fashion re-commerce update—12 catalysts for apparel … · times faster than the broader retail...

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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

1) Themarketplaceforonlinefashionresale(“re-commerce”)continuestoevolverapidly.

2) USfull-priceretailersaresufferingwhilere-commerceisthriving,andre-commerceiscurrentlyoneofthefastest-growingsectorsinretail.Thetotalapparelresalemarket(brick-and-mortarandonline)isexpectedtogrowataCAGRof13%from$18billionin2016to$33billionin2021.

3) Keyfactorsdrivingcontinuedgrowthofthefashionre-commercesectorincludemillennialpenetration,desireforvalueandcostsavings,theentertainmentfactorofthetreasurehuntforuniqueitems,decluttering,environmentalconcerns,greaterinterestfromhigher-incomeshoppersandmalecustomers,aswellasresellersopeningphysicallocations.

4) Wehavealsoseentheemergenceofmobilepeer-to-peerre-commerceplatformsofferinginnovativeandeasy-to-usetechnologicalfeaturesincludingsocialmediafunctionality.

5) Onlinesecondhandresellerscouldposeacompetitivethreattooff-priceretailerssuchasTJX,asbothoffersteepdiscountsonbrandedmerchandiseandprovideatreasurehuntshoppingexperience.

Deep Dive: Fashion Re-Commerce

Update— 12 Catalysts for Apparel Resale

Growth

Deborah Weinswig

Managing Director,

Fung Global Retail & Technology

[email protected]

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

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TableofContents

ExecutiveSummary........................................................................................................................................3

Introduction...................................................................................................................................................4

DefiningRe-Commerce.......................................................................................................................................4

AnEvolvingandExpandingSector......................................................................................................................4

TheResaleApparelSegmenthasSeenUnprecedentedGrowthinthePastYear..............................................5

TheRiseofPeer-to-PeerMarketplaceRe-CommerceApps...............................................................................5

Depop............................................................................................................................................................6

Letgo..............................................................................................................................................................7

OfferUp..........................................................................................................................................................7

12CatalystsforRe-CommerceGrowth...........................................................................................................8

ValueandCostSavings.......................................................................................................................................8

Digital-SavvyMillennialsMarketPenetrationIncreasingRe-Commerce............................................................8

TheEntertainmentFactoroftheTreasureHuntShoppingExperience..............................................................8

GettingOvertheStigmaofUsedClothingBecauseQuality,CleanlinessandCurationareControlled..............9

DeclutteringandThePerceptionof“HavingTooMuchStuff”...........................................................................9

MakingExtraIncome........................................................................................................................................10

ConcernsaboutSustainabilityandEco-Friendliness,EspeciallyAmongtheMillennialandGenZDemographics...................................................................................................................................................10

Re-CommerceOffersaVeryAttractiveCompetitivePropositionComparedtoOtherRetailers,EspeciallyOff-PriceRetailerssuchasTJX.................................................................................................................................10

SellersBecomeBuyersandBuyersSellers........................................................................................................10

High-IncomeShoppersJoiningtheAct.............................................................................................................11

MenAreStartingtoShopOnlineasWell..........................................................................................................11

Brick-and-MortarLocations..............................................................................................................................11

KeyTakeaways..............................................................................................................................................12

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ExecutiveSummaryTheexperienceofbuyingandsellingpre-wornclothinghasevolveddramaticallyovertheyears,fromthriftshopsandconsignmentstorestoeBayandfinallytoe-commercewebsitesanddigitalappsthatoffersimplicity,convenience,socialinteractionandsomeevenbrandauthentication.US-basedThredUPhasemergedastheleaderinthelow-to-mid-pricere-commercesegmentandTheRealRealinthepremiumandluxurysegment.

