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The Rise of Hand-Me-Down Inc.

 

Thrift shopping is going mainstream.

 

It used to be that shopping for secondhand goods meant sifting through piles of clothes and “Everything $1” bins at the local Goodwill or a neighbor’s garage sale. For many, it meant scrolling through postings on one of the first online marketplaces, eBay Inc.

 

Today, it’s as easy as hailing an Uber or renting a room through Airbnb Inc. Bargain hunting, environmental concerns and the sharing economy have erased the stigma of used goods at the same time technology has made thrift shopping more accessible, reliable and cool. Even Kim Kardashian West wears vintage designer duds.

 

“Following the recession, there was a mind-set shift when it came to acquiring used goods,” said Oliver Chen, an analyst tracking retail trends at Cowen & Co. “Now, it’s considered a smart bargain. Being fashionable is about getting value for your dollar.”

 

For many consumers, the opposite was true just over a decade ago. Jessie Char, 32 years old, said shopping at thrift stores wasn’t cool when she was growing up. “It was the Abercrombie & Fitch era,” said Ms. Char, an event planner in San Francisco. “Vintage clothes were frowned upon by the popular kids.”

 

Today, about half of Ms. Char’s wardrobe is second hand. She said she scours a new crop of websites that are making it easier than ever for people to buy and sell used merchandise such as The RealReal Inc., REAL 1.40% Poshmark Inc. and thredUP Inc. as well as thrift stores such as Crossroads Trading Co., with about 37 locations, for bargains.

 

She recently bought a Prada Cahier belt bag for $945 on The RealReal. A similar version of the bag is currently selling at Neiman Marcus for $1,790. Neiman Marcus Group Ltd. made its own foray into the market for what it calls “preloved” handbags and accessories this year when it took a minority stake in Fashionphile LLC.

 

The RealReal, which resells luxury apparel, shoes, handbags and jewelry, went public in June and now commands a market value of nearly $1.3 billion, larger than that of Abercrombie & Fitch Co. It expects to sell nearly $1 billion of goods this year, though its net loss widened in the most recent quarter.

 

ThredUP and Poshmark offer used goods from a wider array of brands, including J.Crew and Gucci. Poshmark is planning an initial public offering as soon as this fall, people familiar with the situation said. StockX is the place where sneakerheads go for their latest fix of vintage athletic shoes and streetwear.

 

These companies are borrowing a page from the car industry, which turned the process of buying secondhand automobiles from agonizing to relatively painless by offering leases on preowned vehicles. The dealers do all the vetting, taking out the uncertainty much the way The RealReal and other secondhand marketplaces authenticate products they sell.

 

As these sites soar in popularity, it remains to be seen whether they can make money from reselling fashionable clothes and other items. The cost of cleaning and vetting goods is considerable, as is sourcing, industry executives said. Rather than products flowing from overseas factories in large batches, they are coming from people’s closets, often one at a time.

 

And the secondary market isn’t immune to the pressures facing stores that sell new goods. Discounting by department stores depressed prices of secondhand goods sold by The RealReal in its most recent quarter, according to Julie Wainwright, The RealReal’s chief executive.

Boxes stack up inside The RealReal’s Brisbane, Calif. warehouse from customers looking to sell everything from clothes and shoes to furniture and handbags. The company, which went public this year, is now worth nearly $1.3 billion due to rising demand for used items.CHRISTIE HEMM KLOK FOR THE WALL STREET JOURNAL

 

Behind the Scenes of The RealReal’s $1.3 Billion Secondhand Empire

The RealReal is a prime beneficiary of the rising demand for secondhand goods. Here is a look at how the company moves hand-me-downs through one warehouse in California.

 

The sale of secondhand goods—or recommerce—accounts for a tiny fraction of the $3.8 trillion in U.S. retail sales, but it is growing fast. Sales of secondhand goods are expected to more than double to $51 billion by 2023, up from $24 billion last year, according to GlobalData PLC, which prepared the research for thredUP.

 

Fifty-six million U.S. women bought secondhand products in 2018, up from 44 million who did so in 2017, according to the report. Shoppers ages 18 to 37 are driving the shift. A third of Generation Z and more than a quarter of millennials will make secondhand purchases this year, the report predicts.

 

It isn’t just women who are getting into the act. Most of the resale sites also buy and sell used men’s clothing in addition to the plethora of men’s suit- and tuxedo-rental services that have popped up.

 

Rent The Runway and other rental business are benefiting from similar changes in consumer behavior, including a desire for newness on the part of young selfie-posing shoppers who don’t want to be seen in the same outfit twice. Consumers on average buy 60% more clothing today than they did 15 years ago, but keep the items only half as long, according to McKinsey & Co.

 

That has resulted in more waste. Nearly 60% of the more than 100 billion garments produced annually end up in incinerators or landfills within years of being made, McKinsey estimates. The production of one kilogram of fabric generates an average of 23 kilograms of greenhouse gases, the consulting firm says, making the fashion industry a big polluter.

 

“I used to buy the $15 fast-fashion shirt that fell apart after I washed it a few times, until I realized how wasteful that was,” said Jessica Fletcher, a 25-year-old project engineer, who lives in St. Louis, Mo. She started buying used clothes after she graduated from college. “It was a good way to get better quality at a quarter of the cost.”

 

Shoppers at the high end have become more bargain conscious, too, particularly as prices for luxury goods have soared over the past 15 years, placing many items out of reach, even for the affluent. McKinsey estimates that prices of fine watches and jewelry have nearly doubled since 2005, while the price of Louis Vuitton’s Speedy 30 handbag has increased 19% a year since 2016.

 

“I can afford to buy new clothes, but I like buying them used, because it lets me try different styles without spending a lot of money,” said Kuromi Hendrix, 28. Ms. Hendrix, who lives in Boston and works as an IT specialist, recently scored a Tadashi skirt for $12.99 on thredUP. The resale site estimates the original price was around $107.

 

As more shoppers buy used products, they are spending less at traditional chains, from fast-fashion retailers to department stores. Some established players are fighting back by launching or expanding their own resale programs, including Macy’s Inc. and Levi Strauss & Co.

 

GlobalData predicts that sales of secondhand merchandise will exceed those of fast fashion within a decade. And at the high end, used goods will account for 9% of the global luxury market by 2021, up from 7% last year, according to Boston Consulting Group.

 

The technology that created the boom in online shopping has turned the local thrift store into a mainstream phenomenon by providing consumers with more confidence that their purchases are authentic and making it easier for them to browse at times that better fit their schedules.

 

“You can shop for secondhand goods in a way that you never could before,” said James Reinhart, thredUP’s founder and chief executive.

 

When Hannah Stephenson, a 36-year-old writer, needed to update her wardrobe for a new job, she didn’t have time to sift through piles of clothes at her local Goodwill. Instead, she browsed thredUP’s website in the evening while she lounged on her couch.

“I’d rather buy second hand than go to a mall, because you can find more unique items,” said Ms. Stephenson, who lives in Columbus, Ohio.

 

Buying is only part of the equation. A growing number of shoppers also sell their clothes and accessories on secondhand websites and in thrift shops, creating a virtuous circle that clears out their closets so they can buy more.

 

According to a survey of 12,000 luxury consumers by Boston Consulting Group, one-third of respondents said they sold items to empty their wardrobe and finance new purchases. At The RealReal, 53% of consignors were also buyers as of March, according to securities filings.

 

“This is a trend that is not going away,” said Sarah Willersdorf, a Boston Consulting Group partner.

 

 

 

 

 

 

 

 

 

 

 

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