The RealReal and thredUP inch closer to profitability

The trend: The RealReal and thredUP are targeting more premium buyers in their push to achieve profitability.

• The RealReal significantly reduced the amount of merchandise priced at less than $100 on its platform in Q2, leading to a year-over-year decline in gross merchandise volume but an increase in average order values.
• ThredUP is focusing on “incrementally more premium buyers,” co-founder and CEO James Reinhart said, because of their relative stability during economic volatility and greater lifetime value.

Zoom in: Despite growing resale demand from consumers worried about price and sustainability, both companies have found profitability a challenge.

• There were signs of progress in Q2: The RealReal’s gross margins expanded by 908 basis points year over year to 65.9%, while thredUP’s improved by 220 basis points in the US.
• The shift toward more premium buyers and inventory—as well as incremental revenue streams like The RealReal’s nascent advertising business and thredUP’s resale-as-a-service offering—should help both companies achieve their goal of reaching profitability next year.

The big picture: The secondhand apparel market is booming. US ecommerce resale volume will grow 7.5% this year, more than twice as fast as total retail sales, as consumers prioritize value and sustainability.

While there are signs that US consumers are cooling on full-price luxury, secondhand players like The RealReal and thredUP have an opportunity to attract aspirational shoppers who can’t pay the retail price but still want to purchase name brands.

Go further: Check out our US Online Fashion Resale report.