Anaturalevolutionhasbeentheintroductionofsocial-media-type,peer-to-peerre-commerceapps,whichareexpectedtoattractmoreyoungbuyersandsellerstothere-commercemarket.Theriseofnewresellingpeer-to-peermarketplaceappssuchasOfferUp,LetgoandDepophasfacilitatedaverysimplelistingandtransactionprocesstotradeusedgoods.SmallermobileappplatformshavebeenmuchmoretechnologicallyinnovativeandaretakingmarketsharefrompioneeringdigitalsecondhandmarketplacessuchaseBayandCraigslist.

Besidessimpleusabilityfeatures,thenewpeer-to-peermarketplaceappsincludesecurityfeaturesthatbuildtrust.Establishedsellershaveatransactionhistoryandstrongratingsfromcustomerswhohadpreviouslypurchasedgoodsfromthem.Individualscanalsoconsignitemstoestablishedsellerstosellforthem.

USfull-priceretailersaresufferingwhilere-commerceisthriving,andonlinere-commerceiscurrentlyoneofthefastest-growingsectorsinretail.Thetotalapparelresalemarket(brick-and-mortarandonline)isexpectedtogrowatacompoundedannualgrowthrate(CAGR)of13%from$18billionin2016to$33billionin2021.Re-commercedisruptorsaregrowing20timesfasterthanthebroaderretailmarketandfivetimesfasterthanoff-priceretailers.

Whetherthroughonlineaugmentedresellersorthroughmobilepeer-to-peermarketplaces,amultitudeofkeyfactorsaredrivingcontinuedgrowthofthefashionre-commercesector.Theseinclude:millennialpenetration,thedesireforvalueandcostsavings,theentertainmentfactorofthetreasurehuntforuniqueitems,decluttering,environmentalconcerns,greaterinterestfromhigher-incomeshoppersandmalecustomers,aswellasresellersopeningphysicalpop-upandbrick-and-mortarlocations.

Anaturalevolutionhasbeentheintroductionofsocial-media-type,peer-to-peerre-commerceapps.

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IntroductionDefiningRe-Commerce“Re-commerce”—buyingandsellingsecondhandgoods—isonefactorreshapingtheapparelmarket.Empoweredbymobileconnectivity,consumersarebuyingandsellingpre-ownedapparelonline.Onlinere-commercecompaniesandpeer-to-peermarketplaceshavemadeitmucheasierforconsumerstobuyandsellsecondhandclothing,footwearandaccessories.Re-commercecompanieshaveadoptedavarietyofdifferentbusinessmodels.

Source:iStockphoto

Onlinere-commercecompaniessuchasThredUPandTheRealRealprovidesellerswithaugmentedlogisticsservicessuchasitemphotography,pricing,postinginventoryinformationonlineandcustomerservice.

Peer-to-peermarketplacesbringbuyersandsellerstogetherwithinahostedplatformtoperformtransactions.TheseincludeOfferUp,LetgoandDepop.

AnEvolvingandExpandingSectorThemarketplaceforonlinefashionresalecontinuestoevolveandexpandrapidly.US-basedThredUPhasemergedastheleaderinthelow-to-mid-pricere-commercesegmentandTheRealRealinthepremiumandluxurysegment.Thesecompaniesareprofiledinmoredepthinourfirsttwore-commercereports,OnlineConsignmentMarketandDeepDive:FashionRe-CommerceEvolution.

ThredUPpublisheditsfifthannualresaletrendreportinearly2017,andthiscontainssomeinterestingfindingsbasedonuserdata,andshedslightonchangingcustomershoppinghabits.Wehaveusedthereportfindingstoinformouranalysisofsectormomentum.

Inthisupdate,weanalyzethecontinuingevolutionandgrowthoftheapparelre-commercesegmentandfeaturekeydatafromThredUP’sreport.Wediscuss12factorsthataredrivinggrowthinthefashionre-commercesector.Finally,weprofiletwonew,mobilere-commerceplatforms,OfferUpandLetgo,andprovidemoredetailonpreviouslyfeaturedre-commerceappDepop.

