If the last recession in recent memory ushered in the secondhand economy, what effect could the next economic slowdown have on a resale market that ThredUp projected will top $50 billion in the next five years?
Though the Great Recession has been in Americans’ rearview mirror for about a decade, the trauma of that tumultuous period has left a lasting impact not just on consumers but on retailers as well.
“The 2008-09 financial crisis was deep and widespread and it brought to focus a variety of consumer sentiments, including a desire to reduce waste, emphasis on financial responsibility and overall sustainability of business models and industries,” said Keval Desai, a partner at Interwest Ventures, whose portfolio includes luxury online resale leader The RealReal.
Penny-pinching consumers strapped by unfamiliar—and uncomfortable—circumstances could propel the recommerce market to new heights by surfacing the very assets resale businesses rely on: high-quality inventory in the form of premium apparel, shoes, handbags and accessories languishing unloved in closets across the country.
“We’ve generally found that people get much more interested in secondhand when times get tough,” ThredUp president and Anthony Marino said at the WWD Digital Forum in New York City last week.
Recessions can wield a rationalizing force on consumer spending and their wardrobes—an overarching reason why both The RealReal founder and CEO Julie Wainwright and Charles Gorra, founder and CEO of luxury handbag resale startup Rebag, expressed confidence that their companies would navigate a slowdown with greater success than traditional retailers.
“In the resale space we have ways to mitigate a recession,” Gorra said, adding that the “luxury segment is reasonably less affected than others.”
The French founder applied the label “recession-proof” to the premium sector, with the caveat that at most the “reasonably resilient” market could experience “flatlining” or a modest decrease in tandem with a sluggish economy.
Rebag, which opened its eighth store on Thursday at Long Island’s Roosevelt Field Mall, would likely tap the brakes on its growth strategy in a downturn, though “we can still grow without opening stores,” Gorra explained, adding the company would prioritize capital-efficient growth.
During times of famine, “recommerce marketplaces that match supply and demand in the luxury segment have to be looked at from two dimensions in a potential recession,” Desai explained. “On the supply side, one can hypothesize that supply could go up because people are looking to monetize their unused assets and free up cash.
“On the demand side, one can hypothesize an increased interest in value’ or ‘bargains’ or ‘off price purchases,” he continued. “Both of these trends could benefit a marketplace that provides discounted bargains on authenticated high-end luxury consignment.”
Gorra offered a similar analysis, noting that “a downturn likely creates a higher amount of sellers. If the economy goes south people start looking for incremental income.” These “forced entrants” dabbling in the resale game might shop firsthand during times of feast, he added, but “under more dire financial constraints they settle for the next best thing.”
In a conversation with Cowen Inc. luxury and retail analyst Oliver Chen, Wainwright described how a recession would likely flood The RealReal with fresh stock, though that outcome doesn’t solely benefit the resale company. When people sell to the online consignment marketplace, she explained, they tend to take their windfall and buy new first-quality product from traditional retailers. “We know we support the primary market,” she added.
However, consumers, now accustomed to accessing fashion through rental subscriptions and purchasing well-preserved pre-owned goods, very well might establish new behaviors in Recession 2.0, potentially reinvesting their resale profits into new-to-them secondhand fashion—that is, keeping up the appearance of consumption without quite so much financial outlay.
And there will likely be good deals to be had on the secondhand market if new sellers “forced” to offload their once-beloved treasures “are willing to accept lower prices,” Gorra said.
Why brands need their own resale play
While most people are familiar with the recommerce marketplace experience provided by players such as eBay and Poshmark in addition to ThredUp and TheRealReal, Yerdle founder Andy Ruben believes brands must get in on the resale action themselves or risk losing their customers to hungry competitors.
Founded in 2012, Yerdle provides a white-labeled service for brands that want to resell repaired garments and goods to their customers, managing all of the logistics and operations of restoring pre-owned or defective items to good-as-new, sale-quality status.
Ruben—a Walmart alum who oversaw the retailer’s global strategy, launched sustainability, ran private brands, and got in on the ground floor of Walmart Labs and its all-hands-on deck incursion into digital commerce—says brands must participate in resale because conscious customers are demanding access to refurbished second-life product that furthers the circular economy.
