Loading...

The COVID-19 pandemic was one of the greatest catalysts for ecommerce in history. In 2020, U.S. ecommerce grew 44% — representing over $4 trillion in retail sales. This has happened much to the benefit of fashion brands like Lululemon, LVMH and other companies. But the big winners might not necessarily be selling you new clothes.

Following the successful January IPO of Poshmark, a digital marketplace for new and used clothing and accessories, the stock soared over 142% in its first day of trading. Now, another marketplace focusing on secondhand retail marketplace is looking to test the markets: thredUp.

Ahead of the quickly approaching thredUp IPO, we’ve summarized the finer points from thredUp’s S-1 filing detailing all the juicy deets on a business:

1. ThredUp has a big and loyal audience

In order to have a marketplace, you generally need a lot of buyers and sellers. ThredUp checks that box with over one million active buyers and nearly half a million active sellers, according to their S-1 filing. Both buyers and sellers are also repeat users: 80% of orders are coming from repeat buyers and 77% of their supply is coming from repeat sellers. In other words, their marketplace has a lot of movement and committed users.

This might not come as a surprise given two factors. The first is that the company claims that two in three consumers today “don’t see any stigma to shopping secondhand.” The second factor is the company’s robust offering of product, which is made possible by all their supply and resale relationships with “21 brands and retailers.”

2. They’ve got a lot of stuff. Seriously.

We know this might come as a shock, but people have a lot of crap they don’t need. But thredUp knows one person’s trash is another’s treasure. The retail company allows sellers to order a “clean out kit” and fill it with gently used items and then return them using a prepaid label. When their items sell, their accounts are then credited for reuse on the website.

Once you have some credit (or just want to buy something using your card), you can hop onto their site and select from name brand products. At first glance, they have more options of cardigans (shoutout Taylor Swift), mini dresses and jeans than any individual retailer ever could — and at a significantly lower price. You can even sort by brand too if you have a particular affinity for one over another.

According to their S-1 filing, thredUp has processed over 100 million unique items in their distribution centers. They have 5.5 million items as of Q4 2020, which is pretty insane if you consider the logistics. ThredUp said in their S-1 filing that this is part of their “defensibility strategy.” Their distribution centers are built for single SKU items, accommodate tracking individual items rather than stock in a certain style and use data science to process and identify items.

3. Pivoting into the marketplace model might mean slower revenue growth

ThredUp books revenue in one of two ways: direct sales and consignment. The direct sales part of their business involves buying goods and selling them. The latter refers to sales on their marketplace, which they have thrown more steam behind. The reason why is simple — they’re making more money as an intermediary for buyers and sellers than by buying and trying to resell goods. 

Part of the reason for the pivot is the higher gross margin on consignment (marketplace) sales. Consignment had a gross margin of 75% in 2020, according to thredUp’s S-1 filing. In other words, for every $1 in revenue generated in the marketplace, $0.75 went to thredUp. Most of that revenue is booked on fees levied against buyers. However, the consignment pivot might be contributing to a slowing growth rate. 

ThredUp’s annual growth rate was 26% in 2019 and just nearly 14% in 2020, according to their S-1 filing. This collapse in growth is concerning considering that the company currently loses money. The company’s net loss was $48 million in 2020. That loss comes even as revenue grew 14% and the number of active buyers grew 24%.

In order to reach profitability and become sustainable, thredUp will potentially have to maximize its high-margin, lower-growth business. 

4. Betting on a shift

Some repeating themes in thredUp’s S-1 report were sustainability, “good business” and the idea of a generational shift. The company said in their S-1 filing that “Millennial and Gen Z consumers are driving the shift to secondhand.” A GlobalData January 2020 survey that thredUp cites in their S-1 filing said 40% of Gen Zers and 30% of Millennials bought secondhand goods in 2019, which was a 14% increase for the former and 9% increase for the latter compared to 2016.

The company also observes that more consumers are conscious about sustainable business models and resale goods. They say two-thirds of consumers no longer see a stigma in buying secondhand products and are willing to spend money with sustainable brands. ThredUp said that conducting “good business” will trickle down to even more success.

However, just because younger people are buying secondhand clothes and thinking more about the environment doesn’t necessarily trickle down for success in thredUp’s business. They’ll still have to quarrel with eBay, physical thrift shops and other retailers to capture the attention of secondhand shoppers.

Author Profile Picture

Bullish Staff

Words from the whole team here at Bullish. We're starting a new conversation about money with the greatest investors and most existing creators.

What Did You Think?

Join The Discussion

Be the first to Comment!

0 COMMENTS:

Leave your comment:

GET THE BEST OF BULLISH EACH WEEK.