Role of Re-commerce, Thrifting, and Reselling in the Retail Ecosystem

Yeah, the evolution has been quick and is still undergoing. The concept of thrifting, resale, rental, all of that, anything short of purchasing something new, has really been gaining traction over the last 5 to 10 years. There’s industry data that indicates that it’s growing at something like 10X the rate of regular retail. It’s really an industry that’s just exploding, and there are more and more avenues for the customers to shop this way. Of course, you’ve got brands and retailers looking to capitalize on the trend, but it’s showing up in more and more ways.

The traditional one used to just be a thrift store, which we all knew. Now it’s migrated. Thrift stores have become significantly more popular in the US, but it’s also moved to online thrifting. This can either be directly from other consumers with online marketplaces like Poshmark and Macari, or purchasing used goods from retailers or brands. Then continuing to grow is this idea of rental with different models of renting a gown for an event or a subscription-based model that allows you to refresh your closet every month with five or six items for a flat fee. All of these continue to take shape.

There is the predictable coming and going of new entrants as some are more profitable than others, and I think everyone is trying to figure out how to deliver a scalable, profitable solution. But this is a space that is going to continue to grow and the consumer certainly seems to be gravitating towards it.

Back to Question Index

I think a lot of things happened all at once, which is usually why a trend happens. Thrifting itself became more mainstream, it used to be frowned upon. The idea of wearing used clothes was something that most people wouldn’t have done. Somehow it has now become cool, it’s become acceptable. It makes you look like a savvy shopper. There’s that social acceptance which I think always has to happen for a trend in fashion to take hold.

At the same time, I believe there is a dramatically increased impact of the environmental effects of filling landfills with millions of tons of clothing every year. There’s data that says that, because of fast fashion now, the average garment is being worn 30 or 40% less than it used to. This idea of disposable clothing has really gone in the opposite direction, and this is a way to counter that.

Customers are also increasingly value conscious. I think especially in the US market, but in many markets in the world right now, the customer is under economic pressure, so they’re looking for ways to spend less. I think they’re trying not to wear the same things as other people. There’s this passion that’s been renewed for retro, old-generation-looking things, and those all feed into thrifting.

And then the rental idea, I believe the consumer has started to scrutinize certain parts of her wardrobe of, “I might be willing to spend a thousand dollars on a Gucci handbag that I keep in my wardrobe and I wear for the next 10 years at different events, but a gown or a dress that I might only get to wear once or twice, it’s much harder to justify $1,000 expenditure. I might spend $60 to rent that once, and for the next 10 events, I can have a different dress every time.” I think it’s this convergence of not only consumer demand, but the offerings that are out there. Those are sometimes perfectly aligned and new entrants into the market fail miserably because they misperceive customer demand.

Back to Question Index

I think today, not as much, but let me start two different ways. The brands that started it, the idea of selling it themselves, brands that now have re-commerce on their own site or in their own stores started really in the outdoor space. It was brands like Patagonia and some of their competitors that really started this concept. It resonated with their consumer who was very environmentally conscious. Things like jackets were an easy way to stick your toe in the water of wearing pre-owned clothes. It’s not quite as far a bridge to get comfortable wearing a jacket as it might be a shirt, just because of the previous use.

I would say though that that has expanded rapidly right now. I believe that it is across most product categories and really across most price points. You can now find everything from opening price to true luxury in every aspect of this. Whether it’s a thrift store, a retailer or a brand selling it, or the rental market, this is not isolated to any one product category anymore or any one price point. It really has started to gain traction.

I think unless something changes it and the consumer suddenly becomes uncomfortable with it, this is likely to be a contributing factor to continue softness among traditional mainline retailers who aren’t really equipped to deal with this. We can talk about that later, but these tend to be more nimble up-and-coming retailers versus large traditional ones that are positioned to play in this space. I think it’s everywhere with every customer now, and I think it just continues to grow.

