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Is Resale Much of an Opportunity for Mainstream Retailers?
Zara recently expanded its second-hand platform, Pre-Owned, to 14 European countries, including its home market of Spain.
The program, launched in the U.K. in November 2022 and in France in September 2023, offers garment repair services for Zara items, an online buying and selling space for pre-owned Zara merchandise from past seasons, and a donation option. The initiative is part of Zara’s parent company Inditex’s goal to achieve carbon neutrality by 2040.
A number of retailers in recent years have been dabbling with rental, resale, and repair as the industry faces criticism over its high carbon footprint and shoppers demand more environmentally sustainable or “circular” options that enable reuse or recycling of resources.
In the U.S., Patagonia in 2017 launched Worn Wear, a resale business offering store credit in exchange for used Patagonia products in decent condition. The items are then repaired, buffed up, and resold on the site. In November 2022, Patagonia opened its first permanent Worn Wear store next to a Patagonia location in Chicago’s Fulton Market.
In 2021, Urban Outfitters launched Nuuly Thrift, a peer-to-peer resale marketplace for men’s, women’s, and children’s clothing and accessories. Then, in August 2023, Urban Outfitters opened Reclectic, a 40,000-square-foot store at the Philadelphia Mills mall featuring discounted product samples from Anthropologie, Free People, and Urban Outfitters as well as gently used inventory from Nuuly.
H&M this past March launched “H&M Pre-Loved” in the U.S., becoming the largest retailer under thredUP’s resale-as-a-service platform. Abigail Kammerzell, head of sustainability for H&M North America, said at the time, “We need to take responsibility for the impact fashion has on climate and the environment.”
Gap, J.Crew, Target, Burberry, Neiman Marcus, REI, and The North Face are among a wide range of other predominantly apparel sellers introducing in-house resale programs through partnerships with thredUP, Trove, and The RealReal in recent years. However, many re-commerce initiatives remain in a trial-and-error phase and face challenges in scaling.
A Bloomberg article from June said that although surveys continually show increasing acceptance of second-hand shopping, it’s not enough to support sustainable profitability. Bloomberg wrote, “Getting resale to a place where it’s both bringing in solid sales and slowing production of new goods will require more consumer awareness, deeper involvement from company leadership and improved logistics infrastructure.”
“Revenue for second hand is by definition limited, because essentially companies earn a commission on lower-value products, rather than selling the full-ticket price,” Societe Generale analyst Anne Critchlow recently told the Wall Street Journal. “Second-hand divisions can be marginally helpful for retailers, but I don’t think they are going to become a substantial part of their business over the next few years.”
Discussion Questions
Will the resale opportunity for mainstream retailers and apparel brands live up to the hype heard in recent years? What are the main challenges to driving profitability for retailers’ re-commerce ventures?
Poll
Loading …BrainTrust
Liza Amlani
Principal and Founder, Retail Strategy Group
Paula Rosenblum
Co-founder, RSR Research
This seems a popular topic – judging by how often we’re asked about it! – but repetition has not increased my enthusiasm: I think it’s an idea pushed by management(s), who see it as low-hanging fruit, rather than the people actually involved in either selling or buying. The problems, which IMHO should be obvious, are those of acquiring items on a piecemeal basis: it’s expensive, and the quality is inherently inconsistent. So there’s not just the problem of making money at it, but potentially damaging the brand ; this helps explain why a different store name is used, and while that helps to protect the parent, it also risks losing the equity that the parent enjoys. I’ll not go so far as to call it a desperation move, but I’ll call it an ill-considered one.
The resale market is vast and growing, and that’s why so many retailers are jumping on the bandwagon. Not only does resale help mitigate the negative climate impact of returns, but resale programs can also help offset some of the costs associated with managing returns of unwanted goods. And while there are benefits to resale, it does creates a whole new set of challenges for retailers, most notably managing this inventory. The goods need to be ingested, inspected, fixed and then re-merchandised and sold. It’s very labor intensive. That all said, I believe the benefits outweigh the cost.
Resale remains a fast-growing segment of the apparel market, partly driven by more consumers getting involved with secondhand. Adding a resale offer for mainstream retailers helps to boost sales and it also assists with brand perceptions, especially around sustainability. That said, resale will never be the mainstay of traditional retail brands: it’s an add-on. There are also operational complexities with resale which is why many brands partner with resale companies like thredUP and Trove.
This may work as a marketing / positioning statement, however to think that resale will become a large part of a retailers opportunity is not realistic. For one, there are a lot of operational changes that would need to be made. For another, retailers selling new and “previously worn” in the same store would pose a large positioning challenge for even the best marketers. Finally, retailers selling new need to “stay in their lane”…don’t they realize that they are the “factory” that puts out stuff that eventually gets resold?
I just do not see it.
Resales, as described in today’s discussion, are so far from the working business model of regular retail operations that sooner than expanding, retailers will surrender. Playing with the numbers, I can’t see how this is anything but a net loss situation. Just think about the operational activities that are demanded by handling resale items. It makes the entire regular supply chain look like a “piece of cake.”