However, Ruben cited the “single SKU nature of supply dynamics” as a prohibitive factor in why the majority of brands can’t travel the resale road alone. Every SKU is a snowflake, he explained. Even if you’re dealing with the same jacket in identical colors and sizes, “each is unique because of the condition and wear,” Ruben added.
Yerdle, which announced a $20 million Series C on Thursday, operates Patagonia’s Worn Wear program and powers the REI Used Gear site that serves up restored men’s and women’s outdoor clothing, shoes and adventure-ready gear. The company’s quorum of brand partners has expanded by 360 percent since 2017 and Ruben believes a recession could thrust this trajectory into overdrive.
A downturn in the economy “absolutely” could accelerate the consumer movement around sustainability, Ruben said, adding “recessions accelerate a trend that has existing momentum.”
Echoing Gorra’s point above, Ruben explained that “in a recession people get more creative in how they get new experiences, how they meet their needs, with less disposable income.”
It’s not uncommon for brands to harbor misconceptions about recommerce that prevent them from launching their own secondhand businesses. “There’s a perception that these [pre-owned] sales cannibalize full-price sales,” Ruben said, admitting that while there might be some cannibalization, the overall bottom-line outcome is “net positive.”
Ruben expects the future fashion supply chain will heavily source from consumer closets and take a cue from where the automotive industry was years ago. Once upon a time, “certified pre-owned” wasn’t a thing in the car-buying world; most secondhand vehicles were sold in loosely organized peer-to-peer marketplaces or on the dreaded, sad-sack “used car lot.”
Now, virtually every luxury automaker hawks its can’t-miss deals on previously owned cars spiffed up to first-run quality—bearing the brand’s seal of approval and backed by its money-back guarantee.
Before you know it, a “large amount of clothing will come from consumer closets,” Ruben said, which is “exciting as a customer because everyone likes better quality.”
There’s a continuing shift away from the “big middle” in apparel and toward the higher end of the quality spectrum, he added, and recommerce is helping to foment this evolution.
Secondhand attracts an aspirational customer who otherwise might not have access to premium brands or be able to justify the investment. Ruben described buying Target and Costco jackets for his young children who outgrow their clothes on an annual basis. Now, however, the Worn Wear program gives the Yerdle founder a way to right-size spending on quality Patagonia apparel at defensible prices.
“In the last three years, we’ll buy them a used [Patagonia] jacket and at the end of the year, we walk it right back into a store and they give us a gift card to buy the next size up in the used jacket,” said Ruben, who was wearing a shirt purchased from The RealReal. “Because quality items hold their value, the delta of being able to buy a used jacket and sell it back is way less expensive than the Target jacket.”
Recommerce also yields troves of rich data and insights for brands about the behavior, purchase frequency and other key metrics around new-to-file customers. Plus, there’s intrinsic value in knowing if the garment that was new a year ago has already found its way into the resale channel.
“We’re able to match everything that happens on the secondary market back to the catalog for the brand so that they have all the data on the longevity and use of their products,” Ruben explained, noting an influx of interest from luxury and contemporary brands in addition to its staple sustainability-minded outdoor base.
For now talk of a recession remains just that—talk. But if history is our guide, a slowdown could be just around the corner, rewriting the next chapter in the long and variable history of commerce and consumption. “I suspect that people will pay more attention to great deals” when they’re forced to do more with less, said Marino, who expects a recession to be a “positive” development for ThredUp’s already booming business.
So what kinds of products will fare well in a recession-era recommerce market?
“The best advice I can give is for people to buy things that are well made and will be used regularly and still maintain a strong ROI,” Graham Wetzbarger, chief authenticator for The RealReal, said. “So, for instance, a Rolex watch, jewelry from Van Cleef and Arpel or Cartier, or a handbag by Hermes.”
Not only do items like these have a long life cycle, he added, but these brands consistently retain a high average resale value. “In a time when/if people are more conservative with cost, my guidance is to think about fewer but higher quality goods that will last longer and retain their value,” he concluded.