Back to Question Index

They play perfectly together. If you think about the idea of sustainability, one of the core elements is the use of raw materials and manufacturing processes that aren’t as harmful to the environment. One of the very, very quick trickle-down effects is the amount of clothing that gets put into landfills, which is just a staggering number when you read it across any data source. This allows things to both stay out of landfills and conversely, for the customer who needs a shirt, he or she may not go buy a new one now. It not only cuts down on the production of new garments, it sustains the life of existing ones. The synergy between the idea of sustainability and re-commerce couldn’t be more direct.

I think that’s absolutely part of the appeal to consumers is it flies in the face of fast fashion, which is buying disposable clothing at cheap prices. This is extending the life of quality garments and feeling good about wearing them, not necessarily purely for environmental reasons. I don’t think anybody thrifts just for that. But it’s one more reason that you can feel good about it, which like we talked about in the beginning, usually there have to be three or four or five things that all play into it. This is clearly one of those. The consumers feel good about what they’re doing for the environment, as well as all the other reasons they like to thrift. The two go very well hand-in-hand.

Back to Question Index

It definitely started with younger consumers. They like the idea of the treasure hunt and the retro items that they can find there. I would say now it really crosses most demographics. There’s a large thrift store not that far from where I live, and I drove by it the other day and I was struck with the cars in the parking lot. It was very similar to a Costco, where you had everything from low-end cars to luxury cars, and I realized that it had transcended the, “oh, only people with limited means or only people looking for a bargain shop at thrift stores.” It’s now become really everybody. So, I might see Mercedes in the parking lot of my local thrift store and it doesn’t surprise me anymore.

Younger customers made it cool and then for all the reasons we talked about, it expanded. I mean, five years ago I never would’ve worn something from a thrift store. My wife loves going there because my kids got her into it. She brought home a flannel shirt for me the other day that I love. It’s probably 20 years old. It’s a look completely different than anything I can find now, which I like, and it’s just different and it gets worn over something and it’s casual. But at the prices thrift stores are charging, you can afford to try items, you can afford to have something that you don’t need to wear 50 times. You’re happy if you wear it three or four times. And I think it’s that newness and novelty in our wardrobes that have all subsets of the consumer base looking to try it and use it in different ways.

I think it’s like every part of retail. There are very few customers that currently do not buy from thrift stores, buy used from a brand, rent, or shop online at Poshmark or Mercari. If you polled people, some use all of those, some may just use one or two, but at its purest form, by shopping with any of those or renting from any of those, you’re supporting this idea of re-commerce. And more and more people are doing it.

Back to Question Index

Oh, absolutely. I mean, if I go back 10 or 15 years, Sidharth, there were really just two reasons people shopped at a secondhand store. The first was that customers didn’t have money to shop for new clothes. So, maybe you had a big family or you were shopping for yourself or your kids and you simply needed the value that it represented. And ironically, people used to go to thrift stores and I mean, I remember growing up, the only reason we would ever go there was to buy things for a costume party. You wanted something retro for a ’60s party and you went and got a costume because it was wild fashion and things you would never buy new.

I think it now is mainstream clothing with labels that you know and find in every department store in the US. And I think it’s no longer just the money driver, it’s everything else we’ve talked about. It’s fashion, it’s cost, it’s environmental. It’s just become a bigger and bigger part of the retail ecosystem. I read an article the other day about, and I wanted to be sure to mention this, a woman who loved thrifting, absolutely loved it. And you can actually spend a fair amount if you buy upper-end goods. She funded it by buying extra things in the thrifting store and selling them online on Poshmark, herself, for a profit. She was able to find things that she knew represented a value that she could resell for more.

So, it was this convergence of all these ideas of re-commerce. That woman went home with items she loved from the thrift store, and funded it by buying extra things and selling them through Poshmark online. So, it’s weaving itself throughout all parts of the retail ecosystem in the US now.

