As more fashion retailers jump on the bandwagon and launch their own second-hand apps, there’s no doubt that resale is in fashion – so why don’t the financials match up?
- The UK clothing and footwear resale market will be worth £5.3bn by the end of 2022
- Despite the buzz, the two purpose-designed resale apps are struggling
- Neither app generates much cash through fees and the nature of resale means fewer fashion items for niche needs
- One senior retail analyst believes the seller experience is overly laborious compared with retailer-owned platforms
- Despite resale’s uptake, value fashion retailers are seeing sales soaring with no sign of slowing down
With the pandemic and now the global cost-of-living crisis there’s no doubt that the second-hand fashion economy is in vogue.
Mintel associate director for fashion retail Tamara Sender Ceron says that 31% of UK consumers bought second-hand clothes last year and 27% are selling clothes they no longer wear.
“The boom in second-hand fashion and resale has been incentivised in part by a growing need to cut back on spending and to save money, alongside greater environmental awareness,” she says.
This uptick in customers is forecast to continue growing. Global Data predicts that the UK clothing and footwear resale market will be worth £5.3bn by the end of this year, and is expected to grow by more than 60% again between 2022 and 2026.
Despite the buzz, the two purpose-designed resale apps are struggling. Depop, which was only bought by American marketplace giant Etsy last year for £1.1bn, reported an £85m loss for the 2021 calendar year. Meanwhile, rival Vinted reported losses widening 389% for the same period to £118m.
Why, given the rosy forecasts and increase in customers, are the resale specialists barely treading water? Can any business be profitable focusing purely on this channel and why aren’t young customers putting their money where their mouths are?
Boom and bust
With the mooted resale boom, both Depop and Vinted ploughed funds into growing their businesses and expanding their audience through huge marketing strategies – but were they too quick to pull the trigger?
Depop grew its employee headcount by 38% in the year to 2021 to 407, incurring costs in relocating offices to a larger building as well as salary expenses.
Vinted, meanwhile, almost doubled its staff numbers to 1,099 in the same period and expanded into two new markets as it looked to capitalise on the trend. Alongside rapidly expanding headcount, it ploughed £194m into marketing in 2021 to “increase the rate of growth” – more than double its budget the previous year.
While both businesses have gunned for growth, the investment has hit their respective bottom lines. This hasn’t been helped by the fact that neither business model generates much cash through fees.
Vinted doesn’t charge seller fees, instead asking users to pay to “bump” an item further up the search pages. Depop, meanwhile, charges a 10% seller fee on all sales.
With such low prices on both platforms, generating profit from either seems like a tough ask to begin with – but with great customer numbers this could have potential in the future.
While marketing will definitely do some good to bring in new customers, the apps themselves still have to contend with user experience issues.
Resale marketplaces are also unlikely to have as many garments catering to niche needs such as petite, maternity or tall, and also don’t have a returns policy, which might be a deterrent for some shoppers, believes Global Data analyst Emily Salter. She also says the seller experience is overly laborious, compared with retailer-owned platforms.
Both Zara and Pretty Little Thing’s resale marketplaces focus on helping current customers sell their unwanted garments – and while it’s possible to sell any brand, those selling the brand whose marketplace they’re using are able to take advantage of the original images and product listings to make the selling process quicker and easier.
“Resale marketplaces are also unlikely to have as many garments catering to niche needs such as petite, maternity or tall”
Depop says that it has been working on improving its functionality, which accounts for some of its losses.
In its second-quarter statement, the platform said it has been focused on improving the buyer experience, by experimenting with elements such as inspiration pages, a “make an offer” button and post-purchase support.
Depop added that it has been investing in data infrastructure, reliability and brand awareness, including performance marketing and digital video advertising.
Looking forward, Salter believes that such platforms as Depop and Vinted could indeed manage to turn a profit – but will need to multiply their customer numbers to stop haemorrhaging money on marketing and staff.
Value or values
While Depop and Vinted are seeking to grow and cement themselves as circular economy businesses within the industry, retailer-owned concepts are not quite so simple.
Zara even went so far as to state that profitability is not its aim when it comes to resale.
The retailer’s head of sustainability Paula Ampuero said last week: “At this stage, this platform is exclusively conceived as a tool to help customers extend the life of their clothing and take a more circular approach.”
Sustainability is therefore another key factor when it comes to positioning resale in the sector.
“We know both sustainability and value are incredibly important to this audience,” a Depop spokesperson told Retail Week – saying that 70% of Gen Z customers are looking to reduce fashion consumption, while 45% are now only buying second hand.
“They also see it as an investment – to think second hand first when they need a new item, and to buy clothes that will last longer that could have a second life. You’re investing, rather than consuming and wasting your money.”
“Obviously, price at the moment is hugely important,” Salter adds. “And I think that’s something that all the resale platforms should definitely be promoting in their marketing to be able to compete with those fast-fashion players.”
“Gen Zs and young millennials, who are the main marketplace shoppers, are driven by a trend for vintage pieces”
Tamara Sender Ceron, Mintel
While second-hand marketplaces may be seen as a way to save money, value fashion players like Primark and Shein have also seen soaring sales.
Primark said in a pre-close statement that it was expecting sales to be up 40% in the 52 weeks to September 17, with a “significant increase in adjusted operating profit and adjusted earnings per share”, while Shein’s revenues were estimated to total £14.5bn last year.
Despite some backlash against the fast-fashion machine, sales show no signs of slowing down – so what is the driving force if not value?
“While overall people tend to choose to shop at online marketplaces to save money, Gen Zs are less likely than average to do this because of financial motivations; our research shows that they are more likely than average to do this to be more environmentally friendly,” Sender Ceron says.
“A big driver for this age group is also to find unique products, as well as to find products that are no longer sold by a brand.
“Gen Zs and young millennials, who are the main marketplace shoppers, are driven by a trend for vintage pieces, with 64% agreeing that it is trendy to buy preloved fashion.”
App users need to be motivated by more than just price – Depop and Vinted, and their retailer-led counterparts, will need to do the work to highlight the uniqueness of their offer, the sustainability aspect, and create a streamlined user experience if they’re to break into the mainstream and generate a profit in future.
• Sign up for our daily morning briefing to get the latest retail news and analysis