On 14 January, its first day of trading, Poshmark popped. The peer-to-peer marketplace closed more than 140 per cent above listing price, valuing the company at $7.5 billion. It’s not the only one.
Competition in the resale and aftermarket categories has led to a rush of public filings and rumoured IPOs. The RealReal, luxury’s high-profile marketplace, was first, listing in 2019, although it is yet to report a profit despite collaborations with players such as Gucci and Burberry. Now competitors are jumping in as the pandemic hastens the shift to online shopping: consignment website Thredup confidentially filed for IPO in October (Crunchbase reported a series F funding round valued the business at $650 million in 2019). StockX, the five-year-old sneaker and streetwear platform known for its live-pricing model, raised $275 million in December, valuing the business at $2.8 billion, in what analysts have called “pre-IPO” behaviour.
Value-conscious consumers looking for newness, a focus on sustainability particularly among younger customers and the ongoing acceleration of e-commerce is driving the trend, according to Sarah Willersdorf, BCG managing director and partner who specialises in luxury. The $40 billion secondhand fashion market size will have 15 to 20 per cent compound annual growth rate globally over the next four to five years, BCG predicts. But resale models are inherently complicated given the breadth of items being sold and unpredictable supply, making profitability difficult; StockX “broke even” for the first time this year while Poshmark became profitable last year for the first time, with $21 million income from $193 million revenue in the nine months ended 30 September.
The market for IPOs is “promising”, says Forrester analyst Sucharita Kodali, indicating there might be more in the pipeline. “The window of opportunity for any IPO can evaporate at any moment. You want to jump on it while you can.”
On Poshmark, users buy and sell items directly to each other through a social media-style interface. The app, founded in 2011, counts 4.5 million sellers, 6.2 million active buyers and almost 32 million total active users. After delaying its IPO in 2019, the move proved to be more fruitful than even investors could have predicted, due largely to the pandemic’s acceleration of shopping online and social networks.
Poshmark’s “asset-light” model and technology that was able to create frictionless commerce technology made it appealing, says Navin Chaddha, managing director of Mayfield Fund, the first Poshmark investor. The timing of the IPO makes sense, he says, given the increasing value of social commerce to make purchase recommendations, in addition to the acceleration of e-commerce and resale.
“E-commerce has stripped out the social interaction [of shopping], and we are putting it back in,” says Tracy Sun, co-founder and SVP of new markets at Poshmark.
Maintaining momentum for Poshmark and its peers will largely come down to growing users and inventory while remaining competitive in the technology that facilitates the flow of goods — in both authentication and personalisation, Willersdorf says. “That is such a buzzword, but there has to be some element of curation,” she says. “I think of many of these platforms as tech companies, as rare as this is in fashion and luxury.”
The inventory challenge
Resale platform growth relies on both those supplying inventory and those buying it, and the pandemic benefited both. The RealReal saw a “record number” of new consignors this year, says head of women’s Sasha Skoda, with average monthly volume increasing 28 per cent toward the end of 2020 compared to the first half of 2020. It also acted like a catalyst for people to sell their handbags to resale marketplace Rebag, CEO Charles Gorra says, despite an initial slowdown in sellers.
A key advantage that Poshmark has — unlike Thredup, Rebag or The RealReal — is that it does not hold inventory. This “is one of the key contributors for being profitable”, Willersdorf says. Sun, of Poshmark, says that the inventory-free model was particularly beneficial amid the Covid environment, as it allowed the company to remain agile while selling more than 200 million items at any one time.
But the pandemic effect will only last so long. To fuel growth and remain competitive, resale platforms will need to continue to grow buyers, sellers and inventory, while building technology that can scale processing of one-off items. Already, Sun says, Poshmark is in 98 per cent of US zip codes. It might also want to increase the value of goods sold on the platform; it makes money by charging 20 per cent for every sale that is more than $15, but the average order value is $33.
The technology face-off
In its 2019 IPO filing, The RealReal revealed that 79 per cent of its expenses were on operations and technology, including tech that can identify, authenticate and sell the most desirable items at the optimal time. In December, StockX investor Griffin Schroeder, a partner at Tiger Global, praised StockX’s tech-forward model after the company opened “operations hubs” in Hong Kong and Toronto to verify items. Fashionphile, meanwhile, uses tools to identify bags, has developed a luxury pricing algorithm and has a patent-pending authentication tool. In August, it received $38.5 million in Series B funding after a minority investment from Neiman Marcus. Rebag, which has raised $68 million, has developed a software called Clair, a luxury appraisal index.
Technology is “critical” in resale because it deals in single items, Gorra says. “It is extremely difficult from unit economics to make the financial math work because every single item has to be processed uniquely. It’s impossible to do at scale without building tech that can help you do that.” The mechanics and technology that process the flow of goods “needs constant upgrading”, says resale platform Privé Porter managing director Jeff Berk, which is costly. “Every pair of hands in [a] warehouse that touches a product takes away the small profit. The platform-based businesses are the ones which will endure.”
This is something that Poshmark will continue to focus on, Sun says, with a specific focus on tools that lean into social commerce, such as building out video shopping and using machine learning to better match sellers to buyers. “I am more confident today than ever that social commerce is the future — for any type of seller, from someone selling a T-shirt to someone who operates a boutique to a brand selling a collection. We will continue to build a platform to help every seller thrive.”
“The tech is a huge bet the company has made,” Chaddha says, with a team of more than 150 people out of 500 working in engineering. The data science team will continue to develop tech to aid in areas like merchandising and pricing promotion discovery. The next decade, he says, will be about execution, as Poshmark tackles international growth and category expansion.
What’s next for growth
More competition is anticipated as resale matures. Some brands have begun experimenting with offering pre-owned items directly to their customers: Gucci, for example, has already partnered with The RealReal; Richemont bought pre-owned watch market Watchfinder in 2018, while LVMH Luxury Ventures purchased a stake in pre-owned watch reseller Hodinkee in December. BCG’s Willersdorf says the cost and complexity of mature recommerce models make it unlikely that fashion brands will be able to compete. However, they will compete with each other on proprietary technology. After user numbers and technology capabilities reach certain thresholds, resale platforms might take advantage of this as they expand into retail. “The move from offline to online is happening, and that is not reversible,” Chaddha says.
Poshmark’s specific challenges “will be to continue to grow, to continue to attract a broad base of customers online, and to stave off all the competition — because apparel is one of the most competitive categories there is,” Kodali notes. According to App Annie, Poshmark is already directly below Etsy in the list of most downloaded shopping apps in recent months. In the last 30 days (ending 13 January 2021), the Poshmark app averaged no. 11 in iPhone downloads among US shopping apps and was no. 8 in Google Play downloads. Its scale of competitors will increase even more as Poshmark continues to lean into more categories; it has already expanded to home and beauty, Chaddha notes.
Sun sees the business model working beyond resale or fashion. “The ubiquity of our brand is something that we’ve worked hard to earn the trust and loyalty of, and we’ll continue to nurture going forward,” she says. “Social commerce is a global phenomenon. And it’s not a technology trend. It is the way people want to shop, and we’re the leader of it.”
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