Back to Question Index

Technology is really important in this. I mean, in its simplest form at the store level, technology is not an issue, but more and more brands and retailers are offering pre-owned merchandise online. So, the ability to accurately show a product, either the specific one that you’re buying, and in most cases that’s not what retailers will do. They will show the generic item, they’ll show a black sweatshirt, but it’s not actually the one you’re getting. What is important is to describe the condition it’s in accurately, and to make sure that the price matches the condition of the garment. Most sites have three gradations of value, either new condition, very good, or good. Most people won’t sell anything below good, which means it looks a little worn, it might have a stain or a thread pulled, but it’s in good shape, all the way up to “it still looks brand new.”

Technology is a critical part of ingesting the item effectively, assessing it, getting it up on the site in a way that is representative of what the consumer can expect to get. And all that is still relatively labor-intensive since technology can’t look at a sweater and tell you the condition it’s in. But with larger and larger lines of merchandise being sold through these channels, getting them posted quickly and effectively, and in this case, one of the biggest challenges is maintaining a tracking system for that item, that specific item. Because unlike most e-commerce purchases, where if somebody buys a black T-shirt, you go and you pull it out of the bin of 50 black T-shirts, you actually have to go pull this exact item out of that bin of black T-shirts.

So, there’s an incremental part of item tracking that exists, that adds complexity to it, in which technology plays a bigger and bigger role. Like most things, technology will be part of what streamlines both the process operationally for retailers, resellers, and rentals as well as consumers to make it easier and faster as time goes on.

Back to Question Index

They’re both positioned very differently. Patagonia has been a leader in taking back goods and reselling them. They have a whole separate website called Worn Wear. Everybody’s branding it differently. They all come up with catchy names. Patagonia’s is Worn Wear.

They use it in a few different ways. First, for them it’s completely keeping with their mission and the DNA of the brand, which is about taking care of the environment. So, the idea of reselling clothes is perfect for them. From a business perspective, it’s a brilliant model. They give the consumer who comes in credit for a future purchase of Patagonia goods. So, if I bring back what was a $100 sweatshirt and it’s in very good condition, they might give me $30 for it. They don’t pay me, they give me store credit. So, right away, they have me engaged in buying more Patagonia. They also have me as a consumer of Patagonia feeling good that something I’m getting rid of isn’t going into a landfill, it’s going into someone’s closet again.

So, I turn around and I buy another $100 sweatshirt that they’re very happy to have given me a discount for because they take the $30 sweatshirt that they bought from me and they turn around and sell it for $55. They’re making money on it, much lower margin than usual, but now they do two things with that new sweatshirt. First, they potentially attract a new customer who wouldn’t otherwise be able to afford a reasonably expensive brand like Patagonia. So, think of it like an off-price channel that ultimately migrates customers to its full-price channel. If the customer starts buying Patagonia and likes it and appreciates the quality, when she gets a little older and has a little more money, there’s a very good chance she’ll migrate to become a Patagonia customer.

It also creates a ton of brand loyalty. There’s a lot of data that shows that consumers are much more likely to connect with a brand that offers some sort of a real connection, either existing customers, new customers, everybody, there’s no one who doesn’t like the idea. And as consumers are increasingly looking for a personal and emotional connection to brands, this is an important way to do it. So, for somebody like Patagonia, it’s a win-win all the way around.

Rent the Runway is a totally different model, but equally effective. They started out really renting single garments. The idea was if you needed a dress for an event, like we talked about earlier, rather than spending $1,000 on a new garment at Nordstrom, Rent the Runway would rent you a designer garment that might be 50, 75, $100 expense. To that consumer, if you weren’t going to wear that dress more than once or twice, the math became very easy.

They were known for making the rental process easy. The transactions were clean. It resonated with the niche group of customers. What’s changed now is the idea of a rental model with a subscription. So, Rent the Runway does it. There’s a new company, slightly less high end than Rent the Runway called Nuuly, that caters to a more moderate customer. My daughter loves Nuuly. The idea is that every month for a flat fee, like, I don’t know, $100, and I think the Rent the Runway one is a little bit more, you get five items. You get five new items. They have a robust website from which you pick your items. For a $100 subscription a month, the items show up on the first of the month, and by the end you return them, and you get another five items. So the appeal to the younger customer, or to anybody really, is the most exciting time you wear something generally is the first time. So you pick these five items, you build a few outfits around them every month, and they’re fun and exciting and just about the time you’re going to put them back in your closet and go get something new, Nuuly delivers another five items.

