Second-hand luxury retailer The RealReal just went public with an initial goal to raise $270 million. But on REAL’s first day of trading, they did better than that, selling 15 million shares at $20 each for $300 million.
TheRealReal was founded in 2011 by Julie Wainwright and the prospectus is valued at $1.6 billion for the largely online reseller which also operates three brick-and-mortar stores. The company claims 1.4 million members who buy and/or consign with the company.
Though The RealReal has yet to make a profit, it boasts strong growth with year-over-year sales up 55 percent in 2018. Last year it generated $207 million in revenues but lost $76 million. Despite that, Donovan Jones, founder of IPO Edge, sums up the company’s opportunities: “REAL has an impressive growth trajectory, enviable market position, and strong industry growth prospects.”
Luxury goods are uniquely positioned for the secondary market. Their original owners typically have closets filled with clothes that are worn infrequently. And these rich folks tend to keep buying more new stuff, so they need to move older items out to make room for the new is real.
“Luxury goods retain value over time as a result of their enduring desirability and durability, making them particularly well-suited for resale,” The RealReal IPO states.
Boston Consulting Group in association with Altagama identifies a $25 billion global market for luxury resale in 2018, or about seven percent of the total $375 billion personal luxury market. By 2021 BCG expects resale to reach $35 billion based on a 12 percent growth rate, as compared with the total personal luxury market rising just three percent to reach $411 billion in the same time period.
In other words, from now through 2021, the secondary luxury market will growth four-times faster than the primary market.
There is not any shortage of resaleable merchandise estimated by Frost & Sullivan to be worth $198 billion available to enter the circular luxury market, including apparel, handbags, shoes, watches, jewelry, high-end furniture and art valued below $250,000.
The RealReal sees its opportunity as huge. “We are well positioned to benefit from several favorable industry and consumer trends, including the accelerating shift of luxury to digital channels, the increasing acceptance of resale, a rising value consciousness and a desire to embrace sustainability.”
And the latest BCG-Altagama study entitled “2019 True – Luxury Global Consumer Insight” confirms that statement. That study is based upon a survey of more than 12,000 “true-luxury” consumers in 10 leading countries. To qualify for the survey, respondents had to have spent more than €5,000 (about $5,600) in total on personal luxury goods over the past 12 months.
“We qualified our sample to include only what we called ‘True-Luxury’ purchasers,” Sarah Willersdorf, partner and managing director at BCG, told me. “Consumers had to meet a threshold of spending in particular categories, like €1,000 for handbags, so that they were real consumers of luxury goods and services and did not just have high levels of household income.”
Stigma Comes Off Secondhand Luxury
Given the survey respondents’ qualifications – i.e. they are consumers of real luxury brands, not poseurs or “aspirationals”-it is astounding to find that half of the American true-luxury purchasers have participated in this secondhand market.
- That includes 18 percent who have purchased secondhand items online, 11 percent who have sold only and 21 percent who both bought and sold there.
- Further the stigma against buying second-hand goods has largely evaporated, with 60 percent of those surveyed expressing an interest in purchasing pre-owned items.
- The 40 percent minority disinterested in buying second-hand are turned off by worries about counterfeits and distrust of resellers, but The RealReal has a fix for that. It employs a team of highly-trained authenticators to inspect each item before it is accepted to go on sale.
To gain trust and confidence of buyers on resale platforms, companies like The RealReal must elevate the buying experience from the hunt-and-seek model typical in the second-hand market to one that is true to the luxury shopping experience these consumers expect.
“The way to do it right is having a platform that looks more like a certified pre-owned Lexus and less like a used-car lot,” says Andy Ruben, founder of Yerdle, that supports brands like Eileen Fisher and Patagonia support reselling their own second-hand goods.
While The RealReal’s true-luxury-for-less positioning draws many first-time and less affluent consumers to its marketplace, its appeal is equally strong to true-luxury consumers. They have long invested in luxury brands and understand that those products retain their value over the long haul. So, it is an incentive to purchase desired items on the secondary market. Yes, the discounts offered have appeal to true-luxury consumers, but that is a side benefit, not necessarily the primary driver for them. Rather it is the inherent value retained in these gently-used luxury goods.
Consigners Get Rewards, Too
Globally about one-third of true-luxury consumers have sold luxury items through secondhand platforms like The RealReal. Consumers’ primary motivator is to empty their wardrobes (44 percent), but close behind is a desire to finance new luxury purchases (21 percent). Interestingly, they think about the potential resale value when making new purchases as well.
Through the resale market, true-luxury consumer can unlock value sitting idle in unwanted or needed items filling up their closets. For example, The RealReal consignors can earn up to 85 percent in commissions depending upon the item and brand. Overall, the average commission consigners received was 65 percent in 2018, when the average order value was just under $450 last year.
Being a responsible consumer also motivates true-luxury consumers to buy and sell secondhand. For example, 17 percent of true-luxury consumers report that reselling items they don’t want, or need is a way to express “sustainable behavior.”
While this is important today, it will play an even bigger role in the future because younger consumers are much more attuned to responsible consumption. Specifically, GenZ (57 percent) and millennials (50 percent) think about the potential resale value of new luxury purchases as compared with older GenXers (35 percent) or Baby Boomers (24 percent).
What Goes Around, Comes Around
Based upon BCG-Altagama’s deep dive into the true-luxury consumer’s secondary-buying behavior, they identify four key drivers that will propel this segment of the market further and faster in the future.
- Online platforms, such as The RealReal as well as Poshmark and ThredUp, are more professional, thus providing buyers and sellers with that “certified pre-owned Lexus” luxury experience Ruben referred to, rather than the “used-car lot” feeling of a typical consignment shop.
- Sustainability and awareness of the value and benefit of participating in the circular consumer economy is only going to grow. For the next-generation luxury consumers access to luxury is more valued than ownership of it, so second-hand is a responsible way of acquiring something “new,” then passing it along after being finished with it.
- Secondhand sellers like The RealReal give much greater access to scarce, exclusive items that are not available anywhere else. And scarcity and exclusivity are primary values for luxury consumers worldwide.
- Secondhand luxury goods are simply an excellent value. The goods retain their value and consumers with wads of cash, as well as those cash-poor, can find desired items at considerable discounts off the prices offered in the primary luxury market.
“The secondhand luxury market is rapidly becoming mainstream,” Willersdorf concludes. “And it is not just the lower price that attracts them. It is often the only way to buy vintage or scarce, limited-editions and sold-out collaborations missed the first time.”
Note: This article first appeared in The Robin Report.