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Smarter Perspectives: Retail

Podcast: Retailers Look to Capitalize on the Lucrative Resale Market

Guest Kyle Sawyer, Steve Katz (host)

This podcast features a discussion about the rapid growth in the resale segment of the apparel industry, and how retailers are being challenged to find an appropriate course of action that can help ensure their participation in that lucrative market.

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Steve Katz:

Hi, everybody. And thanks for taking time out of your busy schedule to listen in on our Hilco Global Smarter Perspective podcasts. As return listeners know by now, I'm your host, Steve Katz. And if this is your first time with us, well, then welcome. We're really glad that you could tune in. Our discussion today is centered around the rapid growth in the resale segment of the retail apparel market, and how factors including consumers' heightened focus on sustainability are challenging retailers to quickly find the right path to participate in this lucrative market. And to talk about that, our guest today is from Hilco Valuation Services, Kyle Sawyer. Kyle, first time on the podcast. Welcome.

Kyle Sawyer:

Yeah. Thanks, Steve. Great to be here with you today.

Steve Katz:

Well, it's great to have you on and let's just jump right into it. So based on the statistics that I pulled, and I was a little surprised by some of this, secondhand clothing and accessories, also known as resale, is now the fastest-growing segment in the retail apparel market. So I bet that is going to surprise some of our listeners because it sure got me. And apparently, this is no longer the thrift store marketplace that many of us remember. Why is the pace of this growth so substantial?

Kyle Sawyer:

Yeah, you're absolutely right, Steve. Why don't we start off with a quick vocab lesson, because there's actually a difference between secondhand and resale. So resale is the newer and more rapidly growing component of the total secondhand market. The other component of the secondhand market would be your traditional thrift and donation stores, which is still growing, but more modestly. So when we say secondhand, we refer to both of those pieces, and we could also just be referring to used goods in general. So last year, both of those pieces accounted for 9% of the total apparel market, and secondhand is growing faster than every other category, even eCommerce. Now, to put that into a little better perspective, it's growing quicker than the direct-to-consumer corner of eCommerce, which includes digitally native brands you've probably heard of like Allbirds, Everlane, [inaudible 00:02:07] are a few of those.

Kyle Sawyer:

So that current 9% market share is projected to double to 18% by 2031. And that would make it, at that time, the second-biggest segment behind only off the price, which is your TJ Maxx and your Ross stores. I think another interesting tidbit, and probably relevant to most of our listeners, is that in North America specifically, the total secondhand market is growing eight times faster than apparel is overall. Now, compare this to just two times faster in Europe, and three times faster in Asia. And it's clear how much of an opportunity exists in the US. Come 2026, we're talking about potentially an 80 billion market in the US alone. Last year, it was 35 billion. Now, sustainability and environmental impact are two huge factors that are driving this circular economy when it comes to apparel and accessories, and it's obvious that COVID played a major role in bringing these issues front and center. About a third of consumers now say they care more about wearing sustainable clothing, saving money, and the quality of their clothes than before the pandemic.

Kyle Sawyer:

And I think if you look at those sentiments, it's not a coincidence that secondhand grew 32% from 2020 to 2021. And when you talk about resale specifically, that more rapidly growing segment, that number jumps to 58%. So secondhand is already as big, or bigger than the fast fashion segment, which is starting to fall out of favor with some of its consumer base, namely younger shoppers. It's really at the opposite end of the spectrum, just in terms of general social consciousness and the value proposition. I don't think it would surprise anyone that younger generations are more concerned with their impact on the environment. But even though a lot of fast fashion buyers think their shopping habits do have a negative impact on the planet, they're having a tough time cutting the cord because of things like affordability and convenience. Now with that said, about two-thirds of these fast fashion shoppers say their goal is to buy more secondhand fashion and eventually quit fast fashion.