So for both of these, the subscription model has become much more important. Obviously it’s a recurring source of revenue, so the predictability is important, but the stickiness with the consumer becomes very real. She becomes much more excited about renting new items that she can wear to events and show up to something and look like she’s got a new thing on every time, versus a lot of one-time expenses that have a decreased value. So like I said earlier, she might buy staple pieces in her wardrobe, a great pair of leather shoes that you can wear a lot, or a handbag, or maybe a simple dress. But with things that are slightly bolder fashion, the consumer is increasingly saying, “I don’t need to buy that new. I’m comfortable buying it used. I’m comfortable renting it. But I’m just not going to use it enough to justify the full price expenditure of this jacket with a wild print on it that’s fun for a month, and then I get tired of it.”

Back to Question Index

Yeah, I mean my old employer, Nordstrom had tried it. Their effort was called See You Tomorrow. They started in the New York flagship store, which they thought would have enough volume and units coming through it. They carved out a separate space. Interesting idea, but the problem is, and it’s why I believe that large retailers may struggle with this, the problem is that it is incredibly labor intensive. If you think about a department store that originally was a brick and mortar model and has now morphed to becoming very adept at online, they’re good at doing things at scale. They’re not good at doing things that are one of this and one of that, which is really what the re-commerce world is. You can’t sell 20 of the same thing because you don’t own 20 of the same thing. You have 20 different items.

So I don’t think Nordstrom was able to, well it failed for one of two reasons, and I don’t know which it is. Either there wasn’t enough interest in it, I find that hard to believe. I think the New York customer would’ve happily been bringing goods into Nordstrom and been very happy to accept store credit at Nordstrom. The other thing that is somewhat of a wrinkle for traditional retailers has to do with their own image and brands.

When you move into the space of selling used goods, you need a team that is very, very good at assessing both the quality of it, but also determining if it’s real. What I mean by that is, I as Nordstrom, have to have an expert who can determine if I should offer you something for the Gucci handbag that you’re trying to sell me with a couple of scuffs on it. Or was it purchased at a flea market somewhere else and it’s actually a counterfeit item? For retailers that deal with premium brands, that’s a really, really dangerous line to toe. Because if it is ever found out that they’re selling counterfeit goods, there would obviously be tremendous damage both to their own brand as well as to their relationship with that brand. So I think that’s one reason why you’ll see some of these premium, premium brands struggle with it.

If you’re an online marketplace, you can have people who are set up to assess and determine the condition of items and verify that they’re legitimate. At the store level, you simply can’t have everybody equipped to do that. There is a high level of expertise that’s associated and required with it. The other thing is many of these brands may not want or allow you to sell used goods. They have distinct or unique channels, or they do it themselves. But with a mainline retailer often, a premium brand has an established one-to-one relationship, which says, I sell you new goods, you sell new goods to the customer. We have a different wing that sells used goods, and those two don’t cross over.

So I think Nordstrom not succeeding at it is not altogether surprising. And as I think about it, it highlights a lot of the potential risks that mainline retailers face, especially multi-brand retailers. Think of somebody like Patagonia, they don’t have trouble assessing whether it’s real, because everybody who works in a Patagonia store knows Patagonia. I can’t have experts across 50 brands if I’m a Nordstrom sales associate. So it’s not to say that it won’t evolve into it, but right now this is not a concept that plays well to the strengths of traditional, large scale, multi-brand retailers.

