Features, Innovation

The RealReal: High-End Disruptor or Gateway Drug to Luxury?

RR TheRealRealOn a recent Friday, Dr. Stephanie Crandall took the morning off to hold an important meeting at her spacious Westchester County, New York home.

The physician, who asked to not be identified by her real name, wasn’t sitting down with an interior designer to plan the next phase of her home renovation, nor was she hosting her book club for a morning of coffee and literary discussion. The 40-something mother of four was meeting with a woman who would help her purge her overstuffed closets of the Chanel bags, Dolce and Gabbana shoes, Tom Ford dresses and Brunello Cuchinelli sweaters she no longer wore.

Stephanie is a consignor on TheRealReal.com, the wildly successful luxury resale site that connects buyers and sellers of high-end fashion and lifestyle products. Attracting a broad range of members, from millennials looking for the perfect vintage item to celebrities like the Kardashians and Lena Dunham, the six-year-old site has earned global attention, $173 million in venture funding, and the reputation required to get people to entrust them with their precious possessions.

“The RealReal is great when you have high-end pieces that you’ve been holding in your closet just because of the label,” says Stephanie. “Shoes that are uncomfortable after one short wear, handbags that are too heavy or impractical—can all be sold. It makes me feel better than simply hoarding or giving things away to someone who may not appreciate them.”

Visitors to The RealReal’s beautiful, upscale site will find tastefully styled, photographed and curated collections of pre-owned luxury apparel, accessories, shoes, jewelry, men’s items, home goods and fine art from a long list of accepted designers and brands including Gucci, Prada, Cartier, Chloe, and Chanel, offered at big discounts from their original retail price. But shoppers had better move quickly, since most items sell in a matter of days.

Said Stephanie, “Some of my Chanel ‘mistakes’—things that looked great at first, then became dowdy-looking—sold on The RealReal instantly.”

The perfect marriage of luxury and resale, The RealReal has used technology to break into the hard-to-penetrate luxury sector by succeeding in areas where eBay, Amazon and Alibaba have failed: trust, authentication and service. The company has six consignment office locations around the U.S. where a team of full-time luxury product experts and gemologists are at the ready to certify and appraise items that customers wish to sell, allowing The RealReal to offer the largest selection of pre-owned authenticated luxury items in the world.

How RealReal Works

Stephanie’s luxury manager is one of 950 employees of the San Francisco-based company, and is based in one of 16 cities in the U.S. where The RealReal offers white-glove pickup service (consignors elsewhere can send in the items they want to the nearest The RealReal office). Authenticators inspect, photograph and valuate items. The RealReal takes possession of but doesn’t actually own the items listed on the site, only taking a commission when the items sell, after which they are shipped from one of the company’s three huge distribution centers. This, along with the sophisticated user interface and pricing algorithm that help drive the The RealReal site, allows sellers to track their items and sales history, and helps buyers feel confident that after plunking down $1000 for a used Chanel bag, they will actually receive it.

Consignors earn between 55 percent and 70 percent of the selling price of their merchandise, most of which sells within a few days. The company says the average consignor earns almost $9,000, pretty good for stuff that is collecting dust in one’s closet.

The RealReal was founded by Julie Wainwright in 2011. A veteran tech executive previously CEO of video rental company Reel.com and startup Pets.com, Wainwright was named this year to TechCrunch’s Women Who Had a Great 2016. In 2016, she and The RealReal were awarded the Innovation in Retail Ecommerce award by Fashion Group International. In 2015, Julie was named to the Business of Fashion 500 list, featuring the most influential people shaping the global fashion industry, and awarded the “Game Changer” award by W Magazine and DECODED Fashion.

Recommerce, the buying and selling of pre-owned and/or used goods on digital marketplaces, is one of the fastest-growing segments in ecommerce.

According to a recent report by Fung Global Retail, there are many reasons for the popularity of resale, which is expected to grow from $18 billion in 2016 to $33 billion in 2021, not the least of which are the entertainment of finding great deals, the desire for value, and the decluttering aspect. Deeper issues may be at work here as well. Many retail analysts feel that the success of resale might be a factor in the struggle of traditional retailers, with the overflow from people’s closets adding to the oversupply of inventory out there that is putting downward pressure on pricing.

