Hey! It’s a Store in Every Closet

As if the traditional industry’s beaten and battered retailers don’t already have enough angst sitting on top of too many stores and too much stuff, all driving the pricing and discount wars in the race to the bottom.  The very consumers they’re trying to steal a buck from are now looking into their own overstuffed closets and realizing they can make some money by dumping a bunch of their stuff into one of more than a dozen (and growing) online clothing resale businesses, most of them upstarts. In the trade they call it “flipping.”

eBay leads in the resale space in terms of size and selection.  This year it acquired Twice, an apparel flipper that raised $23 million in funding. Also, eBay Valet is a consignment service that doesn’t require eBay’s self-listing function. However, while eBay holds the number-one ranking, many of the new resale startups and their eager investors believe it is most vulnerable in the fashion category. They also aim to preempt Amazon getting “it right” in fashion and potentially entering the resale space as well.

Essentially these new entrants are betting that curation for a specific consumer niche and exclusive product categories will trump the massive everything-for-everybody marketplaces of eBay and Amazon.

Accordingly Wall Street and an army of VC’s have been pumping hundreds of millions of dollars into the space in 2015 and have blown past $400 million in total funding over the past five years. As reported in Bloomberg.com for this year alone, $30 million went to an online consignment shop called Tradesy, vintage luxury reseller RealReal collected another $40 million, Poshmark, a social commerce site took in $25 million, Vestiaire Collective, a European reseller, landed $37 million and the biggest round of funding went to ThredUp, a secondhand fashion site, led by Goldman Sachs they raised $81 million, which brings its total to a whopping $131 million.

And talk about piling into an overbooked space. There will likely be even more resale sites in addition to these startups. Threaflip is a consignment market focusing on fashionistas who are in a hurry.  Snobswap partners with brick-and- mortar retailers to resell. Refashioner claims to be a great curator of unique items. Vinted is a flipper based in Lithuania. Vaunte scours the closets of fashion leaders. Rebagg only sells designer handbags, and MaterialWrld swaps gift cards for unwanted apparel.

The Horrible Implications

Take a breath and let me review with you why this rampant and incessant devolution is taking place in this industry, as I write. First, with more apparel than consumers could need or even want already stuffing the marketplace, driving bloody share wars driven by insane discounting, Amazon enters and is given a free pass by Wall Street to lose money. They take the pass and start underpricing Walmart and everybody else, thus, accelerating the discount wars. Then as Wall Street and the VCs can’t find anywhere else to gamble with their billions of dollars of free capital, they get razzle-dazzled by one kid after another who is going to change the world with a new way to market and sell stuff — or rent or share. So these wise investors pour their billions into these startup slot machines, knowing maybe one or two out of 10 might stick and eventually make some money. In the meantime, these startups are also given a pass to lose money to the point that half of them don’t understand the terms “top or bottom line.” The next round of funding is all they focus on. Thus, this wave of e-commerce startups is another accelerator of spewing more free goods into the market, further fueling the discount madness.

And don’t forget, Amazon and the whole bunch of e-commerce players are simply adding more stuff into a marketplace that is screaming for less stuff.  That’s why prices keep going down to get rid of the excess.  But it doesn’t happen, because there are thousands more of new entrants who do not have to make any money, still jamming the system.

Are you with me so far?

No, It’s Not Over Yet

So now that consumers can’t stuff one more pair of pants into closets that have been stuffed to exploding with nearly-free goods, yet a new group of kids, or flippers, come up with the cool idea that they can successfully resell used apparel and accessories.  While consignment stores have been around forever, these flippers come armed with the Internet and hundreds of new cool ways to model what is essentially an old story — consignment retailing.

And once again, the investor class is more than willing, and actually happy, to find a new game in “SiliVegas” to gamble away more billions. And once again, losing money in this game will not be an issue. Sadly,  the aggregate of all this investment frenzy will pour more fuel on the discounting fire.

And the horrible implication for the entire industry is that if this trend of buying used goods sticks, for every dollar of sales on these sites, it will mean a dollar less spent in traditional channels. And, if one hopes that this new (consumer) “closet retailer” will go on a shopping spree to replace all of the stuff they just dumped into the flipper market with new stuff, think again.  This new resale market is so cool to those participating in it, they will likely shop and buy on the resale sites.
I think they should replace the “flipper” reference with “churners,” just churning the stuff to be used over and over until it eventually falls apart. In a perverse way, this kind of defines the bottom of the barrel of commerce, adding no real value to our economy. Right?

Worse, while 80-90 percent of the startups will implode (at some point when investors flee), these “bubbles” are sucking more capital away from the mainstream marketplace and economy resulting in…what?

Go ahead, answer that question. If I have to answer it one more time, I might lose my mind.

Have a good day.