Back to Question Index

Yeah, I think there’s a concern among industry experts or investment professionals especially, that offering used or pre-owned goods will be dilutive to a brand or retailer. I think what is playing out is actually the exact inverse. It is another way that customers engage with the brand. It is a way to increase average sales, and most importantly, it’s a way to acquire new customers. When it’s done really well, the two concepts of re-commerce and new play very well together, and they actually complement each other. They make the brand or the retailer a more desirable destination to shop. They become a bigger part of the consumer shopping journey and ecosystem, and garner a larger share of wallets. The belief was, “well you’ll trade the customer down.” The reality is they actually spend incrementally more with you if you engage in this space because at different times for different uses in their life, they may want new one day and used the next.

If you’re able to be solutions to both of those, that’s even better. The best of all is if you’re able to offer solutions to those things both online and in-stores, like Patagonia and REI both do. That’s sort of the perfect storm. No matter what I want, if I want to go into a store and I want it new, great I can have a fitting room and someone to help me. And if I just want to shop for used things online, I can do that and everything in between. So it’s not unlike omnichannel, I guess the best example is sort of the synergy between Nordstrom and Nordstrom Rack where the two can coexist happily, and in fact the off price part does not create a trade down effect. It creates greater loyalty and higher spend.

Back to Question Index

Oh, I believe they were one of the first ones to put the idea of a brand selling used clothes into the mainstream. There may have been others first, but they’re the first one that comes to mind in this space. It just played so perfectly with who they are. Patagonia positions themselves as sort of protectors of the earth we all live in. And the idea of activism and environmental causes is who they are and what caused the brand to really be created. So this plays perfectly.

The founder of Patagonia recently essentially donated the company to purchase millions of acres of lands in South America that couldn’t be developed on. This plays exactly into this. Their customer expects them to take a leading position in environmental efforts. So for this brand to be at the top of the mountain, no pun intended, in this effort, is what their customer expects of them. But they didn’t do it because their customers want it. They just did it because it’s who they are and what they stand for. So others have followed suit, others will benefit from it, but there’s probably no one else who’s as uniquely aligned with the efforts of re-commerce and the desired outcome than Patagonia is.

Back to Question Index

Yeah, I think that I’ll extend from traditional brick and mortar to even omnichannel retailers. Just take an average department store that is now brick and mortar and online, I think they’re uniquely not in a great position to handle this. I think the increased complexity and labor intensity of having a compelling offer in this space will be incredibly challenging for them. Worse than that, I believe there is a relatively large share of wallet and market share drain that comes from all of these alternatives.

Now, I am willing to buy a retro flannel shirt from a thrift store, 10 years ago, if I wanted a flannel shirt I would’ve gone and bought one new. The cumulative effect of whether I do that, or rent it, or buy a used one from a brand all takes market share from a space that traditional retailers are not really able to play in, so I think that’s one challenge. I think the other problem for traditional retailers has always been, and increasingly so now, how to attract younger customers. Unfortunately for traditional retailers, the younger customers are the most likely to embrace all of these alternative formats of filling their closet. So in addition to not attracting that consumer and getting their spend to offset older consumers who are falling out of your shopping ecosystem, you’re developing an entire generation who looks at alternative ways as the means through which they acquire clothes.

This is not a generation that will drive to the mall and buy clothes. They view that as a dated model that they don’t understand. I have two kids. I have a 20-year-old and a 23-year-old. My 23-year old belongs to Nuuly, so she gets her clothes through subscription and loves thrift stores. My son who’s 20, would never drive to a mall, and he grew up with me in retail and getting discounts and all that. He loves going to thrift stores. He loves finding older retro stuff. That’s a sample size of two, but I believe it’s fairly indicative of their generation that says, “Why would I ever buy new? Why would I go to a mall? That’s not environmentally friendly.” All the reasons we’ve talked about, they view as inhibitors to what traditional retailers are desperate to get. So I think these alternatives are unfortunately a place in which traditional retailers will have a very hard time playing and it will lead to an increasingly challenging effort along the customer acquisition front.

