8 Things to Know About ThredUp’s Growth & Challenges

Picture of a ThredUp box
 

By Tricia McKinnon

When you are shopping for a new outfit do you buy new or do you spend your time sifting through racks of clothing in a thrift store? Or is your first course of action to head to a resale website like ThredUp? While many people still like the treasure hunt aspect of going to a thrift store some find it more convenient to shop for secondhand apparel online.

ThredUP which was founded in 2009 has become one of the more popular destinations for secondhand clothing with the CEO of ThredUp, James Reinhart, saying that: “I started ThredUp back in 2009 after staring at a closet full of clothes that I never wore. I knew there was value locked up in those clothes, and I knew I wasn't the only one. Looking back on that moment. I certainly didn't appreciate how that insight could eventually upend how we look at innovation in retail, the apparel industry, and our environment.” Reinhart hasn’t looked back since and ThredUp continues to acquire new customers today. If you are curious about ThredUp’s growth and challenges then consider these eight aspects of its business.

1.  ThredUp went public last year and raised $168 million in its initial public offering and was valued at $1.7 billion at the company’s opening price on the stock market. But since then ThredUp’s valuation has dropped quite significantly and the company is now valued at $170 million.

2.  ThredUp has found that a lot of the clothing sold on its site is from fast fashion retailers like Shein and PrettyLittleThing. Last year ThredUp received 186% more garments that were originally purchased from Shein than what was received in 2020. It also received a 75% increase in garments from the PrettyLittleThing brand versus the prior year.

3.  ThredUp operates mostly on a consignment model where sellers send in their used items to ThredUp. Then ThredUp inspects and photographs the merchandise before posting the items on its website. Once a buyer purchases an item ThredUp receives a commission on a sliding scale where it receives a higher percentage commission for lower priced items and a lower percentage commission for higher priced items. For example, if an item sells for more than $200 ThredUp receives a 20% commission but if an item sells for $10 it receives a commission of between 85% to 97% of the selling price of the item.

4. The resale market is expected to grow quickly from $15 billion in 2021 to $47 billion by 2025. With the resale space heating up ThredUp sees a number of resale sites as well as traditional retailers as its competition including: The RealReal, Poshmark, eBay, Amazon, Walmart, Kohl’s, TJ Maxx and Burlington Stores.

Despite the fast growth of the secondhand market analysts say there are barriers to adoption. “The curation of secondhand is one of the big barriers,” says Nancy Bocken, a professor of sustainable business at Maastricht University since it can be a challenge to “find the right size or style.” “It remains to be seen if technologies that make secondhand more convenient will convince those who are currently ambivalent about it,” said Elisa Niemtzow, vice president at BSR, a consulting company.

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5. To bring in more revenue ThredUp also offers a “resale-as-a-service” program where retailers partner with ThredUp to offer customers a store credit when they list one of the brand’s clothing items on ThredUp’s site. By the end of this year ThredUp planned to have deals with around 40 retailers including Gap, Madewell, Walmart and Target. “As the resale revolution continues to gain momentum, participating in re-commerce is not only good for our planet, but good for business,” says Mark Breitbard, President of Gap Inc., Specialty Brands.

“There’s a lot of brands out there that we think will be good brands for resale,” said Reinhart. “My expectation is that it’s not 40 brands [over time]. It’s probably hundreds, if not thousands, of brands over the years. Ultimately almost every brand is going to have a resale strategy, or resale experience, over the next five to seven years and I think ThredUp is well-positioned to power that.”

6. In a study commissioned by ThredUp it found that a single new piece of clothing is manufactured using 77 gallons of water and releases 17 pounds of CO2 and other greenhouse gases. More than 100 billion pieces of clothing are produced each year. 73% of clothing items are sent to a landfill or incinerated. 95% of those items could have been reused or recycled. 

7. In ThredUp’s second quarter of this year it had 1.7 million buyers and 1.7 million orders. The company’s sales continue to increase with sales up 27% over last year to reach $76.4 million. ThredUp has already processed over 130 million articles of clothing since inception.

8. ThredUp has yet to generate a profit as public company and in the second quarter of this year it lost $28.4 million, or 37.2% of revenue. “The first hurdle for the resale market is proving that it can be profitable,” said analysts at Bernstein, an investment firm. “Merchandise margins are high, but we do not see a quick path to overall profitability.” “The long-term hope for these businesses is that advancements in technology will help to automate some of these processes, which today remain rooted in labor intensive practices [for things like inspecting merchandise and copywriting].”

Tricia McKinnonStrategy & GrowthComment