Retailers and brands hop on the resale wagon
Retailers and brands are wringing out as much revenue as they can from costly inventories and returned merchandise. Throughout 2022 and into the holiday season, promotions were used to offload as much as possible of the front-end inventory to make way for new seasonal inventory.
However, what to do with returns continues to be a concern for many retailers, particularly as more and more embrace sustainability practices and, thus, are incorporating returns into annual Environmental, Social, and Governance (ESG) reports.
Enter technology providers such as ThredUP, RealReal, and Poshmark. These providers offer retailers, brands, and others an online platform to sell gently used goods.
Think of them as online consignment shops for individuals and also for retailers and brands.
According to J. Crew, putting an item of clothing back into the circular economy by handing it down, donating, or reselling it, extends its life by an average of 2.2 years. “When people shop secondhand, the demand for new clothing production goes down, which reduces carbon, waste, and water footprints by an average of 25%,” J. Crew added said in a statement to WWD.
The J. Crew statement is an interesting one, particularly regarding the “demand for new clothing production goes down…” As more retailers truly embrace the circular economy, could we really see a decline in new clothing production? If so, could this negatively impact imports?
A number of retailers seem to be embracing the circular economy by announcing resale initiatives this quarter. J. Crew’s initiative “J. Crew Always” includes a resale program powered by ThredUp’s Resale-as-a-Service and a program to sell vintage fashions in stores.
H&M is also partnering with ThredUp’s Resale-as-a-Service. "We need to take responsibility for the impact fashion has on the climate and the environment. Circular business models can help us reduce and limit this negative impact while continuing to deliver fashion and style for our customers. With the launch of our first resale model in the U.S. market, we're taking the next big step in that direction," Abigail Kammerzell, Head of Sustainability, H&M North America, said in a statement.
Hanna Andersson, in partnership with retail technology company Archive, launched Hanna-Me-Downs in February, while Rent the Runway is selling resale items on an Amazon Fashion online storefront.
Several of these online platforms, such as ThredUp and RealReal, act kind of like 3PLs in which they may receive retailers’ returns, disposition the items, pick, pack, and ship orders, and more. They also handle retailer-branded website setups.
Using this kind of solution to manage returns can help protect the brand by ensuring items are authentic versus counterfeit. These solutions can also help protect a brand’s reputation by keeping the returns in the hands of the retailer.
However, retailers and brands might find that their resales may be competing against their promotions as consumers look for bargains.
“In addition to [consumer] demand pullback, we were also seeing elevated inventory levels across retail. For the second half of last year, retailers were aggressively liquidating their overstock via direct and wholesale channels, causing downward pressure on prices across the industry. This was especially pronounced in Q4 when brands leaned into promotions even further for holiday shopping. ThredUp Co-founder and CEO, James Reinhart, told analysts on March 26.
Reinhart continued, “While we don’t face the same inventory risks as traditional retailers due to our consignment model and flexible supply chain, we believe we were affected by this influx of cheaply priced clothing. The thredUP brand stands for value, and that message was being washed out in this hyper-promotional landscape”
“Now, a couple of months into 2023, we’re still in the midst of a challenging consumer environment, and inventories remain elevated relative to historical levels, but we’re seeing a few things in real-time that makes us cautiously optimistic about the setup for resale in 2023,” Reinhart said.
Financially, the business model may be in question for some of these online platforms. ThredUP and The RealReal announced changes in their pricing structures during their recent earnings announcements.
“The goals were to optimize take rate, limit the consignment of lower-value items and increase the supply of higher-value items. We are closely monitoring the impacts of our recent changes, and we are encouraged by the early results. We have seen supply continue to come in, and value is growing faster than units, which is aligned with the intended goal of the changes,” The RealReal president and COO, Rati Levesque told analysts on Feb 28.
At the end of the day, the consumer will make the decision between new and old/vintage. But in times of economic uncertainty, the consumer, on average, will often opt for the best value while carefully managing his or her’s purse strings.
How resales help with returns management and its impact on supply chains will be closely watched. 😉
**So, after I wrote this, a good article from Bloomberg was published on venture firms investing in reverse logistics start-ups. This quote is of particular interest - “What we’re seeing now is the opposite of growth problems: ‘How can I effectively manage my inventory because I can’t afford to have excess inventory on shelves?’” said Jonathan Poma, Loop Returns’ co-founder and chief executive officer. “Mentions of profitability and margins are popping up more in calls with new merchants.”
***Next week, the Q1 Parcel & Last Mile Market and Outlook report is out. It will be the last ‘free’ one (still working out the kinks right now, so feedback is welcomed, please). The price for future quarterly reports hasn’t been set yet, but I’ll keep it very reasonable.
(Photo credits go to Depositphotos.com.)
- Cathy
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I wear a number of hats these days. Catch my twice-a-week column on air cargo, freight forwarding, and the express markets, and the occasional podcast on Air Cargo Next. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC & other published articles and providing an outlook for the week ahead.
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