I think sadly for retailers, this is yet another drain. You think about all the online only traditional retailers who sell new goods, those are clearly putting pressure on the traditional model. This is another whole wave of things that offer consumers new and alternative ways that contribute to the continued erosion of the traditional brick and mortar or omnichannel model, and I just don’t think they’re well positioned to counter it. I think you may see a lot of them try to play in this space and they may be able to set up marketplaces, but this younger generation is looking to engage with brands more than they ever have versus omnichannel and multi-brand retailers. And I just think if you sat in a strategy session at a traditional retailer, they look this and just don’t know how to become relevant or how to play in this space.

Back to Question Index

I don’t believe this is a space where you have to differentiate yourself. Well, let me break that into two. For a brand or a retailer, I don’t know yet that anybody is trying to differentiate themselves. And by that I mean the game now is to be in the space, so it is to be able to offer pre-owned goods in an effective way that allows you to engage with the customer. That right now is what I would call the price of admission. If you look at the Levi’s site, they have what’s called Levi’s secondhand, and denim is a great space to be, the whole retro idea and something that actually looks cooler when it’s worn and all that. But nobody is really trying to do anything different in selling used goods. They’re all trying to get it up on the site and in a way that that communicates roughly what the customer is going to get at a compelling price.

Brands are also offering the same kind of incentive to people who turn it in, which is some sort of a credit, and all of that may vary over time. Somebody may find a different way to incentivize people to sell. If they’re having trouble getting enough goods to resell, they may offer incentives on the buy side. For now, I think we’re in the early days so it’s somewhat binary. You’re either in the game, or you’re not, and getting in the game is the goal for most people. I think it does change on the side of certainly the rental model where Rent the Runway has evolved from single items into the subscription model that we talked about, and that will be a really, really important evolution. That was a very obvious one once you saw them do it, but it’s not obvious until someone does it.

All the benefits of consumer loyalty and guaranteed stream of revenue and higher AUR (average unit retail), those all make total sense, but they actually really, really work well for the customer. So I think we’ll continue to see that kind of space evolve more. There will be new entrants who try new things, and it’s like Netflix in the early days. You can have different bundles with more garments out at a time and some will give you a flat fee for a month and some will charge you for the item, and that one will continue to change. The other one that’s evolving is the idea of individuals selling used garments directly to individuals through online platforms like Poshmark and Mercari. That space continues to grow and to the degree that it’s really just a platform, meaning I can sell an item, I can set the price, I can describe it however I want, I can incentivize the buyer however I want. That is a more robust dynamic space.

I can offer somebody a discount if they buy multiple things from my closet. I can offer free shipping if I’m willing to discount my item by the amount of the shipping costs. There’s a lot of things in that space that are evolving. So right now this is less about differentiation on the sales side than just being in the game. I think on the rental and the sale directly from consumers to consumers, it continues to evolve. We’re in the very early stages of this game. I don’t believe I could have gone online five years ago and bought used clothing from any retailer or any brand. I don’t know of any that I could have. A few would’ve had a back corner of stuff in their stores, but it was mostly returns.

I mean, that’s what this has morphed into, is it used to be REI took returns back and it was lightly worn, and they didn’t want to throw it out because they were REI, so they said, “Well, we’ll give you a discount on it.” Somewhere along the line, somebody said, “Wait a minute, what if we just didn’t wait for returns? What if we actually bought it back from people?” This is all the evolution that’s happened in recent years. So fast-forward five years from now, there will be a plethora of things that we can’t begin to envision yet just because we’re so early in this game, and I think that’s what’s going to make it exciting and fun to watch because there absolutely will be people and brands and retailers who differentiate themselves with their offering, and I think it’s fun to watch a space that was very slow and methodical, have something as dynamic as this is play into it because it really does change the landscape of everything.

Back to Question Index

This expert transcript is adapted from the GLG Teleconference “Role of Re-commerce, Thrifting, and Reselling in the Retail Ecosystem” hosted on Wednesday, October 25, 2023. If you would like to speak with Steve Haas, or any of our industry leading and experienced experts, please contact us.