Kyle Sawyer:

I think it's interesting to hear a word like quit when you're talking about clothing and fashion. And social media definitely plays a role there. People feel pressured to have the latest and greatest, and it's clear fast fashion can kind of be a guilty pleasure in that regard. And just for those that are unfamiliar, fast fashion, the big names here are, the likes of H&M, Zara. Forever 21 is another one, and they really crank out the latest designs quickly and really... So clearly, there's some desire, on the part of the consumer, to change habits, and secondhand really stands to benefit as a result.

Steve Katz:

Yeah, it seems like, I mean, it's very logical based on what's going on. And now, you have a significant inflationary period thrown into it, which makes the affordability of non-fast fashion, if you wanted to get more of these luxury-type items, even less affordable. So very interesting. Thanks also, for that clarification on the language too. I appreciate that. So I guess the question is, if we look back to this period, moving into the start of 2020 versus before, and then where we're at right now, how much has COVID accelerated the momentum in this market? You talked about some of the other factors for sure, because clearly, it changed people's buying habits and the types of clothing we're wearing. I mean, you and I are today sitting here wearing kind of casual work clothes. Things were a little bit different before COVID. So how's that playing into all that?

Kyle Sawyer:

Yeah. Steve, you're onto something there for sure. COVID has definitely reshaped our buying habits. And a lot of us have been comfortable shopping online for quite some time, but the pandemic really accelerated not only how many people were buying things from their couch, so to speak, but what they're buying too. More specific to what we're talking about though, I think is the opportunity, and that opportunity was mainly time at home that COVID gave people to kind of reevaluate their closets and their wardrobes. There are a lot of unused and or unwanted clothing items out there. The estimates, we've seen about 9 billion. And this of course, fuels the supply side of the second-hand equation. What I think is a pretty staggering number, almost half of US consumers have resold apparel at one point or another. And the population that hasn't, half of them are open to trying. And so 75% of the population that's either resold clothing or is open to it. So that's a big number.

Kyle Sawyer:

As it becomes easier for consumers to monetize what otherwise would just be taking up space in their closet, more these garments are making their way into the circular economy instead of the trash can. About 35 billion items are thrown away each year, even though the majority of those are still in a wearable condition. And with over 60% of Gen Z and millennials saying they look for something secondhand before buying it new, there's probably a home for a good chunk of that. When people think of environmental impact, it might not always be the first thing that comes to mind, but the fashion industry actually has a really big footprint. Some estimates have it accounting for 10% of global CO2 output, and that's more than international flights and shipping combined. When you layer on waste from manufacturing byproducts in the textiles themselves that end up in landfills every year, there's definitely a lot of stake when it comes to the clothes we're wearing and there's sustainability. So with that in mind, buying, selling, and trading of used apparel has definitely gone mainstream, which that was a big shift from just donating, or especially just throwing away.

Kyle Sawyer:

And I think we can all probably agree that donating feels good, but when you add the potential to earn a little something extra, I think that can go a long way to helping keep things out of those landfills.

Steve Katz:

Yeah. Well, I'll tell you, 35 billion clothing items are thrown away annually, that's a big number. So which consumers are driving this trend? Where are they primarily shopping? Because I know there's a peer-to-peer element happening here, but I also know that a number of intermediaries have jumped in with big private equity backing and are doing really well also, right?

Kyle Sawyer:

Yeah, absolutely. And Steve, it's an interesting question, because, on the platform side of things, you really have these established resale-only companies, like Poshmark, The RealReal, Thredup may have heard of, that are driving a lot of the growth that we're seeing. And there's quite a bit of scalability in these businesses as well. In a sense, these are all extensions of that peer-to-peer element you mentioned, because they either facilitate the transactions and act as an intermediary, or they do their procurement at the individual consumer level. On the other hand, you have the brands and the retailers themselves who admittedly are a little bit behind the curve, and whether that's by design or not kind of depends on the company. But a pretty stunning number though is that in 2020, there were only eight brands that operated their own resale shops. And by the end of 2021, that number grew all the way to 30.

