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The RealReal is Finally Getting Apparel Sales on Track

At a recent consumer conference, The RealReal gave a preview of what’s in store for the luxury resale marketplace for the summer, kicking it off with some promising news about the apparel category.

“Apparel, for the first time, started mapping to our overall business growth,” said Julie Wainwright, CEO of the Bay Area company. “Shoes are still down, compared to other categories, but still up year-over-year and I’m not quite sure what to think of that. They’re not as aggressive…right now apparel’s really keeping up with the business growth. I would say in general supply is flowing in from various sources, and therefore the demand is there.”

The apparel category also is contributing to increasing units-per-transaction for the consignment company, said chief financial officer Matt Gustke, who indicated that the metric is getting closer to pre-Covid levels.

In addition, average order value (AOV) for the quarter-to-date was approximately $520 through May 31, a year-over-year increase of 26 percent and a 13 percent jump on a two-year basis.

Fine jewelry, watches and handbags are all still the key drivers of the company’s AOV, according to Gustke,  maintaining the momentum they’ve shown throughout the Covid-19 pandemic.

The RealReal expects to release full second-quarter financial results for the period ended June 30, 2021 in early August.

Gross merchandise volume (GMV) quarter-to-date was approximately $239 million, an increase of 106 percent year over year and 53 percent compared to the same period in 2019.

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And while the company’s “take rate,” the percentage of GMV collected by the marketplace, has been inversely related to the AOV, and will continue to be so in the second quarter, the growth of apparel could benefit both metrics in the long run, Gustke said.

“Apparel is additive to AOV, so when it’s growing strongly, that category has a structurally much higher take rate, so it’s like our take rate is purely a function of category mix,” Gustke said. “There have been no structural changes for quite a long time so it’s just as simple as whatever sells in the category basis determines our take rate.”

The company believes that disclosing monthly GMV and AOV will provide additional transparency regarding the effects of the Covid-19 pandemic on its business.

During the conference, hosted by investment bank Piper Sandler, Wainwright discussed pandemic strategies like scrambling to enable virtual appointments and increasing its focus on vendors.

“We started doing more outreach looking at what we could add to supplement our inventory, and we hired some new personnel there. That is going to continue to serve us,” Wainwright said. “We don’t know where it’s going to shake out, and it probably won’t be as high a percentage as the products we get from people’s homes and going to people’s homes, but it’s still another supply strategy for diversification.”

Earlier this year, the company opened a Brooklyn neighborhood store, and will have nine more of these locations open by the end of the second quarter, in order to get closer to consigners, according to Wainwright. She described that when The RealReal’s Madison Ave. store in Manhattan reopened, the luxury marketplace had “a tremendous influx of supply and people standing in line wanting to shop there.”

Wainwright also noted that the Brooklyn store attracted an essential audience that continues to expand its buying power.

“The interesting thing about the neighborhood store is it’s drawing in a younger generation with Gen Z that’s really comfortable with popping in and dropping off,” Wainwright said.

Brick-and-mortar has shown to be a major driver of The RealReal’s shopping experience, with in-store shoppers in the quarter spending 4.4 times more than online-only buyers. Additionally, those who purchased in-store generated AOVs approximately 2.6 times higher than their digital-only counterparts.

The RealReal now expects to open three more neighborhood stores by the end of the third quarter, Wainwright said.

In February, The RealReal decided to further expand its footprint with nearly 600,000 square feet of warehouse space in Phoenix. The new warehouse supports the company’s growing operations, including its retail expansion. In total, the facility will create more than 1,500 local, full-time jobs over the next five years.

The company initially sought a new facility in California, but couldn’t find one that was large enough to eliminate staff disruption, so The RealReal expedited the Phoenix move so that it could open in the second quarter, instead of initial projections of fall 2021, according to Wainwright. The decision comes as the company’s two major warehouses, a 240,000-square-foot facility in Brisbane, Calif., and a 500,000-square-foot building in Perth Amboy, N.J., were filling to capacity. Brisbane is expected to close by the end of the third quarter.

If the post-pandemic results of its brick-and-mortar operations prove to be successful, the luxury marketplace anticipates more locations in store for 2022. But Wainwright assured the expansion wouldn’t be too vast: “We’re not a brick and mortar store, we’re an online business.”

“As our unit economics improve based on covering our fixed costs and our growth continues, then we’re going to start laying the groundwork for international expansion, but we want the company to actually get very close to breakeven or be at breakeven before we move forward there,” Wainwright said.