The Resale Boom: ThredUp and RealReal Market Outlook

The secondhand clothing market has evolved from dusty thrift store racks to a multi-billion dollar digital industry. Leading the charge are platforms like ThredUp and The RealReal, which have made buying used items accessible and premium. However, while revenue grows, the path to actual profit remains a complex challenge for these public companies.

The Explosion of the Secondhand Market

The stigma surrounding pre-owned clothing has largely evaporated. According to ThredUp’s 2024 Resale Report, the global secondhand market is projected to reach $350 billion by 2028. In the United States alone, the secondhand market is expected to reach $73 billion by that same year.

This growth is driven by two main factors: value and values.

  1. Economic Pressure: With inflation affecting household budgets, consumers are turning to resale to stretch their dollars. Brand-name goods at 50% to 90% off retail prices are highly attractive when new apparel prices are rising.
  2. Sustainability: Gen Z and Millennials are hyper-aware of the environmental cost of fast fashion. Buying used is seen as a direct action to reduce textile waste.

While the consumer appetite is clear, the business mechanics of fulfilling this demand are difficult. We need to look closely at the two main public players in this space.

ThredUp: The Managed Marketplace Model

ThredUp differentiates itself by doing the heavy lifting for the seller. Unlike peer-to-peer apps where you must photograph and ship items yourself, ThredUp asks users to fill a “Clean Out Kit” and mail it in. They handle the photography, listing, and shipping.

The “Resale-as-a-Service” (RaaS) Pivot

ThredUp creates revenue through commissions, but their most promising growth vertical is B2B. They have launched “Resale-as-a-Service” (RaaS), which allows traditional retailers to launch their own resale programs using ThredUp’s logistics infrastructure.

Major brands have signed on, including:

  • J.Crew: Using ThredUp to power their “J.Crew Always” program.
  • H&M: Utilizing the platform to manage used inventory in the U.S. market.
  • Madewell: One of the earliest adopters, focusing on denim recycling and resale.
  • Kate Spade New York: Encouraging customers to trade in items for store credit.

This strategy is smart because it reduces customer acquisition costs. Instead of fighting for users, ThredUp piggybacks on the loyal customer bases of established brands.

Financial Hurdles

Despite high volume, ThredUp faces massive operational costs. Processing millions of unique items (skus) is expensive. Someone must inspect, measure, and photograph every $15 t-shirt. To combat this, ThredUp has recently increased processing fees for sellers and shortened the consignment window, prioritizing higher-quality items that sell faster to improve their unit economics.

The RealReal: Luxury and Authentication

The RealReal (TRR) occupies the high-end sector. They focus on luxury goods from designers like Chanel, Gucci, Hermès, and Louis Vuitton. Their value proposition is trust. They employ a team of gemologists and brand authenticators to ensure buyers aren’t purchasing fakes.

Strategic Shift to Consignment

Under the leadership of CEO John Koryl, TRR has undergone a significant strategic pivot to save money. Previously, the company would buy inventory directly from sellers to boost revenue figures. However, holding inventory is risky and capital-intensive.

Recently, TRR shifted almost entirely back to a consignment model. They also changed their commission structure to discourage low-value items. They realized that selling a $50 dress cost them nearly as much in labor as selling a $5,000 bag, but with a fraction of the profit. By focusing on higher-margin goods, they aim to stabilize their balance sheet.

The Trust Issue

The RealReal faces a unique challenge: reputation. High-profile reports and lawsuits regarding the sale of counterfeit goods have occasionally dented consumer trust. Ensuring 100% accuracy in authentication while processing thousands of items daily is an immense logistical struggle that requires highly paid experts, further eating into margins.

The Profitability Problem

If the market is booming, why are stock prices for TDUP (ThredUp) and REAL (The RealReal) volatile? The answer lies in the difference between “Growth” and “Profit.”

For years, these companies focused on acquiring customers at any cost. Now, Wall Street demands profitability. Neither company has consistently shown a GAAP (Generally Accepted Accounting Principles) profit, though both are inching closer to “Adjusted EBITDA” profitability.

The core expenses dragging down profits include:

  • Reverse Logistics: Shipping items to the warehouse is a cost often borne by the platform.
  • Single-SKU Logistics: Unlike Amazon, which ships 5,000 units of the same toothpaste, resale platforms manage millions of unique items. This prevents standard automation efficiencies.
  • Returns: Return rates in fashion are high. Handling returns for unique used items effectively doubles the processing cost for a single sale.

Competitors: Peer-to-Peer vs. Managed

While ThredUp and The RealReal bear the cost of warehouses, their peer-to-peer (P2P) competitors operate with much lower overhead.

  • Poshmark (owned by Naver): Poshmark connects buyers and sellers but does not touch the inventory. The seller handles shipping. This creates a high-margin business for Poshmark, as they take a flat 20% cut without paying for warehousing or photography.
  • eBay: The original giant still dominates. With their “Authenticity Guarantee” for sneakers and handbags, they are directly attacking The RealReal’s market share.
  • Depop & Mercari: These platforms cater to younger, trend-focused buyers and operate on the low-overhead P2P model.

Future Outlook

The outlook for the resale market is undeniably positive, but the outlook for specific platforms depends on efficiency.

For ThredUp, success lies in automation and the expansion of their RaaS client list. If they can become the backend logistics provider for the entire retail industry’s secondhand efforts, they will win.

For The RealReal, success depends on increasing the average order value (AOV). They must focus on selling fewer items at higher prices to cover their authentication overhead.

Consumers will continue to buy used clothes. The question is which platform can facilitate that exchange without spending more on operations than they make in commissions.

Frequently Asked Questions

Are ThredUp and The RealReal profitable? As of late 2023 and early 2024, neither company typically reports a net profit on a GAAP basis. They are both in cost-cutting modes, aiming to reach Adjusted EBITDA profitability by streamlining operations and reducing low-value inventory.

What is the difference between Poshmark and ThredUp? Poshmark is a peer-to-peer marketplace where you must take photos, list items, and ship them to the buyer yourself. ThredUp is a managed marketplace where you send a bag of clothes to them, and they handle all the work in exchange for a higher fee.

Why is the secondhand clothing market growing so fast? The growth is fueled by younger consumers (Gen Z) who value sustainability, combined with economic factors like inflation that make discounted clothing more appealing.

Does The RealReal guarantee authenticity? Yes, The RealReal offers an authenticity guarantee. However, they have faced criticism and legal challenges regarding errors in their authentication process. They employ experts to verify luxury goods, but the volume of items makes the process difficult to perfect.