Kyle Sawyer:

I think those numbers right there alone kind of tell the story that this is a trend that retailers are realizing they want to be a part of, but sentiments from retail executives, I think go a little bit further to kind of back that up. Three-quarters of them are saying they're open to offering secondhand, and say their customers are already participating in resale. And half of those executives that don't have a resale program right now say they feel behind the curve compared to their peers, thinking that these programs are actively being explored by some of their competitors. Now, when we think of the consumers who are pushing the resale market to kind of new Heights, we probably envision a younger demographic, and rightly so. This is certainly true for how we got here, but at this stage, it probably would surprise people to hear that baby boomers are actually a higher growth demographic than either Gen Z or millennials are. So you can see that there's still a lot of runway left for growth when you look at a factor like age.

Kyle Sawyer:

And I'll circle back quickly to the individual brands and their involvement because there was an interesting survey conducted by ThredUP last year that showed almost half of consumers would be more likely to shop with a brand that allowed trade-ins. And that, of course, would be made possible by operating a resale shop. Another telling stat that came from that survey, 45% of Gen Z and millennials say they're more likely to shop with a brand that offers secondhand as a complement to their new items. And that number was up from 34% in 2020, so an 11% jump in just the span of a year. Given most brands still don't offer resale or are really just getting their programs off the ground, a lot of these shoppers are, in the meantime, kind of filling that void using social media and some of those resale-only platforms that we talked about earlier to buy and sell secondhand. So why don't we talk a little bit more about those established resale platforms that we talked about earlier? The first one, you've got Poshmark, and their biggest selling point is probably the ease of uploading items to the platform.

Kyle Sawyer:

They say you can take a photo and upload a listing right from your phone and under a minute, but another thing they do really well is they make it easy to cross-post with social media platforms like Instagram, Pinterest, for example. The RealReal is more luxury-focused, so their calling card is their product knowledge and that they can guarantee authenticity on designer goods, which forces an area where counterfeits are always a big concern. Thredup is interesting because they run their own consignment-based resale shop and they're collecting these garments, inspecting for quality, and advance of listing the item. But more than that, they also offer resale as a service to retailers, meaning they provide the back-end technology needed for these companies to run their own resale shops. They work with some big names. Just to name a few of those, Adidas, Gap, Abercrombie, so definitely some big names that they work with.

Kyle Sawyer:

One name I haven't mentioned yet is Depop, and they're a little different from the rest of that group because their platform functions not only like a marketplace, but also a social media network kind of wrapped into one. And Etsy actually acquired them last year for $1.6 billion. So I think that kind of goes to show the potential that some see in their platform. According to Depop, about 90% of its users are under 26 years old, so we're definitely talking about an especially young demographic here, and one that's presumably up to date on all the latest trends. And more and more, we're hearing consumers say that secondhand shopping and selling are legitimate forms of entertainment for them, and a lot of that activity is shifting online to places like Depop. Of course, this is really the case for Gen Z and millennials, but really any shoppers who just get a thrill out of coming across hard-to-find items. And I think it's also important to note that the selling aspect of this is just as critical, selling one thing to make a room for another.

Kyle Sawyer:

And there's no doubt there's a mindset shift taking place too here, where you have secondhand shoppers thinking more about purchases as investments. Almost half of Gen Z and millennials say they consider the resale value of either clothing or an accessory before they buy it. And I think you can make the case that it's not just an investment financially, but environmentally too. Now, Steve, I know I've gone on for a while about all this, but I hope it just shows how a wide range of activity there is online in the secondhand market, and really at all price points too. And we're still early in the evolution of all this.

Steve Katz:

Yeah, no, it's fascinating. I appreciate the detail. And I'll tell you, also the thought about the entertainment value of the process is really interesting too, because it's true, right? People spend hours and hours. If you were to analyze people's screen time, and I'm sure that there are data sources and analytics at work that are doing that, people are spending an immense amount of time. And it is. It's sort of a new form of entertainment to shop that way and browse that way, not be on foot in a store. But overall, what's happening, it does seem like a huge draw right now. I think purses and jewelry and dresses at a fraction of the original cost and holding their value and desirability if you decide you want something else or need cash, right? More thoughts on that?

