ThredUp and Vestiaire lead second hand, yet the business model to operate profitably in the direct-to-consumer (DTC) resale fashion market has proven a tough nut to crack, although not for lack of trying. Before 2009 when U.S.-based ThredUp, Tradesy, and French-owned Vestiaire Collective came onto the scene, the used clothing business operated primarily as the fundraising arm for non-profits. Local independent brick-and-mortar consignment shops operated on the sidelines and eBay offered secondhand clothing across its massive resale platform. In those early days, eBay and small shops tended to get the better goods because consigners opted to put a few dollars in their pockets rather than take a tax write-off.

Affordable fast fashion is a false economy not only are the hidden human and environmental costs enormous, but when you buy cheap, you buy twice. With the low average cost of a fast fashion order, consumers are incentivized to choose quantity over quality and become trapped in a cycle of cheap prices, constant promotions, and rapidly changing trends — not to mention poor quality clothes that need replacing again and again.

At the time, ThredUp, Tradesy and Vestiaire wouldn’t have been considered disruptors since there wasn’t an organized used-clothing market to disrupt. A DTC online resale market quickly began to take shape. These early entrants laid the groundwork for other resale fashion players to follow, including The RealReal, Depop, Mercari, Rebag, Vinted, Remix and Poshmark.

Fast forward to last year, the U.S. secondhand apparel market, including both non-profit donations ($20 billion) and online resale ($23 billion), grew seven times faster than the retail clothing market. DTC online resale more than doubled that, growing some 15 times faster in the U.S.

First Movers in Second Hand

Among the first movers in the online resale market, Tradsey and Vestiaire joined forces in early 2022. Vestiaire is backed by some power players, including Kering, Condé Nast, Balderon Capital, Luxury Tech Fund, Eurazeo, Vitruvian, and Bpifrance among others, but it remains private. It also provides resale-as-a-service (RaaS) partnerships with Chloé, Gucci, Paco Rabanne, Courrèges, Burberry, Alexander McQueen, Mulberry, Mytheresa and a few more.

Leaders ThredUp and Vestiaire play in different segments of the resale market – Vestiaire in the premium, luxury space and ThredUp at the more mass-market level – but their operating models share many similarities. ThredUp went public in March 2021, showing revenues of $186 million in 2020, up 14 percent over 2019, yet with a nearly $500 million loss. After launching at $18.50 per share, it reached a high of almost $28 in July of that year, then began to tank. Today, shares are trading under $2. Some of the IPO proceeds went to acquire Remix Global, a leading European resale platform.

Both brands believe they are poised to grab market share in a rapidly expanding market. ThredUp figures the global secondhand apparel market will grow at a compound annual growth rate (CAGR) of 12 percent through 2028 to reach $380 billion. And in the U.S., it sees online resale more than doubling over the next five years to reach $40 billion.

Rapid Growth, No Profits

But one nagging problem has vexed the online resale sector: profits. Depop couldn’t make it on its own and was acquired by Etsy for $1.6 billion in 2021. Poshmark was bought by South Korea’s Naver for an undisclosed sum in January 2023. after a disappointing IPO in 2021.

The RealReal’s 2019 IPO followed shortly after founder Julie Wainwright’s exit and Canadian Tire president John Koryl was brought in to right the ship. After about a year at the helm, the company cut its losses from $196 million in 2022 to $168 million in 2023 on revenues of $549 million and $1.7 gross merchandise value. And in the fourth quarter of 2023, it reported positive adjusted EBITDA of $1.4 million and positive free cash flow for the first time since going public in 2019. It shows the company is moving in the right direction but still isn’t all the way there yet.

ThredUp posted a net loss of $71.2 million and EBITDA negative $17.4 million on $322 million revenues in 2023, and Vestiaire revealed revenues of $164 million (€157) on $888 million (€824 million) gross merchandise value (GMV) and negative EBITDA of $33.4 million (€31 million). ThredUp doesn’t report GMV.

Vestiaire’s Mission to “Think First, Buy Second”

Vestiaire’s mission extends beyond just creating a profitable, sustainable business in the luxury resale market. “We are on a mission to transform the fashion industry for a more sustainable future by empowering our community to drive the change,” it stated in its recent investor presentation.

Vestiaire’s particular aim is to quash the fast-fashion business. “In today’s climate of inflation, it is obvious: neither people nor the planet can afford fast fashion,” said Fanny Moiszant, president and co-founder of Vestiaire, as she introduced the company’s 2024 Circularity Report. It “sounds the alarm on fast fashion’s devastating impact and should be a wake-up call to all to end overconsumption and overspending.”

The report presents a cost-per-wear mathematical model: the price of an item (P), minus its resale value (V), divided by the number of times it’s worn (T). It finds fast fashion items are worn less on average, kept for a shorter period, and have a lower resale value, based on results from more than 13,000 buyers and sellers and analyzing 250,000 transactions.

Vestiaire argues, “Investing in high value, higher quality items is the smarter choice to save money” and provides numerous examples in the report. For example, pre-loved dresses are worn eight times more at a cost-per-wear of $1.56 versus $5.66 for a fast fashion selection. Overall, it finds that its Collective buyers wear their secondhand pieces two times more than fast-fashion owners and keep them 31 percent longer.

