailers to tap into the trend, and its competitors do the same, the more change could come to the larger fashion system, which has been focused on producing more goods at ever-lower prices. With that growth comes costly environmental impact.
“There needs to be a mind shift,” Reinhart said. “The big guys say, ‘Hey, we have to do something different.’ The bigger brands need to get ahead of this. And that’s where resale can really be this nice gateway.
“It’s very hard to see the disruption when you’re so zoomed in,” he said. “And so when you zoom out and you really look at the trends, people are starting to get it. All of a sudden, it clicks and people appreciate what’s happening here with the consumer and the market.”
Certainly resale is now moving front of mind in fashion — from the C-suite to the Wall Street analysts.
Cowen analyst Oliver Chen said in a research report on Friday that, “We see significant room for growth as resale becomes popular across all age groups with sustainability becoming an important theme. Further, the flywheel effect of buyers becoming sellers and vice versa should support resale growth and drive customer retention.”
There are plenty of fashions locked away in consumers’ closets that could be money-making inventory.
“Supply is a key component in unlocking resale growth, and we estimate the U.S. resale total addressable market could be close to $150 billion to $300 billion,” Chen said, estimating that 10 to 15 percent of the $500 billion in annual apparel, footwear and accessories purchases are available for resale.
“A key variable to our [total addressable market] estimate is consumers’ willingness to resell items from their closets,” Chen said. “And, as awareness of the benefits of resale increases, we believe more consumers will participate in the resale market, which should expand the potential market size of resale. We note [in] our survey work [that] RealReal and Poshmark users indicate close to 35 to 50 percent of their closets are available for resale.”
MKM Partners analyst Roxanne Meyer noted ThredUp plays in the mass market, which is seen as six-times larger than the luxury retail market.
But the market dynamic is growing more complicated.
“The resale business has become more crowded and more fragmented given the appeal of secondhand and widespread focus on value and sustainability, particularly among Gen Z,” Meyer said. “Despite its attractiveness, there are several sources of high friction/costs in the [ThredUp] model which make it somewhat unproven. These include customer acquisition costs, inventory acquisition, costs to assess, process, store, visually display and ship inventory, and seller commission structure, to name a few. In our view, there is more business model-related friction for ThredUp versus marketplace models and specifically versus Poshmark, which places more pressure on scaling the business to improve margins and ultimately achieve profitability. The ThredUp model, through its relatively lower commission rates and higher control over pricing, appeals to sellers that are looking to purge mass market product.”
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