Onlinere-commercecompaniesandpeer-to-peermarketplaceshavemadeitmucheasierforconsumerstobuyandsellsecondhandclothing,footwearandaccessories.

http://www.fungglobalretailtech.com/research/online-consignment-market/

http://www.fungglobalretailtech.com/research/deep-dive-fashion-re-commerce-evolution/

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TheResaleApparelSegmenthasSeenUnprecedentedGrowthinthePastYearWhilemanyUSfull-priceretailersaresufferingfromsoftconsumerdemand,there-commercesectoristhrivingandonlineresaleiscurrentlyoneofthefastest-growingsectorsinretail.AccordingtoThredUP:

• ThetotalUSapparelresalemarket(brick-and-mortarandonline)willgrowataCAGRof13%from$18billionin2016to$33billionin2021.

• Re-commercedisruptorsaregrowing20timesfasterthanthebroaderretailmarketandfivetimesfasterthanoff-priceretailers.

• Clothing,shoesandaccessoriescurrentlymakeup49%oftotalUSresalesales.

Figure1.USResaleMarketbySegment(%)

Source:ThredUP/FungGlobalRetail&Technology

TheRiseofPeer-to-PeerMarketplaceRe-CommerceAppsTheexperienceofbuyingandsellingpre-wornclothinghasevolveddramaticallyovertheyears,fromthriftshopsandconsignmentstorestoeBayandCraigslist,andmorerecentlytoe-commercewebsitesanddigitalappsthatoffersimplicity,convenience,socialinteractionand,insomecases,evenbrandauthentication.

Theriseofnewresellingpeer-to-peermarketplaceappssuchasOfferUp,LetgoandDepophasfacilitatedaverysimplelistingandtransactionprocesstotradeusedgoods,includingapparel,footwearandaccessories.SmallermobileappplatformshavebeenmoretechnologicallyinnovativeandaretakingmarketsharefrompioneeringdigitalsecondhandmarketplacessuchaseBayandCraigslist.Lessthan20%ofitemssoldoneBayinthefourthquarterof2016wereuseditems,andauctionsaccountforjust13%oftotaleBaysales.

49%

16%

14%

11%

10%

Clothing,Shoes&Accessories Other

Books Media

Electronics

ThredUPwillsellover10millionitemsin2017andthebusinessisexpectedtodoubleforthefourthconsecutiveyear.

Re-commercedisruptorsaregrowing20xfasterthanthebroaderretailmarketand5xfasterthanoff-priceretailers.

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Besidessimpleusabilityfeatures,thenewpeer-to-peermarketplaceappsincludesecurityfeaturesthatcanbuildtrustamongshoppers.Establishedsellershaveatransactionhistoryandratingsfromcustomerswhohavepreviouslypurchasedgoodsfromthem.

Belowweintroducethreere-commercedisruptermobilepeer-to-peermarketplaceapps.

Depop• Depopispredominatelyanappplatform,butcanalsobeaccessed

onadesktop.

• Thecompanywaslaunchedin2012andisheadquarteredinLondon.ItalsohasasmallofficeinNewYorkCity,asitisseekingtoenlargeitspresenceintheUS.

• Depophassixmillionusers,including350,000–400,000activedailyusers.

• Depopappealsmainlytoteenagersandmillennials,anditpermitsusersfromtheageof14years.Thecompanystatedthatapproximately70%ofitsusersarefemaleandamajorityareagedbetween16and26.TeenagersandyoungadultsuseDepopasabusiness,searchingvintagestoresandfleamarketsandresellingitemstomakeextraincome.

• TransactionsaremadeonlineviaPayPalorbycashpayment.Theappchargesa10%commissionondigitalsalesanddoesnotchargeacommissionwhentransactingpartiesmeetinpersonandexchangecash.

• DepopmakesparticipationsimplewithasocialinterconnectivityaspectsimilartoInstagram.Vendorspostimagesofitemstobesoldandsellerscanleaveitemsthattheysoldontheirprofiles,buildinguparetailingprofilewhichbuildsafollowerbase.Followerscan“like”andcommentonproductsandsellerprofilesandindependentlycommunicatewithsellers.Generally,themorefollowersasellerhas,theeasieritistoattractmorebuyers.

