(Bloomberg) -- Walk into this luxury boutique on Manhattan’s Upper East Side and you’ll find the kind of fashion that’s de rigueur for the 1%. There are $8,000 Oscar de la Renta jackets and Hermes alligator handbags priced to move at $30,000.
To drop off your used clothing, though, you’ll have to go upstairs.
Climb the curved staircase of The RealReal’s new outpost on Madison Avenue and you enter a different world—one that’s more neighborhood bank than plutocratic playpen. A clerk presides over a waiting room lined with cubicles, each with magnification equipment that allows for close inspection of the nicest secondhand goods you could imagine.
Once an online-only vintage clothing retailer, RealReal has gone brick-and-mortar, opening three stores and 11 consignment locations across the country. At its full-service venues, including another shop in New York and one in Los Angeles, the company seeks to both buy and sell dresses, jackets and necklaces that have been sitting dormant in some very wealthy closets.
Sound like a niche market? Don’t be so sure: The company raked in $207 million in total revenue last year and is preparing to go public this week.
Though consignment and used clothing shops have occupied storefronts for decades, their role in society has changed over time. Once the haunts of only the working poor, they later attracted those sartorial obsessives who enjoy the thrill of a treasure hunt. More recently, young entrepreneurs looking to turn Salvation Army discards into Instagram-chic have stalked their aisles, capitalizing on the chance for a huge markup.
Now, predictably, the well-funded startups have arrived. And Wall Street has followed with them.
Used clothing, footwear and accessories represent a $10 billion market in the U.S., according to data from market research firm IBISWorld. Interest from young, sustainability conscious shoppers has been a boon for the industry, which the firm forecasts will grow around 1.6% a year through 2024.
All this has made old clothing a magnet for investment. Venture capital has poured in, with more than $1.1 billion dropped into used-clothing operations over the past several years, according to data compiled by Bloomberg. This included more than $350 million in funding for RealReal and about $130 million for domestic competitor ThredUp. French startup Vestiaire Collective raised $45 million in June to fuel international growth, bringing its total funds to almost $200 million. RealReal, meanwhile, is looking to raise $270 million in its initial public offering.
The physical locations opened by RealReal, ThredUp and Rebag are 21st century versions of the traditional vintage clothing shop. They’ve been integrated into a broader, preexisting e-commerce model—serving as a home base for companies to collect items people no longer want.
“I think that we are seeing a shift to this, as compared to people maybe looking on EBay,” says Sucharita Kodali, an analyst at Forrester Research. “It’s a format that some people who like the treasure hunt will explore.”
So why the tony location for this new RealReal outpost? When it comes to luxury resale, the bottleneck is usually on the supply side: It’s hard to get the well-heeled in the door, says Charles Gorra, chief executive officer of rival Rebag. New stores, he said, must be in places with “existing luxury ecosystems.” With this in mind, Gorra says his company is looking at Chicago and some cities in Texas as potential new locations.
“We’ve had an easier time getting supply with brick-and-mortar—people have brought suitcases into the stores, full of multiple designer bags,” he explained. “Walk a block, and in just a matter of a few minutes you can get access to hundreds or even thousands of dollars,” he said. “Suddenly, the process is much more accessible for most luxury owners.”
A spokesperson for RealReal declined to comment on the store’s strategy, citing a quiet period before its initial public offering, but the company’s executives revealed some of their game plan in a securities filing earlier this month—echoing Gorra’s plan to open stores where the rich live.
ThredUp’s physical store strategy is a bit different, as it focuses on less pricey items. It currently has four locations in the San Francisco Bay Area and plans to cluster new stores in one metropolitan region at a time. Unlike other digital-native companies that seek high visibility in major cities, ThredUp is looking for easily reached venues where commuter and car access make them “part of consumers’ everyday routine,” says CEO James Reinhart.
E-commerce has had a famously hard time cracking open the clothing industry. Some 85% of apparel is still bought in stores, so brands that sell only online miss a huge opportunity to engage with customers. Simultaneously, the cost of online advertising has grown every year, while brick-and-mortar rent has gone down. Store ownership has thus become more attractive, Reinhart says.
Online resellers also have an advantage when opening physical locations—they have piles of data on shoppers, as well as their favorite brands—all easily sorted by zip code, which helps them choose what to display in each store.
RealReal’s downtown New York store, where it shows off its largest collection of items, is two stories of upscale bags, watches, jewelry and garments for both men and women. It also happens to be down the block from What Goes Around Comes Around’s original store, which opened in 1993. The celebrity hotspot has an appointment-only archive with some of the highest-end vintage clothing items anywhere.
Both hope to score the best rare finds in the neighborhood.
©2019 Bloomberg L.P.
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