Kyle Sawyer:

Yeah, a hundred percent. I mean, we just talked about how younger consumers are starting to factor resale value into their decision-making and talk about the luxury corner of the market. I think that's even more relevant, so great segue there. I think luxury resale dominated by accessories, rather than apparel, jewelry, and watches, actually make up about half of that market, and handbags and shoes account for another third. So in those categories alone, we've got at least 80% of that total market share. This is an interesting area because you have a unique mix of consumers that are participating here. When you think of luxury and designer, you also think of high price points, right? And so while you might have some wealthier individuals entering the secondhand market to try and find some exclusive and/or hard-to-find pieces, you also have your more aspirational buyers who want to associate with a certain brand or brands.

Kyle Sawyer:

And this is a way for them to get their foot in the door for less than they could buying new. Now, this isn't necessarily to say that there are deep discounts to be found all over the place, because some pieces hold their value incredibly well over long periods of time, and some can even appreciate. And that can be due to a number of factors, like supply and demand, which is oftentimes a function of the exclusivity that brands try to create. But also, price increases in the new market can have an impact, sometimes just the big inflation that we're seeing today, things like that. But with that said, there's definitely a mix of values and more commodity-like items out there. A lot of the times, it just comes down to the grade of the item though, whether something is truly new, or maybe it's a little banged up. McKinsey did some research in this area last year and said that we can expect luxury resale to grow 10 to 15% every year over the next decade. And it's already a 30 billion or so market.

Kyle Sawyer:

I think it'll be interesting to see where this growth comes from because we talked about this market is largely driven by accessories right now. These consumers have gotten comfortable with owning secondhand, but not so much on the apparel side of things. So there's certainly opportunities to be unlocked on that front. This increase in popularity is sort of a catch-22 for luxury and designer brands. We talked about exclusivity. And by openly endorsing second-hand, executives could maybe risk alienating some of their core clientele. Opening up a resale shop would kind of fly in the face of being exclusive, and could even cannibalize new product sales. However, the counter to that argument is that the opportunity to buy second-hand can also serve as an on-ramp of sorts for those that might be priced out on new products today, but what gives them a path to potentially be a loyal customer sometime in the future, seeing that there's a good chance these are younger consumers whose buying power should theoretically increase over time.

Kyle Sawyer:

At the end of the day, if the luxury brands don't want a piece of this resale pie, then companies like The RealReal, they don't think they'll complain about that.

Steve Katz:

Yeah. Interesting. So that's a great top line of luxury and designer, but what about outside of luxury? It sounds like maybe there's some different sorts of challenges there.

Kyle Sawyer:

Yeah, absolutely. So there's a mixed bag of retailers embracing different aspects of resale, but we're seeing attitudes change pretty rapidly there. In 2020, about 60% of retail executives said their company has or is open to offering a resale option, with just over 40% saying that resale will be an important part of their business within five years. Now, fast forward, just a single year later, those numbers jumped to about three-quarters of them saying they're open to resale, while just over half are guessing it'll be key to the business in the next five years. So while it's clear resale is on consumers' radars, it's now safe to say that the decision-makers are taking notice too. And whereas luxury resale is heavy on accessories, much more apparel is changing hands in the greater market where motivations might skew a little bit more environmental than financial. In terms of the retailers that are playing in this space, one of, if not the earliest, adopters has been Patagonia.

Kyle Sawyer:

They call their program Worn Wear, and they claim that buying used typically extends the lifespan of a garment by about two years. They've been taking part in the circular economy for years now, and they even encourage consumers to send in damaged items for repair. However, they're not the only outdoor-centric brand that's having success. What stains to reason, of course, that outdoor enthusiasts are also environmentally minded. And REI is another company that's taking advantage of this. The company says they've been investing in their resale program that they call Resupply because it serves as a really powerful customer acquisition tool. And I think the numbers seem to bear that out too because total sales were up 36% in 2021 for the company with used gear coming in even higher at 86% growth. All that said, it's not to say that the logistics of building and operating these platforms are easy, definitely not, but there are a few big names in the casual arena getting into the game too. Levi's launched its second-hand initiative in 2020 to buy back and resell denim jackets and jeans.

