ThredUp’s unique approach to the resale market

ThredUp (NASDAQ: TDUP) may be the most disruptive business in the resale industry thanks to its resale as a service business. This involves operating the clothing resale component for major clothing brands such as H&M and Madewell.

In this episode of Upgrade or Topgrade registered on 12 november, Millionacres publisher Deidre Woollard and Fool contributors Jeremy Bowman and Nicholas Rossolillo discuss how ThredUp differentiates itself in a unique corner of the apparel market.

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Deidre Woollard: Let’s talk about ThredUp. I started this hour with the idea that I wanted to get into RealReal and then when I started studying ThredUp the more I started watching this business the more excited I was because they are doing something that I think I am so smart, which is this resale as a service. They had pretty solid income numbers. Now they are relatively new to the market. They are currently hovering around their IPO price, but since the start of the year they have increased by around 25%. But their number is increasing considerably. They are still quite small. Total revenue was $ 63.3 million, up 35% year-on-year. Gross profit was $ 46 million, up 41% year-on-year. Net loss of 14.7 million, active buyers of 1.4 million. This is where we see the price difference and how everything goes wrong because with The True True, you have fewer buyers and sellers, but you have much bigger items. ThredUp is definitely not that.

Jérémy Bowman: I think I saw 71% of their sales are for items or $ 20 or less which makes me think it’s probably hard for them to make money on some of them.

Deidre Woollard: Yeah, I think that’s one of the things that if I had to pick a downside for them that’s one of the things that worries me and they keep trying to lower their prices further to be competitive. It’s nice that you can buy some really cheap stuff there, but it makes it hard to make any money. Eighty percent of repeat buyers, you really see that circular effect happening with ThredUp. 77% of their cleaning kits, this is where they send you a bag and you fill it up and send it back, are from regular sellers. When it comes to resale as a service, what excites me the most about them is their brand partnerships. They teamed up with Madewell, they teamed up with Farfetch. They just announced agreements with Adidas, crocs, and Michael Stars. I think there is so much potential and there are a few private companies that are also doing this resale as a white label service. But I feel the potential here is huge. I know H&M started to think about it a bit. All the fast fashion and really trendy fashion stores in general are starting to have to sort out this clothing problem and try to figure out how to accept clothes, how to give discounts, all of that and it’s a tough business to do. I think this is where the thredUp really has an advantage.

Jérémy Bowman: I am okay. I think when you think about the environmental angle with that, do that for another company. It’s resale as a service, as you say, where you can really grow your scale and make an impact and like you said H&M you might have seen signs there and in other stores. But companies want to present themselves as environmentally friendly to customers. Operationally, this is difficult to do, so you can ask thredUp to manage some of that infrastructure for you, and then H&M or Madewell, whoever your partner is, to have the customer side handled. I think it could be a really good opportunity for them.

Nicolas Rossolillo: Yes, it is an interesting model. When I saw that, I immediately thought of TJX companies and Ross. They’ve made a fantastic life out of it, teaming up with brands, but they’ve had very limited success online. It almost looks like the template for doing it in an ecommerce format for me. It’s like Jeremy mentioned earlier, lower value items maybe you are giving up long term profit but the volume can definitely be there as these are everyday clothes and accessories .

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