LONDON — Despite the restrictions posed by lockdown and COVID-19, consumers’ appetite for shopping and dressing up aren’t waning — yet in this new world, more and more shoppers are getting their fix from vintage and pre-loved fashion. That’s why M&A activity in fashion and retail has rapidly been shifting toward the secondhand market, with the fashion resale app Depop the latest to make headlines for its $1.6 billion sale to Etsy.
Earlier this year, Vestiaire Collective received a $216 million investment from Kering and Tiger Global; Dutch online outlet Otrium raised $29 million in the summer of 2020, followed by an additional $120 million last March to fuel U.S. expansion. Last month, secondhand marketplace Vinted raised 250 million euros, which boosted its valuation to 3.5 billion euros.
In the meantime, more players have been entering the market with new and refined offerings, from Hardly Ever Worn It, which prides itself on a luxury clientele and top-quality product, to Sellier, a local London boutique that transformed into a global business when it shifted to online sales during lockdown. Sellier has been selling pre-loved Chanel bags within seconds of uploading them on its popular Instagram account and reaching revenues of up to 500,000 pounds a month.
The flurry of new deals is reminiscent of the boom that e-commerce retailers saw three to four years ago, with Matchesfashion selling a majority stake to Apax Ventures and reaching unicorn status with an 800 million pound valuation, Farfetch filing for an initial public offering, and Net-a-porter looking to increase its market share via deals with the likes of Alibaba, big pushes into new categories and an array of exclusives.
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A few years — and one global pandemic — later, that particular e-commerce race has become more crowded, and challenging.
The limitations of the wholesale model, which leaves brands exposed to unfavorable payment terms and too much unsold inventory, became increasingly evident and more designers are choosing to focus on their own selling channels and their direct relationships with consumers.
Those players who have managed to sustain growth have been testing out new models and looking beyond the primary market: Farfetch has its Second Life project, which offers luxury handbag resale services. It has been growing 527 percent year-on-year, according to the company, while other luxury players, such as Alexander McQueen and Mulberry have also been testing the resale waters with Vestiaire Collective.
Unlike the increasing challenges in the primary market, the momentum for these “pre-loved” fashion resale and rental sites is only just building.
According to Global Data, fashion’s secondhand market grew 25 times more than the primary market in the last year, and the projection is that it will double in the next five years to $64 billion.
“There is this narrative that during the pandemic people were clearing out their closets and kids had more time on their hands, hence the resale boom. But people are always buying clothes and with fast fashion still around there’s not enough reusing and recycling,” said Jason Helfstein, head of internet research at Oppenheimer & Co., explaining that there’s still room for further growth in the secondhand space. “In the past, if people had clothes they didn’t want, they gave it to Goodwill, because it was too much effort to resell. Now with technology and machine learning developing, adoption will keep growing. These companies are getting people to realize that there’s a market to be had in people clearing out their closets.”
Not only will multibrand platforms continue to broaden their audiences, brands will begin launching their own resale platforms in order “to control the resale conversation, shape the narrative around pre-loved products, vouch for their provenance and condition, and give resale an alluring sense of exclusivity,” according to Bain & Company’s latest Vision of Sustainable Luxury report.
Bain suggests that resale could provide a sustainable solution for brands to increase revenues without having to increase volumes and their environmental footprints. Making money while making less product and being sustainable has been a big challenge for all brands.
“By 2030, resales could provide up to 20 percent of a luxury firm’s revenue and increase profit margin on a single product by 40 percent while increasing the revenue per product by 65 percent,” Bain said.
As for multibrand resale platforms, their relevance is bound to grow given their dedicated audiences of young, sustainably-minded consumers who are now setting the agenda.
Etsy said Depop’s strong Gen Z audience base — more than 90 percent of its 4 million active consumers are under the age of 26 and the app is the 10th most visited fashion platform among Gen Z shoppers in the U.S. — was a big draw. Etsy itself has an older audience of craftspeople and independent creators across its platform.
“We believe Depop is still in the early innings of its growth opportunity. We love its rapidly growing gross merchandise sales, engaged customer base and scalable, ‘capital light’ operating model,” said Rachel Glacer, Etsy’s chief financial officer, adding that once the deal closes at the end of 2021, the company will explore opportunities to add seller services and expand into new geographies.
According to Helfstein, not only is there an opportunity to expand to new territories and tap the “TikTok generation,” but Etsy could also profit by bringing some of Depop’s payment and shipping services in-house, as they are currently run by third parties.
Vinted has also revealed plans to replicate its European model to new geographies and work on improving the in-app experience while, post-Kering investment, Vestiaire will continue to lure luxury players, such as McQueen and Mulberry, into the resale game.
The competition is bound to stiffen, but without new inventory to fuel growth, scaling these resale platforms will still come at a cost to the planet. At the same time, there is so much existing inventory that many of these circular players can still grow sustainably — at least for now.
“There’s an increasing competitiveness and fragmentation in the U.S. apparel resale market. While each competitor platform currently appears to have its own niche, we believe each will continue to expand into new categories in order to extend growth, ultimately leading to increasing customer acquisition costs and lower take rates,” said Morgan Stanley analyst Lauren Schenk.
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