Source:www.depop.com

Depopappealsmainlytoteenagersandmillennials.

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Letgo• Letgowasfoundedin2015andhasraised$375millioninfunding

includingfromSouthAfricaninternetgiantNaspers.Theapp’sannualtransactionvolumeisexpectedtoreach$23.4billioninthe12monthsfromJune2016toJune2017.

• Theapphasbeendownloadedover45milliontimesandhas20millionmonthlyactiveusers(MAU).

• LetgohasofficesinNewYorkandBarcelonaandisavailableintheUS,CanadaandpartsofEuropeandTurkey.TheappisalsobeingtestedinAsiaandLatinAmerica.

• Theappoffersaveryquicklistingprocess,asitssoftwareautomaticallyscanstheitemtobesoldandcategorizesitusingartificialintelligence(AI)andimagerecognition.Theselleronlyneedstoaddaphoto.Buyerscontactthesellerthroughanin-appchatsystem.

• Currently,thereisnochargetouseLetgo,butinthecomingyearsitwillstarttryingtomonetizetheservice,throughadvertisingorbychargingsellerstoimprovelistingvisibility,accordingtothecompany.

• In2016,Letgospentanestimated$100millionontelevisionadvertisingintheUS,accordingtotheadvertisinganalyticsfirmiSpot.

OfferUp• US-basedOfferUpwasfoundedin2011andoperatesonlyintheUS

market.TheappoffersasimilardesignandexperiencetorivalLetgo.

• OfferUphasacompanyvaluationofapproximately$1.2billionaccordingtothecompany.

• OfferUpforecaststhatcompanysaleswillreach$20billionin2017.

• Theapphasbeendownloadedover23milliontimesand,accordingtothecompany,ithad14millionMAUinMarch2017.

• OfferUpmarketsthroughtelevisionadvertising.

• OfferUpincludessecurityfeaturessuchasverifyingaccountsthroughFacebookandadriver’slicenseforidentificationpurposes.Theappfeaturesbuyerandsellerratings.

• OfferUpdoesnotcurrentlychargebuyersorsellerscommissionsorusagefees.Thisyear,thecompanyhasbegunexperimentingwithmonetizationstrategies,includingin-apppayments.

OfferUphasbeendownloadedover23milliontimesandhas14millionMAU.

TheLetgoappcategorizesproductsusingartificialintelligenceandimagerecognition.

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12CatalystsforRe-CommerceGrowthWhetherthroughonlineaugmentedresellersorthroughmobilepeer-to-peermarketplaces,wesee12keyfactorsdrivingcontinuedgrowthofthefashionre-commercesector.

ValueandCostSavings• Approximately94%ofAmericanwomenstatedthattheyrarelybuy

clothingthatisnotdiscounted,accordingtoaThredUPsurvey.

• TheaveragediscountonThredUPis80%andtheaverageordersavescustomers$177.Thecompanystatedthatshoppingsecondhandexclusivelyforoneyearwouldsavecustomersaround$2,129onaverage.

Digital-SavvyMillennialsMarketPenetrationIncreasingRe-Commerce• AccordingtoThredUP,millennialsandwomenover65arethetwo

demographicgroupsmostlikelytoshopsecondhand.

• Approximately,30%of18–24year-oldshaveshoppedsecondhandinthepast12months,and21%saytheyintendtoshopsecondhandinthefuture.

• About79%ofThreadUP’ssalesarecompletedthroughmobiledevices.

• Approximatelyone-thirdofTheRealReal’scustomersaremillennials.

Figure2.LikelytoShopSecondhandbyAgeGroup,in%


TheEntertainmentFactoroftheTreasureHuntShoppingExperience• Thenumberonereasonforre-commerceshoppingappealisthe

entertainmentfactorofatreasurehuntshoppingexperienceduetoconstantproductrotation,and76%ofshopperssaythefunfactorisoneofthetopthreereasonstheyshopatre-commercecompanies.