If it can be a successful expansion for mainstream retailers, it must be a separate operation as if another vendor.
We used to think “off-price versions” or “Warehouse stores” would never make it either. Now take a look at Sawgrass Mall. Sixth biggest mall in the country, all with the same brands you can buy at full price.
The biggest challenge for the retailer is not making it a distraction or a toss-off. If you’re going to do it, commit resources to it, come up with a plan and let it roll.
FWIW, I don’t think Zara is a good candidate for this.It’s stuff is already cheap enough, and it’s not what I’d call an “aspirational” brand. Nordstrom or Saks could do it, I think. Maybe as part of their discount store offerings mentioned above. But Zara? Seriously?
Do I have to learn more FLAs now?
Resale is a great option for retailers looking to offload excess and aged inventory or resell returned products. The challenge is the cost of recommerce – from additional resources to a recommerce process or platform to logistics. It may not be worth it.
If retailers are looking for a way to reduce their carbon footprint then they should take a good look at their product creation process. Overproducing and overbuying are huge problems that still need solving and many retailers don’t want to look under the hood. Archaic product creation practices are fuelling overproduction and excess product season after season. Inventory management and assortment planning transformation should be top priority for retailers.
Process innovation is not an option anymore. It’s a must have.
Liza, you nailed the problem, and you nailed the solution. The real question is are they able to follow your sage advice?
First I think we need to agree on the nomenclature. ‘Resale’ can mean resale of new product that was never worn/used or resale can mean ‘second-hand’ or ‘thrift,’ To the first one I say that fewer than half of retailers can or would want to get into it and to the second I say, we already have thrift store chains in the country. Also, Liza, did you just invent a new word (“recommerce”) or am I a little behind the times? 🙂
I always take recommence to mean selling secondhand online. eBay, OfferUp, thredUP, and others use the term…
I totally understand resale as a solution for “previously worn” or returned products. Overbuying needs to be addressed at the root cause level. Planning and supply chain management. TJX and so-called factory stores already offer an abundant opportunity for overbought inventory.
I am not sure what the math for the resale business model needs to look like. It’s one thing if you are Goodwill and your cost-of-goods is zero. It’s all donated. But if you are a retailer crediting a customer for a return or a previously worn garment, your cost-of-goods is not zero. And then what does the retail value equation have to look like? Does TJX offer the market-making retail price point model? Cost-of-goods + refurbishing + other handling costs = X. What kind of margins will X allow for, and can this model make money? Is there a model out there that is showing us the way?
There is great opportunity for a resale, but I’ve never seen a large high-end brand chase this market. You have the discount versions of major retailers like Saks, Nordstrom, etc., but that’s different than selling used merchandise. Some retailers are emerging with their versions of pre-owned/resale outlets. It will take a new skill to successfully enter this market at scale. And, similar to high-end retailers’ concerns with discount stores, they will have to be careful about how they position their resale store.
Re-sale outlets are at best a side-gig for chain retailers, whose core success depends on their ability to source consistent products across their stores.
For low-priced, commodity merchandise, I doubt the juice can be worth the squeeze, considering the costs of re-stocking and inspecting used items. (I share Paula’s skepticism about Zara in this respect.)
For middle-and-up, re-sale (physical or digital) could be part of the solution to returns and a way of squeezing more margin out of floor samples and end-of-season merch that might otherwise land on clearance racks. Like others here, I’d counsel retailers to preserve their primary brands.
In the fashion industry, secondhand clothing has become a mainstream trend. This past year, 2023, it is estimated that the global market for secondhand and resale apparel will reach $120 billion.
Amazon partnered with luxury vintage apparel company, “What Goes Around Comes Around,” to sell high-end brands’ products. Some would say Amazon isn’t mainstream, but of course it is.
Age seems to affect consumer behavior in the resale business. According to the RealReal, more than half of its sellers were Generation Xers or older in 2021. However, the majority of secondhand clothing purchases are made by younger shoppers. 2021 is the latest data I have, but I am sure that the trends continued and strengthened in 2022, and 2023, and will continue in 2024.
In a Forbes survey conducted in 2021, 42% of millennials and Generation Z said they were likely to shop secondhand.
U.S. online shoppers spent an average of $340 MM on resell apparel in 2021, and I am personally estimating the number is probably near $400 MM, today – Db
This is a really tough one – it is not a well-trodden path with may large examples to draw upon. However partly driven by environmental concerns / corporate social responsibilities a few organisations have looked at this.
Systems and processes need specific re-design to facilitate this and there are few off the shelf solutions available.
It is far easier for a retailer that has ownership of its own product designs and historical catalogue. Patagonia fall into this category and have a mature capability – the approach aligning with their corporate branding.
It is likely to be a growth area -particularly in luxury segments – Watchfinder, a retailer of pre-owned luxury watches is owned by luxury goods company Richemont. Indeed, they have been followed by Rolex and their Certified Pre-owned programme- in partnership with Bucherer.
It is potentially easier to do this online rather than in-store to give customers the ability to see the maximum assortment breadth. Watchfinder are an interesting case in this regard – they have physical stores but show on their website where product is currently situated.