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The rise of resale: facing strong platforms, brands invest in internal initiatives

As consumer demand for transparency and traceability increases, fashion brands explore in-house resale initiatives considering new technologies such as NFD and blockchain

The power of independent resale platforms

The launch of digital platforms such as The RealReal, Vestiaire Collective, Depop, Vinted, StockX and Fashionphile has powered the second-hand goldrush by enabling customers to buy and sell unwanted items and benefit from a more viable way of updating their wardrobes while pocketing the profits. As technological advancements rapidly improve, resale is now a convenient way to make extra cash via an easy-to-navigate app with protected payment systems, incentivized by rising unemployment and the threat of global recession during and after lockdown. In parallel, as the climate crisis worsens and consumers become more aware of fast fashion’s ecological impacts, shopping behavior is becoming more sustainable. The power of independent resale platforms has been evidenced by recent moves of companies to become publicly traded, most notably ThredUp, The RealReal – valued at $1.6 billion in its 2019 IPO – and San Francisco-based Poshmark, valued at over 7 billion dollars in its first day of trading this year. Likewise, Kering’s acquisition of a five percent stake in Vestiaire Collective for 178 million euros demonstrates luxury’s growing faith in the future of resale. All of these are encouraging signs that resale will become a stable long-term sales channel. 

Luxury brands’ venture into resale

Despite the rise of platforms such as The RealReal, luxury brands have only recently dared to venture into resale, deterred by the lack of control over pricing, distribution and final customer. Brands cannot control the circulation of their products when handled by third party platforms, meaning valuable pieces risk selling for less than their true resale value to bargain-hunting buyers protected by the anonymity afforded by digital platforms. The majority of transactions on resale sites involve little true interaction between buyer and seller, many of which operate under false usernames and encourage widespread bartering. In addition, cultural differences mean certain global markets are less accepting of second-hand goods, for example in Asia consumers still value the social cachet of brand-new luxury. There is also reluctance from certain luxury brands to engage with e-commerce, most notably Chanel and Hermès which do not sell leather goods online. «Luxury has been one of the last sectors approaching the world of e-commerce due to cultural resistance from brands», says Federica Levato, Partner at Bain & Company Luxury Goods. Indeed, Chanel even went so far as to sue The RealReal for selling its products unauthorized.

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TOAST Circle: a free clothes-swapping initiative

Luxury brands’ partnership with resale platforms

The watches and jewelry category has a longer history with resale, specifically for investment pieces and collectors’ items, but rarely are these second-hand transactions handled in house. Luxury watchmaker Richard Mille is one of the first to pursue its own re-commerce by opening internally operated resale boutiques in London, Tokyo and Singapore after spotting their most popular watches selling for more than their retail prices at auction. Thanks to the advent of e-commerce, Levato explains how the resale arena has been enlarged to encompass all price segments and product categories. Sales of second-hand ready-to-wear and leather goods are gathering momentum, particularly for rare and highly coveted pieces that are no longer manufactured and many luxury brands have recently formally partnered with resale platforms to create a controlled and authentic retail channel, including Burberry, Stella McCartnery and Gucci who all joined forces with The RealReal or Alexander McQueen’s collaboration with Vestiaire Collective announced in February.

Brands’ commitment through resale initiatives

In order for brands to reap the maximum rewards from resale, they need to bring operations in house. Internally operated resale enables brands to regain power over how they are presented in the market, create new revenue streams and shift excess inventory piling up following lockdown store closures while changing consumer perception to be viewed as a more sustainable brand. Resale is most popular among the youngest luxury consumers. «New generations are keen to have a circular way of consuming fashion and luxury, so resale is used by millennials and Gen Z to buy second-hand and then resell products on these platforms», explains Levato. Brands can demonstrate their commitment by establishing resale initiatives, remaining «consistent to sustainability objectives through visible customer actions» and enabling customers to use the same brand for both first-hand and second-hand sales. Being able to serve the same customer throughout different periods of their life for different purchase and selling occasions makes the brand more relevant for the consumer, Levato confirms: «resale is seen as an additional service» to build brand loyalty. Brands can furthermore attract a wider customer base, acquiring new customer segments who cannot usually afford the goods at full price. «It’s often the first way for aspirational consumers to have their first interaction with luxury», she continues. The main advantage of internal schemes is that direct channels allow the brand to exclusively manage customer relationships and own all CRM data without interference from third parties. 

Resale to extend the lifecycle of existing products

There is a distinction to be made, however, between resale and simply discounting. While it is commonplace for all brands to discount remaining inventory at the end of a season, resale was born to extend the lifecycle of existing products which would otherwise end up in landfill or an incinerator. Levi’s is an example of a brand with strong resale demand which has taken matters into its own hands – its Levi’s Second Hand website operates under a separate URL to its main site and sells vintage 501s alongside one-off or previously owned styles. Similarly, Patagonia sells used garments via its Worn Wear initiative while Eileen Fisher launched its own resale under the label Eileen Fisher Renew. H&M-owned brand Cos has launched Cos Resell – powered by second-hand marketplace provider Reflaunt, which also operates Balenciaga’s resale channel – allowing customers to buy and sell pre owned Cos pieces. Items are photographed by the customers, uploaded to the site for free and listed for as little as 11 euros per garment. The seller decides the price and handles postage while Cos takes a ten percent commission. Such a low resale price begs the question, however, whether such an initiative is worth the investment.

