How fashion brands are experimenting with resale

Source article: Rachel Cernansky @ voguebusiness.com (December 1, 2020)

Resale platforms have been a major beneficiary of fashion’s recent push toward sustainability. In 2019 alone, the sneaker resale platform StockX achieved unicorn status, luxury consignors The RealReal went public, and Vestiaire Collective opened its first permanent bricks-and-mortar concession. And the data suggest this is more than a passing trend: the $7 billion luxury resale market is projected to grow to $11 billion by 2022, according to Cowen.

But brands have largely been left to see their goods swapped in the aftermarket without any financial incentive to participate directly. Several labels also stay away over concerns regarding brand positioning and the challenges of running reverse logistics.

Yerdle, founded in 2012, is a white-label business that operates resale for brands. It handles the logistics, including pricing, for resale platforms that live on brands’ e-commerce sites. (Someone shopping for a secondhand sweater from her favourite brand will have the experience of buying directly from that brand, rather than Yerdle.) Current clients include Patagonia, Taylor Stitch and Eileen Fisher, all eco-friendly brands. Sales for Renew, Eileen Fisher’s resale line, have at least doubled every year since its 2017 online launch. “It will very soon, if it’s not already, be our biggest channel,” says Renew director Cynthia Power.

Yerdle chief executive Andy Ruben says that the company is now in talks with luxury brands, and more partnerships are to come following an increase in interest from the sector. "Brands adds more authenticity to resale and are trusted by consumers [while resale] gives the luxury brands another revenue stream," says Sucharita Kodali, retail analyst at Forrester.

Experts in reverse logistics

Yerdle first launched as a peer-to-peer reseller for general merchandise but pivoted to become a backend resale platform for brands that have already established reputations and consumer trust in 2016. Ruben had observed that while yard sale items like used kids’ toys didn’t sell, brand-name items did.

But running a resale business requires different capabilities than traditional commerce. Inventory management can pose particular problems since brands often aren’t redirecting new pieces from warehouses. A marketing email sent out to millions of customers for a 1,000-item run, for example, might end in frustration. So Yerdle built proprietary checkout software that better monitors inventory flow by controlling features like how long an item can be kept in a customer’s cart. It also handles product inspection — which involves a combination of human observation and machine learning tools— and factors like pricing structure.

Sales of eco-friendly brand Eileen Fisher's resale line Renew are growing faster than main-line sales.

Yerdle, which is approaching 100 employees, operates on a revenue-share model with rates dependent on how much of the backend process it handles. Some brands build out their own functions while others, like Eileen Fisher, primarily oversee branding.

The data advantage

Unlike many online consignors, Yerdle isn’t a retailer. This works to its advantage when securing partnerships as brands have worried that cooperating with or encouraging resellers can cut into their sales.

While The RealReal aggregates data and shares some information like highest-spending consumer demographics with partners, it can’t legally share individual consumer data due to standard privacy regulations.

Brands partnering with Yerdle own their customer data, and Eileen Fisher’s Power says that’s just as valuable as sales figures. “You want to know who’s looking for you. That’s where the real opportunity is.”

Ruben draws a parallel to a dotcom-era deal between Toys ‘R’ Us and Amazon that saw the former outsource online sales to the latter. Amazon got most of the data, and soon, customers started treating the Amazon tab for toys as a replacement for the toy retailer.

The RealReal has also struggled with luxury item authentication following reports and investor concerns that its processes were not up to par. (The resale platform has defended its practices.) Ruben says authentication hasn’t been an issue for Yerdle because the brands are directly involved and counterfeits aren’t commonplace for its current brand partners. As the company plans to onboard luxury brands, Ruben says Yerdle will need to offer capacity for authentication.

A sustainable model to scale

Even as the luxury resale market is projected to keep growing, the financial prospects for online players are up in the air. The RealReal’s revenue spiked in the third quarter of 2019, but losses increased sharply, thanks to mounting marketing and technology costs. Yerdle raised $20 million in Series C funding in September, bringing its total funding raised to $40 million at an undisclosed valuation. The newest funding was put towards new hires and developing machine learning, according to Ruben.

Yerdle’s revenue depends on the success of its brand partners. Menswear brand Taylor Stitch launched its re-commerce platform Restitch in partnership with Yerdle this year, and each collection promptly sells out, according to the brand. But profit margins can be slim, dependent on the original value of the item and the lift required to collect used items and prepare them for resale. Taylor Stitch chief executive Michael Maher says the brand is willing to take a hit while it figures out how to make it work. The brand is considering adjusting its agreement with Yerdle, potentially by reevaluating the revenue-share breakdown or the platform’s pricing structure.

Patagonia tweaked its original pricing structure because it was paying too much to consumers to buy products back compared to the selling price, according to Alex Kremer, director of Worn Wear, Patagonia’s re-commerce arm. The goal is for Worn Wear to eventually account for a double-digit percentage of Patagonia’s overall revenue.

Menswear brand Taylor Stitch launched its re-commerce platform Restitch in partnership with Yerdle this year.

Power says the Eileen Fisher team focuses repair efforts on high-value items, like coats and cashmere, to justify time spent. But Renew’s warehouse is full of basic items like T-shirts that are foundational but don’t generate much excitement for secondhand shoppers. To put this inventory to use, Eileen Fisher is in talks with Yerdle to launch a basics shop. “We see it as a storytelling opportunity. We just need a clearer way to help the customer understand their value,” says Power.

Resale has residual benefits. The RealReal, for instance, tells brand partners that resale can attract new customers at a lower price point. Customers may also be less anxious about splurging on a new item if there’s a chance they can sell it later for a significant price. Allison Sommer, The RealReal’s head of strategic partnerships, says customers are in the habit of checking resale prices for an item in the app before making a full-price purchase. “Essentially it’s not that full cost any more to them, and so it’s breaking down that barrier to purchase.”

Likewise, Power says that Renew attracts new customers to the brand, and when existing Eileen Fisher customers buy Renew items, they’re adding to, not substituting, main brand purchases.

Given the growth projections for resale, Ruben says it only makes sense for brands to find ways to own more of their resale. Third-party platforms are great for the consumer, he says, but it’s a different story for brands. “It’s not the wrong starting point, maybe, but it’s not the right endpoint for a brand.”