ThredUp shares soared in their stock market debut on Friday, as Wall Street looked past the apparel resale site’s losses to focus on its leading position in the booming market for secondhand clothing.
The Oakland, Calif.-based online consignment and used clothing store founded in 2009 is one of the pioneers in the so-called re-commerce market, along with Poshmark and The RealReal. The sector has thrived as younger shoppers have developed a taste for vintage and used items amid a backlash against the wastefulness of the apparel sector. A study conducted by research firm GlobalData last year estimated that the U.S. resale market would hit $36 billion by 2024, up five-fold from 2019 levels.
And ThredUp is riding the wave it has helped create. Last year, even as apparel sales in the aggregate plummeted in the United States, and shoppers gravitated to categories like casual wear that are not the majority of ThredUp’s offerings, the company’s revenue rose 14% to $186 million.
Now, as the pandemic appears to be loosening its grip on consumers, ThredUp sees a benefit as they return gradually to traditional behavior and buying more blouses and dresses again. “What we’re seeing now is this rotation back to people buying clothes to go out in the world again,” ThredUp CEO James Reinhardt told Fortune. “It’ll be good for our business.”
The number of active buyers on the site, which sells women’s and kids’ apparel only, rose 24% to 1.24 million people. Interest in resale is increasing so far this year on the seller’s side too, strengthening a market for ThredUp: a research report released Friday by Cowen & Co said that 7.3% of consumers it surveyed in February had sold items on any of the big resale sites, compared to 4.8% before.
Whereas Poshmark is a marketplace than connects buyers and sellers without taking possession of any items, and The RealReal focuses on luxury, ThredUp’s focus is on consignment of mid-tier products. ThredUp provides customers with what it calls Clean Out Kits, or bags with pre-paid postage that customers fill with unwanted clothes and send to ThredUp in exchange for credit or a cut of the sale.
In order to speed up awareness of its site and increase inventory, ThredUp has been lining up partnerships which now include 21 big retailers. Last year, it landed a deal with Gap Inc, whose stores can take used clothing for ThredUp and offer a store credit. A few months later, Walmart, eager to add more dazzling fashion brands to its web site, began including ThredUp listings in search results.
While it might seem cannibalistic at first blush for big apparel retailers to team up with a resale site, it is clearly a pragmatic decision for them. “I remind all of them that all of their product is being sold secondhand already, it’s not as though it isn’t happening,” says Reinhart. At it helps them bolster their sustainability bona fides.
Yet for all its growth and leading position in a new market, ThredUp is a long way from profitable 12 years after its founding. In 2020, it had a net loss of $48 million. And it is facing tough competition from relatively newer entrants such Fashionphile, Tradesy and Vestiaire Collective, not to mention the usual suspects such as Poshmark and eBay.
But Reinhart says the business model is sound and makes sense at a unit level. Now ThredUp just needs to grow to win those economies of scale from its large investments in technology and distribution facilities. In fact, most of the $168 million raised in its IPO this week will go to funding its growth.
ThredUp’s investors, which include Trinity Ventures, Redpoint Ventures, Highland Capital Partners, Park West Ventures and Upfront Ventures, are taking the long view, Reinhart says. “They really appreciate how big the market opportunity is,” he said. “Hit the growth button.”
The company’s shares priced at $14 on Thursday evening. During trading on Friday, the rose to $20, giving ThredUp a market capitalization of more than $1.8 billion.
But investors in the apparel resale sector can be fickle: Poshmark, which is profitable, had a similarly hot debut in January, and now its shares are down roughly 60% from their IPO. And RealReal shares, on a roller coaster ride in the last year, are currently barely above their IPO price from two years ago.