Kyle Sawyer:

And actually, just last month, Lululemon brought its Like New program nationwide after they had tested it in just Texas and California. And Lululemon actually says that all profits from this program will be reinvested to support the company's sustainability goals over the next decade or so. Now, one thing all four of these retailers have in common is, they use a company called Trove to power their resale platforms. And Trove calls this resale as a channel, and it's a competitor to Thredup's resale as a service offering that we talked about earlier. So as you can see, the logistics of running a secondhand marketplace, they're a little daunting, and a lot of these big brands are outsourcing that responsibility to the third-party experts, at least when it comes to the technology piece. Madewell is another brand that's using Thredup services but to power their resale efforts.

Kyle Sawyer:

And last year in Brooklyn, they actually opened up a popup store that sold used products exclusively. Adidas actually might be going further out of the box than everyone else, and they also partner with Thredup. They're accepting products from brands, other than their own, any brand really, as part of their Choose To Give Back program.

Steve Katz:

Okay, well, great info. And looking at my watch here, and unfortunately, we just have a couple minutes left. But from what I've heard you saying and what I've been reading, and frankly, what I've observed with my own family and friends, it does seem like many of the stigmas that probably were once associated with secondhand shopping in the past are really now eroding in environment. So I guess to wrap it up, I'd ask you if you have any final thoughts from just your general observations in the market and the team are doing in terms of what we can see based on that moving ahead.

Kyle Sawyer:

Sure, Steve. Yeah. I would say this, clearly a demand from consumers for secondhand. And while there are different motivations, I think it's pretty clear that sustainability and affordability are really driving that demand. People want quality clothes that are going to last, but also aren't going to break the bank. Add to that, the desire to be able to buy, sell, trade in a convenient way. And I think there's serious customer loyalty to be won by brands that can really effectively build resale into their overall omnichannel strategies. With inflation soaring, apparel is one of the biggest areas consumers are cutting back on. It's actually second only to restaurants. Secondhand is a great way to stretch a budget, and shoppers are saying it's really helping them to afford the brands that they love in this current environment. One final thought, people really love the creativity of the fashion industry, but it's environmental record is more than a little suspect, granted some companies are doing more than others.

Kyle Sawyer:

However, there's room for improvement when we talk about the life cycle of a garment, and the environment stands the benefit as that improvement is realized. At this point, consumers are certainly aware of stakes, and we think the brands that make a positive impact in that regard stand the benefit. There are some leaders on that front at that moment, but evolution of this market is far from finished, and plenty of opportunities still exists out there.

Steve Katz:

Fantastic. Well, great stuff, Kyle. Looks like we can really expect to see a lot more of exactly what you're talking about beginning to take place over the next few years. And so, thanks again for being on with us. It was a great conversation.

Kyle Sawyer:

You bet, Steve. My pleasure, glad to be here.

Steve Katz:

And Kyle, how can people best get in touch with you?

Kyle Sawyer:

Email, phone, both work just fine. You can send me a note at ksawyer@hilcoglobal.com, and that's K-S-A-W-Y-E-R, or give me a call. My number's (207) 577-7689.

Steve Katz:

All right, listeners, if your business or a business in your portfolio is involved in the manufacturer or retail side of consumer apparel or accessories, I think it'd be well worth your while to reach out to Kyle for his perspective on becoming more actively involved in this incredibly fast-growing market. What did we say? 30 billion in 2020 and reaching 180 by 2032. Those are big numbers. Anyway, I know Kyle would be more than happy to take the call and share his thoughts as they pretend to your specific situation. And we hope, as always, that this Hilco Global Smarter Perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward as well. Until next time, for Hilco Global, I'm Steve Katz.

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