Online Resale—The Next Great Disruptive Force in Retail

Thursday, January 23, 2020

Inside of a closet



The domestic second-hand apparel and accessories market is estimated to be a $24 billion industry as of 2018. This includes the larger traditional thrift and donation retailers ($19 billion, led by Goodwill and Salvation Army) and the more curated resale market. While resale historically has been a smaller portion of the second-hand market, the more recent emergence of online resale, including consignment platforms, has helped push the market into a faster stage of growth, poised to take greater share. Consumer analyst Dylan Carden believes a large part of this growth is a result of newer platforms benefiting from the broader online migration of apparel and accessories spending, coinciding with an ever-stretched yet increasingly conscientious consumer. While resale makes up close to 20% of the total second-hand market, according to data compiled by GlobalData, by 2023 total market share is expected to approach 45%. This would imply annualized growth of some 35%, versus 8% for the legacy retail-centric part of the second-hand market, and following close to 50% annualized growth over the last five years (or close to 26 times the total physical apparel and accessories retail channel growth), which Carden believes makes this one of the fastest-growing segments of the apparel and accessories market, and one that brands and wholesalers are only now taking more seriously.

Online resellers offer a broad assortment of well-known brands at compelling discounts, with an ever-changing array of newness drawn from a low-cost, near-endless supply of clothes sitting in peoples' closets. "There are several underlying currents in the consumer space that support resale's more recent rise, including a diminishing stigma around second-hand items and a precipitous decline in use per item in the last decade coinciding with the rise of purchasing power of millennials and Generation Z," stated Carden. "Though counterintuitive to this narrative, the consumer has secondarily become more conscientious, increasingly preferring brands and products that are sustainable, where second-hand is an appealing choice." Lastly, he believes resale fits squarely in a broader shift toward value in the post-recession era, as fewer dollars make their way to discretionary purchases, crowded out by rising housing, healthcare, and education costs. Here too, resellers also offer compelling optionality to consumers to earn cash for closet items, while keeping those same customers engaged on the platform to spend those earnings.



Closet of the Future

At present, estimates suggest some 6% of consumer closets are made up of second-hand items. Conservative estimates suggest this number could double in the next decade, though some sources we spoke with in conjunction with this report believe up to a quarter of an individual's closet could be made up of resale or rental items.

To be sure, the online resale ecosystem will be hard for traditional retail to compete with. We see much of the market share gains for online resale coming from value peers, namely outlets and fast fashion, both of which are starting to show cracks, and potentially off-price, all of which have been aggressively growing physical space in the last five years. More broadly, Carden believes online resale will take market share from all corners of the market, with brands at risk of losing sales with their goods ever more available at more compelling value. As a result, some brands have launched their own resale/donation initiatives. Although availability of goods for resale will be hard to control, there could be benefit in brands taking control of the resale of their own goods in an effort to own the customer relationship, capture incremental sales, and better control brand messaging. As always, the best defense will be to have a highly engaging brand, driving higher levels of full-price selling. For over-distributed brands more beholden to a value or promotional strategy, there is now yet another lower-cost provider in the market to compete with at accelerating scale.

Diminishing Use for Items of Clothing

Consumers are getting increasingly less utility out of their closets. According to a study conducted by McKinsey & Company in conjunction with the Business of Fashion, one-third of women consider an item to be "old" after just one use. This mentality coincides with a steady decline in the number of times U.S. consumers are wearing an item of clothing, down some seven uses in the last 15 years, an average annual decline of about 1%. Globally, consumers are wearing items some 73 less times, or an average decline of 3% per year over the same period, led by a precipitous decline in China as its population has moved up the income ladder.

Sustainability Is a Real Concern

Despite the seeming wastefulness of our dressing habits (or perhaps as a natural backlash against it), consumers claim to be all the more conscientious about the wastefulness of the clothing industry. The apparel and accessories space is reported to be one of the largest polluters in the world, after only the oil industry, and contributing some 10% of global carbon emissions. Meanwhile, 84% of respondents in the 2018 thredUP survey suggested that they prefer socially conscious brands, with 65% using savings from second-hand purchases to spend outside the apparel and accessories category.

An Ever-Stretched Consumer

Lastly, value is ever more necessary for the consumer. Consider that in a 2015 survey, the No. 1 reason for cleaning out closets (32% of respondents) and shopping second-hand (29%) was to earn cash and save money, respectively. Here there is something to be said about the ease of use that the online segment now provides to monetize closets. "While sustainability and access to fashion at value are clearly driving forces behind the rise of resale," Carden believes "mounting economic headwinds against the consumer will continue to define spending in the category."

For a copy of the "Deep Dive Into the Online Resale Market; The Next Great Disruptive Force in Retail" report or for more information on the companies from Dylan Carden's or Ralph Schackart's coverage list, please contact your William Blair sales rep.

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