Fast Fashion Is Thwarting Resale's Dream of Circularity

Secondhand shopping is on the rise. Branded resale, when fashion companies add used items to their inventory, grew by 450% between 2021 and 2023, according to ThredUP, as American Eagle and J.Crew joined over 160 companies in the branded resale game. Still, the complex logistics of online resale presents both sustainability and profitability challenges. Two major players in web-powered secondhand, ThredUP and The RealReal, aim to break even in 2024 by fine-tuning their business models. However, questions remain regarding the financial viability of online resale and the category's ability to counter the culture of fast fashion. Fast fashion's empty value ThredUP and The RealReal both take possession of the secondhand inventory they sell. In contrast to peer-to-peer hubs like Poshmark or Depop, the model creates a greater potential for consumer trust, but a heavier logistical lift. ThredUP and The RealReal were in a quiet period ahead of 2023 Q4 earnings at the time of publication (they report on March 4 and Feb. 29, respectively), but shared recent strategical shifts that aim to improve profitability. Launched in 2009, ThredUP solicits Clean Out Kits from people and resells the items through its expansive online-only thrift store. Last year, it stopped giving payouts to consigners for low-quality fast fashion garments, acknowledging that the processing cost was higher than the resale value of the item. Also in 2023, ThredUP started charging a $14.99 processing fee for the kits—a service that initially was free but resulted in mountains of low-quality, excess inventory that the company had to find a way to dispose of responsibly. "We really need to focus on increasing the acceptance rates of what is coming in in the bags—send us things that have more resale value," said Erin Wallace, vice president of marketing at ThredUP. "That fee makes people a little more conscious of what they're putting in the bag. And hopefully, ultimately, more conscious of what they're purchasing in the first place." Neighborhood store footprints For The RealReal, a primarily online, luxury-focused resale business founded in 2011, finding the right model for an in-person shopping experience took time. With 13 neighborhood-focused retail stores, the company has streamlined its strategy for these shops—focusing on areas that will bring in high-quality consignment and attract new consigners and shoppers. "First, we went too small and we just opened luxury consignment offices," said Rati Sahi Levesque, president and chief operating officer at The RealReal. "Then we went too big, and now this neighborhood store footprint is just right and very, very profitable for us." But while these companies are inching toward profitability and could break even this year, it's certainly not a given. ThredUP shares, which were priced at $14 when it went public in 2021, have been hovering around $2 since November. The RealReal, which went public at $20 per share in 2019, hasn't traded above $3 per share since the summer of 2022. "It's a hard business. You have enormous logistics costs. You have a unit of one, which is brutal to manage," said Ken Pucker, professor of practice at The Fletcher School at Tufts University. "The jury's still out on the viability question." Fast fashion's cost The story that's often told about resale is that by convincing shoppers to "think secondhand first," to borrow a ThredUP tagline, people can reduce the demand for cheap new clothing. This shift could begin to cut into the estimated 92 million tons of clothing sent to landfills annually, building a new culture of reuse, repair and repurposing that would reduce the incentive for fast fashion companies to exploit garment workers in low-income countries. So far, that's not happening. Fast fashion brand Shein has seen explosive growth since 2020 despite near-constant criticism due to its huge environmental footprint and accusations of poor labor practices. The China-based company is set to go public this year with an estimated value of $63 billion and has nearly 89 million active shoppers, according to some estimates. Controversy around these high-production models has led fast fashion companies to debut their own branded resale businesses—something that critics argue amounts only to greenwashing and demonstrates the limits of resale to solve the waste and labor issues associated with fast fashion. "Resale platforms aren't enough to meaningfully increase sustainability at fast fashion companies," Katrina Caspelich, chief marketing officer at nonprofit fashion accountability group Remake, said. "It's definitely a marketing gimmick." Resale Business Models The online resale industry—which has existed in some form for as long as ecommerce has—includes a variety of business models. ThredUP and The RealReal, while different in audience and focus, represent one category of online resale where people send in used items to be vetted, photographed and resold. Poshmark, Depop and Vestiaire Collective operate as peer-to-peer platforms. This model, like more curated and focused alternatives to Etsy, connects buyers and sellers. They require certain details to facilitate purchasing but don’t ever take possession of the items—eliminating the need for warehouse space. A third category of resale platform works in the background, powering branded resale programs. Trove, behind the resale programs of Patagonia and Levi’s, handles the logistics for brands to take back and then resell used items. ThredUP’s resale-as-a-service (RAAS) program is similar, powering resale businesses for brands like Madewell and Tommy Hilfiger. Recurate, while similar to Trove or ThredUP’s RAAS in some ways, integrates with a brand’s online shop to power peer-to-peer resale for brands like Mara Hoffman and Outerknown in a way that’s seamless for buyers but doesn’t require warehouse logistics.

Sustainability News

Fast Fashion Is Thwarting the Resale Industry's Dream of Circularity

As ThredUP and The RealReal look to break even, true circularity remains elusive

Kathryn Lundstrom

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Kathryn Lundstrom