• Some63%ofThredUPsurveyrespondentsclaimresaleshoppingisthrillingbecauseyouneverknowwhatyouaregoingtofindandthereisasurpriseelement.

Approximately94%ofUSwomenrarelybuyclothingthatisnotdiscounted.

One-thirdofTheRealReal’scustomersaremillennials.

30%

25% 26%

32%

Millennials GenX BabyBoomers Grandmas

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GettingOvertheStigmaofUsedClothingBecauseQuality,CleanlinessandCurationareControlledRe-commercedisruptorsfocusonhigher-quality,gently-used,brand-nameproductsandofferamorecuratedproductassortment.

• ThredUPtypicallylistsonly40%ofthegarmentsitreceivesaftereachpassesathree-pointinspectionprocess,and60%ofthemerchandiseisrejectedduetoqualityissues.

• Luxuryre-commercesiteTheRealRealreceivesabout150,000itemsmonthly.Alargeportionoftheitemsthecompanyreceiveshavebarelybeenworn,andsomeitemsevenhaveoriginalpricetagsonthem.ItemsatTheRealRealareinspectedandauthenticatedpriortobeingshippedtocustomers.Thecompanyalsosendssalespeopletoclearoutclosetsinwealthyareas.

DeclutteringandThePerceptionof“HavingTooMuchStuff”Wehavereachedapointof“peakstuff”andconsumersaretryingtoconsumeeverfewerresources.

• AbouthalfofAmericansthinktheyhaveover$1,000worthofunuseditemsand41%havenotdeclutteredinoverayear,accordingtoarecentreportbyOfferUp.

• TheaverageAmericanwomandoesnotwear60%oftheitemsinhercloset,representing$220billionofunwornwomen’smerchandiseintheUS.

• Asdepictedinthegraphbelow,theaveragenumberofclothingitemspurchasedbyUSwomendeclinedfrom51itemsin1996to37in2016.Thatnumberisforecasttofallfurtherto32itemsby2021,accordingtoThredUP.

Figure3.AverageNumberofClothingItemsPurchasedbyUSWomenEachYear


51 5247

4037

32

1996 2001 2004 2011 2016 2021E

TheaverageAmericanwomandoesnotwearapproximately60%oftheitemsinhercloset.

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MakingExtraIncome• ThredUPhaspaid$58milliontoconsignorsinthepastfiveyears.

• Approximately65%ofmillennialsspendtheirsecondhandsavingsonexperienceswithfriendsandfamily,accordingtoThredUP.

• ThredUPsendsbuyersaboxtofillwithbrand-nameapparel.Thesellercankeep5%–80%oftheitem'sresalevalue,dependingonthefinalsaleprice.

ConcernsaboutSustainabilityandEco-Friendliness,EspeciallyAmongtheMillennialandGenZDemographics

• Millennialsare2.4timesmorelikelytobemotivatedbyeco-consciousfactorswhenshoppingthanotherconsumers,and84%prefersocially-consciousbrandsthatsharetheirvalues,accordingtoThreadUP.Hence,resalecaterstothisdemandbyprovidingtherecyclingofclothingandnotwastingresourcesonproductionofnewmerchandiseandfillinglandfillswitholdapparel.

Re-CommerceOffersaVeryAttractiveCompetitivePropositionComparedtoOtherRetailers,EspeciallyOff-PriceRetailerssuchasTJXOff-priceretailerssuchasTJX,BurlingtonStoresandRossStoreshavebeenperformingstrongly,whilemuchoftherestoftheapparelretailsectorintheUShassuffered.Thesuccessofoff-priceretailerscanbeattributedtotwofactorssharedwithonlineapparelresellers:offeringbrandedgoodsatadiscountandprovidingatreasurehuntexperiencebasedonaconstantly-rotatingarrayofproducts.However,off-priceretailersdonotsellonline.Hence,onlineapparelresellersarguethattheyposeaviablecompetitivethreatforoff-priceretailers.