Second-hand revolution

In-house resale initiatives appear viable for niche brands with cult followings. British brand TOAST has embraced the second-hand revolution through a free clothes-swapping initiative called TOAST Circle, where customers bring pre-loved pieces in store and exchange them either for other second-hand items or store credit. Alongside this, the brand recently launched its own resale, where in-store repair specialists mend dead stock garments or returned products with small imperfections to be resold in store. «We have garments that can be repaired and re-worn so we’re working to bring them back to the market», acknowledges Ruth Smith, Marketing Executive at TOAST. «The longevity and lifespan of the clothes is an integral part of what we do and we’re aware of the impact that excess clothing can have on the planet. Our customers buy in a considered way and are happy to purchase second-hand, great quality garments». There is an appetite for resale among consumers thus brands should ask themselves whether investing in resale would be just another source of revenue or whether it could be a valuable way to enrich the customer experience, create a brand community and demonstrate more sustainable credentials in an increasingly critical climate of call-out culture, where any blatantly unsustainable brand is considered persona non grata. 

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In-store repair specialists mend dead stock garments or returned products with small imperfections to be resold in store

The risk of resale

The promise of more customers and less waste is certainly appealing but that doesn’t mean every brand should embrace re-commerce. Doubts arise over whether second-hand items can inhabit the same retail space as full price items, coexisting without creating a conflict of interest or damaging sales of new collections. For luxury brands this poses more of an issue where reselling samples or second hand products alongside pristine new season could diminish the exclusivity, scarcity and aspirational quality of their products. Online multi-brand retailer Farfetch operates a luxury vintage marketplace alongside the same brands’ new collections, proving the two can co-exist. Bain’s Federica Levato confirms this: «we don’t see a jeopardization between these two markets; instead, we see an opportunity to intercept new consumer segments». The risk of resale undercutting new season sales doesn’t appear problematic for premium brands either, particularly for TOAST, whose pieces are designed to be timeless rather than trend led. «Even when second-hand pieces are sitting alongside our new collections it doesn’t impact on sales of new collections; customers are happy to engage with both and mix old garments with new ones in their wardrobe», Smith confirms.

NFD and blockchain technologies

In-house resale is by no means a straightforward path to success, however, as the logistics require significant investment. In a market where counterfeiting is rife, guaranteeing the authenticity of items is crucial but expensive. New technologies such as NFD and blockchain can track a garment’s lifecycle and provide traceability regarding the item’s composition, history and current condition in a form of digital garment passport. Likewise, QR codes on product labels inform the buyer of the garment’s authenticity and entire supply chain, but such technology comes at a hefty price. Levato cites Radio Frequence Identification (RFID) technology as a key tool already used by some brands to tackle authentication and predicts this is likely to become an industry standard. «For sure we see this trend growing with Gen Z who are more into digital – we are moving more towards a more circular concept of luxury». Similarly, buying back used goods to provide inventory is a resource-heavy process, with the added challenge of setting appropriate resale prices. Algorithms can be used to automate pricing but it requires significant investment.

Brands can no longer afford to ignore resale

Next, there’s the issue of ensuring each piece is photographed and displayed to the same high standard to match the brand’s usual online shopping experience, including reporting any wear and tear – an impossible feat if left to the customers themselves. The competition from resale giants such as The RealReal means brands have to offer customers incentives to shop from their in-house marketplaces, working hard to strengthen customer relationships. Ultimately, the success of in-house resale depends on brands having robust e-commerce infrastructures in place. According to Levato, lacking digital know-how is the main challenge brands must overcome before initiating re-commerce. «Resale is a different business model and brands are not equipped right now, so they need to build competences and divisions to take care of this new way of selling and marketing products». It’s clear that resale is only going to grow in the future, but for now only a handful of brands stand out as early purveyors of internally operated resale. One thing is for certain – brands can no longer afford to ignore resale, so the big question is no longer why, but when will they embark on resale?

IMAGE GALLERY

Bain & Company

is a global management consultancy firm and one of the ‘big three’ consulting firms founded in 1973 by Bill Bain. Bain operates internationally but has a specialist Luxury Goods division headquartered in Milan, Italy. Federica Levato is a Partner at Bain & Company Luxury Goods in Milan.She is the co-author of the Bain-Altagamma Luxury Report 2020. 

TOAST

is British fashion brand founded in Wales in 1997 by James and Jessica Seaton. The brand initially began with loungewear and nightwear but has since expanded into more formal clothing and homeware. TOAST has stores across the UK and adheres to a particularly sustainably-focussed business model.

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