Secondhand Sellers have Problems, but Demand is not One of Them

While resale businesses are experiencing strong demand, supply-side constraints are tricky

By guest author Jinjoo Lee from Wall Street Journal

Caption and graphics courtesy by Wall Street Journal

Sellers of used goods don’t always enjoy a classy reputation, but they have a high-class problem at the moment: Their products are selling like hot cakes.

Supply constraints—not a demand collapse—caused revenue declines last quarter for both luxury consignor The RealReal and used-car seller Carvana. Some of those issues were similar to ones traditional retailers are facing. Safety measures due to the coronavirus pandemic meant that processing capacity was limited: Sellers of used goods must inspect, clean and, in some cases, refurbish items before selling them. Physical store closures—a significant source of supply for secondhand sellers such as The RealReal—also hampered the ability to bring in fresh (used) items.

Unlike sellers of new goods, who can throw money at the supply problem, used-goods sellers are at the mercy of the market. They must attract consignors through opening new stores strategically, advertising or by launching partnerships. ThredUp’s model works this way—it has partnerships with Gap, Macy’s and Walmart, among others.

It’s worth noting that supply was the revenue-driver for many secondhand companies even before the recent economic downturn. The RealReal tends to sell through roughly 80 % of its items within 90 days of listing, according to Matt Gustke, chief financial officer. AptDeco, which sells used furniture, tends to sell through 80 % of high-demand brands—including West Elm, IKEA and CB2—within eight days, says co-founder Kalam Dennis. ThredUp, which sells used apparel, works through most of its inventory within 30 days or so.

Still, pandemic-related trends clearly helped boost demand. For example, the decline in the supply of new vehicles as auto makers curtailed manufacturing boosted demand for used ones. For The RealReal, certain luxury brands’ decisions to bump up prices on handbags to offset lower volume helped boost pricing on its own platform.

In other cases, it was a matter of selling in the right category. AptDeco’s Mr. Dennis notes that furniture sales in general have benefited as customers spend more time at home, renewing focus on improving their new work- or study-from-home arrangement. The company’s sales are up 300% year to date compared with the previous year, eclipsing new-furniture seller Wayfair’s year-over-year sales growth last quarter of 87.3%. Mirroring the strength of so-called athleisure brands during the pandemic, ThredUp saw higher sell-through rates for items such as leggings, athletic wear and tops.

The pandemic also brought more value to platforms that have the ability to inspect and clean items and arrange contact-free delivery. Listing furniture or other appliances on Craigslist or Facebook Marketplace, for example, looks much less appealing in a world where customers are wary of entering strangers’ homes.

While surging demand is welcome news, resale businesses will have to watch their sell-through rates carefully as extreme levels could turn away potential customers unable to find what they want.

In an ideal world, resale businesses would attract sellers at the same pace as buyers. But as the recent uptick in demand shows, that balance is tricky to achieve.