• About78%ofUSwomenstatethattheyrarelyfindanythingneworexcitingwhenshoppingattraditionalretailstores.

• Althoughoff-priceretailersaddthousandsofnewitemsweeklytotheirassortment,theydonothavee-commerceplatformsandcustomerscannotsearchorpurchaseproductonline.

• Off-priceretailersofferbrandedin-seasonmerchandisediscountedby20%–60%offregularretailprices,whereasThredUPoffers75%–90%offretailprices.

• Some50%ofThredUPshoppersclaimedtheirsecondhandpurchasesreplacedonestheymadeatoff-priceretailers.

• Around75%ofoffpriceshopperslistthethrillofthebargainhuntastheirprimarymotivationforshoppingatoff-priceoutlets,and88%ofre-commerceshopperslistthesameastheirprimarymotivation.

SellersBecomeBuyersandBuyersSellers• Approximately69%ofThredUPsellersalsoshopsecondhand,and

41%ofbuyersalsoreselltheirclothes.

• TheRealRealhasstatedthatthecompanyattractsfourbuyersforeveryconsignerandhalfofconsignersarealsobuyersonthesite.Buyerspurchaseproductsthattheyknowhaveahighresellvalue.

ThredUPhaspaid$58millionbacktoconsignorsellersinthepastfiveyears.

About78%ofUSwomenstatethattheyrarelyfindanythingneworexcitingwhenshoppingattraditionalretailstores.

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• Overhalfofmillennialsconsidertheresalevalueofanitembeforetheymakeapurchase,accordingtoThredUP.

High-IncomeShoppersJoiningtheActBasedonThredUP’sreport,itisnotjustlower-incomecustomersthattendtoshopresaleapparel.Thedatafoundthatthewebsite’scustomersincludeshoppersfrommoreaffluentdemographics.High-incomeshoppersarethemostlikelytoshopapparelresale,accordingtoThredUP.

• High-incomeshoppersare35%morelikelytotrysecondhandthanlow-incomeshoppers.

• Approximately77%ofThredUPshoppersareworkingprofessionals,71%ownahomeand73%areurbandwellers.

Figure4.NetWorthofThredUP’sMostActiveShoppers,in%


MenAreStartingtoShopOnlineasWell• About20%ofTheRealRealshoppersaremenwhoareshoppingfor

themselves,forwatches,leathergoodsandalsoapparel.

• Men’saverageordersizeontheplatformissmallerthanwomen’s,butmen’spurchasereturnratesarelower,accordingtoTheRealReal.

Brick-and-MortarLocations• TheRealRealiscontemplatingopeningaseriesofbrick-and-mortar

stores,withthefirststoreslatetoopeninSoho,NewYork.TheRealRealhasalreadyoperatedpop-upstoresinNewYorkforatwo-weekperiodtoshowcasemerchandise.Thepop-upshopgeneratedover$2millioninrevenueandhalftheshopperswerenewcustomers.

23%

10%

21%

36%

10%

Lessthan$50K $50K-$100K $100K-$250K

$250K-$1M Millionaires

About20%ofTheRealRealshoppersaremenshoppingforthemselves.

High-incomeshoppersare35%morelikelytotrysecondhandthanlow-incomeshoppers.

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• ThredUP’sfounderandCEOstatedthatthecompanyisconsideringsettingupphysicalstores,as85%ofapparelisstillpurchasedinstores.Thecompanymayinitiallytestopeningstoresthroughpop-ups.

KeyTakeaways• Themarketplaceforfashionre-commercecontinuestoevolve

rapidly.

• Theemergenceofsocial-media-type,peer-to-peerfashionre-commerceappsareattractingmoreyoungbuyersandsellerstothere-commercemarket.

• Re-commercedisruptorsareacompetitivethreattooff-priceretailers.

Re-commercedisruptorsareacompetitivethreattooff-priceretailers.

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEvaKubickaSeniorResearchAssociate

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017

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fashion re-commerce update—12 catalysts for apparel … · times faster than the broader retail...

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