Founded in 2009 by HBS grad James Reinhart, thredUP (or the “Company”) is a leading online marketplace for buyers and sellers of secondhand clothing for women and children. The Company is seeking to disrupt the $16B “offline” secondhand clothing market by offering superior value and convenience, while providing a premium experience that can attract customers that otherwise might avoid participating in second-hand apparel and accessories transactions.
The business appears to be highly effective in serving both buyers and sellers (it has processed over 13 million articles of clothing to date), and earlier this year, announced an $81M capital investment by Goldman Sachs (implying a value of ~$400M for the enterprise). It is unclear whether the Company generates positive cash flow; that said, the business should continue to recognize meaningful benefits of scale as it leverages a robust online platform and its processing and distribution infrastructure across additional purchase and sale transactions (similar to a Netflix or Amazon).
It is estimated that most women only wear 30% of their wardrobe and that the average American recycles 60 pounds of apparel per year. Equally baffling is the phenomenon that the average parent will recycle ~1,800 articles of clothing for their children by the time they turn 18.
Yet, owners of this undesirable clothing – which oftentimes has only been worn a handful of times and still holds intrinsic value – have two rather unattractive options for disposal. One option is to donate to friends or a charitable organization (oftentimes inconvenient and discouraging for those that once paid top-dollar for product). Or, they could sell it to a brick-and-mortar thrift store (equally inconvenient, slow to process and unlikely to yield meaningful value to the seller / below the ~70% of resale offered to thredUP sellers). Most frequently, sellers of second-hand clothing are working moms, for whom time is an extremely valuable resource.
Meanwhile, of the many Americans that have a need or desire for second-hand clothing, 16-18% shop through the second-hand thrift store channel every year. As the only option, thrift stores haven’t been forced to address the oftentimes sub-optimal shopping conditions forced upon customers: stores tend to be poorly lit and disorganized, product can be low quality and dated, and locations are often far away from people’s homes and apartments.
The business model of thredUP, however, has been designed to address a much needed gap in the market. Reinhart and his team have developed a platform that promises far greater convenience for sellers as well as quickly recognized and meaningful compensation for unwanted apparel and accessories. For buyers, the platform provides an enjoyable shopping experience; one that is sleek, modern and easy to navigate. Consumers have come to appreciate thredUP for its guaranteed “like-new” products at very competitive price points (often discounted at up to 90% off original MSRP), with example listings including a BCBG dress for $42 (original price of $325), a Coach wristlet for $21 (original price of $68) and a pair of Zara flats for $10 (original price of $38). thredUP has become a highly attractive shopping destination for women and families that might have traditionally passed over the opportunity to purchase second-hand items due to concerns about quality or social stigma, and who might be more comfortable shopping for used clothing online than in brick-and-mortar stores open to the general public.
There are a number of unique elements of thredUP’s operating model worth noting that allow it to better serve both buyers and sellers of used clothing and accessories.
Brand Selection: the Company is highly selective in terms of the brands of clothing that it will accept and re-sell, helping to emphasize its premium image. These brands are clearly listed both on the website and in shipping instructions for outgoing collections, thereby also eliminating unnecessary return costs for items that would be guaranteed to be rejected. Lululemon, Banana Republic, Ann Taylor, J. Crew and Michael Kors are among those products that are most popular on the website.
Partnership with USPS: in order to limit the friction of selling product online (or even donating clothing, see below), thredUP has partnered with the US Postal Service to allow sellers to ship used clothing without leaving their homes. Users simply schedule an appointment online, leave their branded thredUP bag on their doorstep, and wait for payment once the clothing has been picked-up and processed. Usage of the USPS infrastructure has also limited build out costs for the Company, helping to achieve the goal of offering lower priced apparel and accessories.
Operational Infrastructure Ensuring Quality and Processing Time: the Company has developed a highly streamlined process of sorting, evaluating, photographing, packaging and shipping goods. Consistent and semi-automated processes enable the Company to optimize quality control, inventory management and processing time in order to continue offering low-priced goods to purchasers and high % rebates to sellers.
Opportunity to Donate: thredUP also offers customers the opportunity to donate to a non-profit organization in the event they choose not to accept payment. By partnering with a series of charity organizations, they maintain the critical mass of “sellers” needed to maintain high quantities of available inventory on the website, by offering both monetary and donation payment options.
[Additional Note] I evaluated a private investment in a comparable business so have some general level of background knowledge on the Company and industry.