Luxury items 

Used sellers deserve a second chance

With supply chain bottlenecks hitting apparel manufacturers and shoppers squeezing inflation, now may be the time for second-hand clothing sellers to shine. The market doesn’t quite see it that way.

RealReal REAL Luxury Shipper -4.34%

reported on Tuesday that sales through its platform, known as gross merchandise value, rose 31% in the first quarter from a year earlier, better than Wall Street expectations. Gross profit increased by 35%. ThredUp,

UPDT -3.69%

which sells more generic brands, said on its earnings call on Monday that it had recorded 31% growth in revenue over the same period, a figure in line with analysts’ expectations. Its gross margin growth of 26% was better than expected, helped by improved logistics as the company improved its ability to consolidate orders before they ship.

While both companies had a decent first quarter, they painted a very different picture of their customer health: Low-to-middle-income consumers seem to be balancing goods and experiences, but those with more money are simply on the hunt for value deals.

ThredUp chief executive James Reinhart said on the company’s earnings call that there were a “multitude of disruptive forces” pushing consumers to spend cautiously on clothing, including the war in Ukraine, high inflation and a general shift in spending towards travel and experiences. As a result, thredUp slightly lowered its full-year forecast, expecting revenue growth of 27% at the midpoint of the forecast, compared to the previous forecast of 33% growth. Meanwhile, RealReal left its outlook for the year intact. He expects his revenue to grow by around 39% this year.

RealReal CEO Julie Wainwright said on the company’s earnings call that demand for luxury goods held up. Ultimately, RealReal starts selling more clothes, which usually have a lower price than jewelry or handbags, but result in a higher take rate for the company.

Shares of ThredUp are down 59% year-to-date, while shares of RealReal are down 62%. These are steeper declines than the mature and struggling clothing seller Gap,

which is down 32%. Resale as a category is still small and has room for growth, but it probably doesn’t help that markets have lately been nasty with unprofitable tech companies with lofty growth targets. Additionally, both are managed marketplaces that process items, authenticate them in the case of RealReal, and sell and ship on behalf of their customers. All of these measures could increase the pressure on profitability as long as inflation remains high. But behind the hazy near-term outlook are two companies that are still seeing healthy growth in active buyers and a solid competitive moat in the form of a large-scale system to process and sell used items on behalf of of their customers.

After the strong sell-off, the enterprise values ​​of thredUp and RealReal are trading at or below their respective 12-month forward sales, putting their valuations below off-price retailer TJX Cos. and close to Gap. It’s hard to predict which direction consumer sentiment will take, but at these stock prices, thredUp and RealReal both look like cheap bets.

Clothing and designer clothes retailers say there’s no reason to be locked into buying and selling second-hand luxury clothes. Consignment company RealReal is taking advantage of the trend. Photo: Lydia Randall/WSJ

Write to Jinjoo Lee at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Related posts