Opinion: ESG gives a boost to clothing re-commerce companies

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The gold rush is on for fashion retailers like The RealReal, Poshmark and ThredUp, as consumers seek out clothing more sustainably sourced than ‘fast fashion’, which has been linked to poor working conditions at. abroad and pollution.

According to Cowen’s Millennial and Gen Z survey, 81% of 18-24 year olds and 80% of 25-34 year olds consider the social impact and sustainability of a brand of clothing and footwear to be “very important” or “Somewhat important” in their purchasing decision.

Read: ThredUp and RealReal cut their losses in the third quarter

Re-commerce suppliers are part of the trend towards a more circular economy, driven in large part by millennials and millennials. They connect second-hand clothing and accessory sellers with buyers, creating social markets that breathe new life into old objects and prevent them from being landfilled.

The level of ‘yes’ responses among Millennials and Gen Z participants when asked this year’ have they purchased second-hand clothes, shoes or accessories at a resale market in the past? Last 30 Days ”has increased 33% year-over-year from the 2020 Cowen survey.

As e-commerce grows in volume, e-merchants and retailers are inundated with consumer feedback, which has paved the way for new players to tackle what has become a growing phenomenon.

The US online resale market is expected to grow by around 25% per year to $ 68 billion by 2028, with new players taking part in mall retailers and thrift stores.

ESG angle

This sustainability factor is also a key element of these companies’ arguments with investors as interest increases in ESG investments that meet certain criteria, such as low carbon emissions and social impact. More and more funds are weighting their assets more towards ESG investments or are entirely dedicated to them.

The True True True,
+ 14.58%,
Poshmark POSH,
+ 4.55%
and ThredUp TDUP,
+ 0.05%
all of them devoted part of their pre-IPO S-1 statements to highlighting their environmental and social mission, which will remain a key point of attraction for investors. All three IPOs – the latest being Poshmark and ThredUp this year – have attracted strong institutional demand, trading significantly on day one, a sign of their appeal.

The race is now on for these players and others like Tradesy, ReBag, Fashionphile and Trove to grow their markets organically as quickly and intelligently as possible.

Scaling for growth

Scale is the key to successfully maximizing the network effect and supply chain synergies they need. The winners will be those who quickly create the largest, highest-quality markets, which will require heavy spending on technology and marketing in the months to come. Only then will we likely see the first wave of consolidation in the industry.

As they build their markets, resellers need to put as much effort into quality as they do in quantity. It won’t do much, for example, to attract a lot of customers who use the platform once or twice but then rarely, if ever, return. This type of customer does not justify the marketing costs of their acquisition and will not help create the strong community of buyers and sellers that is crucial for success.

The challenge for fashion retailers is to attract loyal, high-quality buyers and sellers through the intelligent use of marketing and by developing engaging online experiences that minimize friction.

Poshmark, for example, has developed “Posh Parties”, where buyers and sellers interact at events in real time, giving sellers the ability to display their “closets” in a more social setting. This type of interactive model is designed to appeal to the younger, tech-savvy generation, but also has broader appeal, especially in a time when COVID has deprived people of social interactions.

Technological challenge

Having the right technology will be the other key to success. Re-commerce players are broadly divided into two types, each requiring somewhat different technological approaches.

Peer-to-peer platforms such as Poshmark and Tradesy only act as conduits for the transaction between buyers and sellers, never actually affecting the goods themselves. For these players, the technological challenge is to reduce transaction friction as much as possible and speed up inventory turnover by smoothing out the referencing process. This can be done through features like image recognition and smart price suggestions based on past sales data.

Other players, including The RealReal and ThredUp, act as shippers of used items and sell them to customers. This model comes with additional technological challenges, requiring a laser focus on efficiency to be successful.

Although several big brands are already fighting for the top spot, they are well protected against new entrants by relatively high barriers to entry in terms of logistics and technology.

A major player, Etsy ETSY,
-1.14%,
an American e-commerce company, acquired UK-based Depop, an operator of a mobile marketplace for pristine new and used clothing, in June this year for $ 1.6 billion.

Fortunately, the Amazon AMZN 500-pound gorilla,
+ 2.75%
does not seem to have its sights set on the second-hand clothing market as it focuses on other priority areas such as Hollywood, grocery and healthcare.

Patrick Crocker is Managing Director of Cowen and Co.


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