2017 Performance

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The RealReal will do an estimated $500 million in gross merchandise sales this year.

Apparel is the site’s number-one product in unit and dollars.

In its 2017 midyear snapshot, the company reports having sold five million items to-date, up from a little over two million at the same time a year ago, with six million members (buyers and sellers) worldwide, around a quarter of which are men.

Its best-selling brands for women are Chanel, Hermes and Louis Vuitton, and Rolex for men.

Most of The RealReal’s buyer base is between ages 35 and 55, with a third in the millennial demo, which partly explains the 150 percent increase in diamond engagement ring sales this year.

The company views itself as a valuable member of the luxury goods community, and insists that much of the $300 million it expects to pay its sellers this year will go back into the primary goods market, continuing the cycle.

By offering consignors liquidity on their luxury items, and the assurance of effortless authentication and consignment, The RealReal feels it is impacting luxury buying behavior, as consumers can now consider the resale value of luxury items before buying new items.

The success of the site is due in part to the changing attitudes and behaviors of consumers. A representative of The RealReal told The Robin Report, “People value value more than ever and are becoming more mindful about their consumption habits. They now realize the potential ROI of the items they have hanging in their closet and in their jewelry boxes…We’re changing the way people shop as they now carefully consider the resale value of luxury items before buying.”

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Data = Power

In addition to its rapid revenue and market share growth, the company is collecting a treasure trove of data on luxury consumers and products, information that could be very important indeed to the high-end brands.

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Wainwright told TechCrunch that she is in conversations with the top luxury brands on ways The RealReal can be an asset to them, rather than a threat. The data the company collects gives them the ability to track brands by age and over time. She claims to have met with all the top brands, and told them The RealReal is the gateway drug to their brands.

The sheer number of data points owned by The RealReal would give one the information to predict the decline of certain brands, like Dolce and Gabbana, Burberry and Louboutin, long before their troubles were widely known, and to forecast the rise of brands like Vêtements, Saint Laurent, Loewe, and Aquazzura, all of which have seen triple-digit growth on the site so far this year.

The resale site’s hottest new brands are millennial street brand favorites Supreme and Off-White, whose search rates have enjoyed meteoric surges in the past six months.

The sales data can also be used to forecast fashion and fabric trends. The recent 30 percent search rate rise and doubling of sales for print-centric Missoni indicates an end to minimalism and the return of bright, bold colors and patterns.

In 2017, Gen Z is The RealReal’s fastest growing demo, outpacing millennials by 35 percent, possibly explaining the 46 percent spike in search rate for Prada’s Tessuto nylon backpack. The company reports the top three brands for Gen Z are Chanel, Hermes and Louis Vuitton.

What’s in Store for RealReal?

Like fellow digital disruptors Warby Parker, Birchbox and Rent the Runway, The RealReal views brick and mortar as a potential growth strategy, and plans to use its recently completed $50 million round of funding from Great Hill Partners to attract new customers and more inventory through an expanded physical presence.

Its first permanent concept store in NYC’s Soho will double as a valuation space, following the success of a pop-up in the city last year that resonated with both new shoppers and consigners and helped build The RealReal’s brand identity as a trusted place for authentication.

Wainwright has said in the past that The RealReal will seek to do an IPO within the next two years, but a company representative declined further comment on that.

Stephanie Crandall, who loves fashion, but whose busy career and home life make it hard to find time to shop in stores, will be happy if The RealReal just keeps getting better at what it does so that she can keep buying and selling.

Which she does a bit more carefully these days, by the way. After a favorite Prada bag got accidentally included with items given to her consultant, and sold before she realized it was gone, she stalked the site for months until she found it listed again, then bought it back, costing herself several hundred dollars, and proving two key principles of luxury branding: scarcity and emotional connection.

“Each day I couldn’t find the bag made it more valuable to me,” she admitted.

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