It uses logic to prove the point: Affordable fast fashion is a false economy. Not only are the hidden human and environmental costs enormous, but when you buy cheap, you buy twice. With the low average cost of a fast fashion order, consumers are incentivized to choose quantity over quality and become trapped in a cycle of cheap prices, constant promotions, and rapidly changing trends — not to mention poor quality clothes that need replacing again and again.”

From a business perspective, Vestiaire boasts an “asset-light” business model where digital authentication validates items listed for sale. It claims a 99.9 percent counterfeit detection rate. For some two-thirds of items sold, that is good enough and the item is direct shipped from seller to buyer, reducing the environmental impact of shipping plus saving time. Only about one-third of items need advanced authentication whereas the company takes control of the item in one of its four authentication centers in France, the U.K., U.S., and Hong Kong. Those one-third represent about two-thirds of the company’s GMV.

Global sales are skewed toward Europe (~70 percent) with only about 20 percent from the Americas.

ThredUp Looks to the EU

While Vestiaire is focused on expanding its base in the U.S., ThredUp is looking toward Europe for growth after its acquisition of Bulgari-based Remix for $28.5 million in 2021. At the time, Remix generated about $34 million in revenues. Since then, ThredUp international sales have nearly doubled, reaching $64 million in 2023.

Also, during that period, ThredUp has been shifting its business model from product-based revenue to consignment-based. Originally, ThredUp bought most goods directly and recognized revenues after they were sold. Under the consignment model, consigners send ThredUp their goods; Thredup then lists and holds the items until sold when a portion of the sale price goes to the consigner. This model reduces write-downs and boosts gross margin.

Consignment also attracts higher-quality inventory and builds ongoing relationships with prime consigners who provide a steady supply of products, which is vital as resale is a supply-constrained business. In 2023, consignment revenue rose 22 percent, to $214 million and product revenue declined by about 5 percent, to $108 million, so the shift is moving in the right direction.

Also trending right for ThredUp is a nearly 10 percent growth in active buyers which numbered 1.8 million in the fourth quarter. It also saw an annual 6 percent increase in orders and a 5 percent boost in net revenue per order. All told, it fulfilled nearly 7 million orders in 2023.

Remix brought an excess of product in the acquisition, frustrating ThredUp’s quest for profits. So, in the fourth quarter of 2023, it bit the bullet and took a $1.9 million write-off to clear that inventory and accelerate its shift to consignment in its EU operations.

“Our U.S. business was profitable in Q3 and Q4,” CEO James Reinhart shared. “And we are guiding on full-year EBITDA profitability on a consolidated basis this year. So, the profits are there, it’s just we have to treat the U.S. and Europe businesses differently accounting-wise.” He also added that it will generate free cash flow on a full-year basis in 2024.

Resale-as-a-Service (RaaS) is another positive growth driver for ThredUp. It’s partnered with over 50 leading brands to provide resale to their customers. Partner brands include Kate Spade, Madewell, J. Crew, PacSun, Reformation, Eloquii, Gap, Banana Republic, Athleta, Tommy Hilfiger, Abercrombie & Fitch, American Eagle, M.M. Lafleur, Hollister, Cuyana, Vera Bradley and the list goes on.

Resale as an Art

Reinhart observes that not all brands make the most of the resale side of their business. “Just because it’s a big, established brand doesn’t necessarily correlate to how well they do in resale,” he said as he points to the challenger brand, Los Angeles-based Michael Stars, as a standout in maximizing its resale platform.

“Resale is a gateway for customers to discover new brands and for brands to bring in new customers who might not be able to afford the full price but can buy in resale. We are seeing some of our partners starting out one way in resale and then evolving that side of the business as they learn. We continue to see growth and innovation in this space.” He adds, RaaS is profitable for both its brand partners and ThredUp, where revenues are booked under consignment.

RaaS White Label Competitors

Sensing the opportunity in RaaS as a standalone business, several companies have emerged offering white label resale services. Reflaunt launched in 2019 and counts Balenciaga, Harvey Nichols, Yoox, Net-a-Porter, and Off Saks Fifth Avenue among its clients. Archive emerged in 2020 and has brought on Oscar de la Renta, The North Face, Diane Von Furstenberg, and Ariat.

Trove is perhaps the biggest RaaS, having raised $120 million in funding compared to Archive’s $8 million and Reflaunt’s $12 million. Its partners include Canada Goose, Arc’teryx, Eileen Fisher, Levi’s, Patagonia, REI Coop, Lululemon, Patagonia, Carhartt and more. Trove launched as a peer-to-peer resale platform in 2012 then shifted to the RaaS model in 2017.

Reflaunt’s chief commercial officer Sofia Gazzotti observes that RaaS white label services hold more promise because they can leverage the existing brand’s customer base which usually numbers in the millions. Plus, “Brands have an inherent credibility and trust that increases the likelihood that customers will entrust them with their pieces,” she said.

While Reinhart acknowledges the entrance of the white label cohort into its competitive landscape, he believes ThredUp has the advantage, not just as a first mover in the space but also because of its far greater depth and experience in the resale market as it has evolved. RaaS can work on a stand-alone basis, but its success relies on the backend infrastructure, brand awareness and just experience in understanding the secondary market, both from the customer and supply side, that we’ve built.”

“Our RaaS service cannot exist independent of the ‘mothership,’” he maintains. “You can’t strip away that into individual ranges. We’re different and it really helps grow the ThredUp brand overall.”