The Resale Rage

Can second-hand shopping sites live up to the hype?

Yesterday, Poshmark, the online resale marketplace, went public on the NYSE. After pricing its initial IPO at $42/share, Poshmark opened trading at a whopping $97.50/share, more than two times its expectations, giving the company a valuation of around $3 billion. However, by the close, Poshmark's stock was trading at an astonishing $101.50, boosting the company's valuation to over $8.5 billion; an increase of $5.3 billion in only 8 hours, raising $277 million for the company.

Photo credit: Barron's

Poshmark's IPO is one of many in a line of hotly anticipated e-commerce listings this year, which include ThredUp, MyTheresa, and Revamp Resale. As I discussed in Modish Issue #1, thanks to the pandemic's tireless crusade against brick and mortar retail, investors have become infatuated with e-commerce companies, practically throwing money at them in the hopes they can deliver on their lofty projections.

Photo credit: Business of Fashion (@bof)

Within the e-commerce category, resale and secondhand marketplaces like Poshmark have grown immensely in popularity among investors, as various studies and data point to Gen Z's supposed love of secondhand goods. Poshmark's insane valuation, however, gives me pause. Investors seem to be hedging their bets on resale marketplaces based on data interpretations rather than actual consumer behavior. As such, I believe secondhand marketplace companies are incredibly overvalued, their valuations based on ideals rather than concrete performance.

Take the RealReal, for example. While it is not identical to Poshmark--it is a consignment business rather than a direct seller-to-buyer model, and only sells luxury items from a curated list of designers--the two are similar in makeup. Most notably, they both inhabit the secondhand market space, focusing on the resale of clothing, shoes, accessories, and jewelry.

The RealReal (REAL) went public in May of 2019. Ahead of many of its competitors in entering the public market, REAL has acted as a sort of beta test for other resale marketplaces. Prior to COVID-19, REAL's GMV grew over 40%; however, at the end of Q3 2020, its GMV was down -3% on the year, according to a report by Piper Sandler. Sales for REAL were also down -2% Y/Y at the end of Q3, and available inventory also dropped substantially, signifying a lack of supply from previously loyal consignors. Despite these disappointing numbers, REAL's new buyers increased by +24% in November compared with the same period in 2019, setting a new monthly record for customer acquisition.

The RealReal flagship in SoHo, NYC. Photo credit: The New York Times

According to the same Piper Sandler report, the total US secondhand market was estimated to be worth $28 billion in 2019. The 2020 Resale Report projects that the value of the market will more than double by 2029, to a whopping $80 billion. And, though this estimate appears encouraging, it is not the size of the resale market, but the market's consumers that investors should be focused on.

Unfortunately, Gen Z is not as enthralled with resale as investors would like to believe. Piper Sandler's annual Taking Stock with Teens Fall 2020 survey shows that only 28% of teens claim to already use a secondhand marketplace, while thrift/consignment stores were ranked #10 among the most preferred apparel brand/retailer for upper-income teens. While this is a vast improvement from #38 a year prior, this data simply is not enough to merit REAL's current share price ($19), especially as steady supply remains difficult to secure and consumer confidence continues to be tenuous.

Bottom line: Secondhand marketplaces are extremely overvalued. Not only are they reliant upon future consumer behaviors, specifically those of the seemingly impossible-to-predict Gen Z, but they lack concrete proof that the resale model will survive long-term. Ultimately, secondhand e-tailers like Poshmark and the RealReal are writing checks their models can't cash.