Some models are thriving, others struggle

The fashion resale market has long been described as a disruptor of the retail industry. This promises a second life of sustainability, affordability and luxury. But despite its appeal, the financial reality of the business has proven to be challenging for some of its biggest players.

Take Thredup is an online fashion reseller that has raised over $430 million since its founding in 2009. Since its release in 2021, the company has not yet made any profit, so it reports losses in EBITDA (revenue before interest, taxes, depreciation and amortization). It was $37.5 million in revenue in the most recent fiscal year. (Thredup has said it will report EBITDA profits at 3.2%-3.7% for the quarter ending December 31, 2024, but has not yet filed quarterly financials with the SEC.)

Another major player, RealReal, has raised more than $600 million since its inception in 2011. It recorded a rare profit of $5.4 million with revenue of $580 million over the last 12 months of reporting period. In 2023, we added $9.15 million, but it’s not a encouragement for the financial markets.

If the appeal of this industry is escaping you, then you are not alone. RealReal’s stock is largely missing, almost four times the average rate of Nasdaq. Threadup ended at just $2.54 per day, trading at $31 per share.

The two companies were founded at an age when venture capitalists invested in high-growth startups with the hope that scale would ultimately lead to profitability.

It didn’t work that way. The path to profitability in resale e-commerce seems to be different from what we first thought. But that’s not impossible.

Who is doing it right?

While a wide range of comprehensive resale models are struggling, niche players demonstrate the profitability of fashion resale is possible. Companies such as Archive Resale and Leprix have created separate courses that prioritize efficiency, specialization and strategic sourcing.

Today, Archive Resale announced it has secured $30 million in growth equity. The archive is not public, but the transaction at this time means that if the market is focused on profitability, the archive is profitable or close to profitability.

Unlike Threadup and Real Real, Archive offers a white label resale service platform for brands, allowing you to control your own second-hand market. CEO Emily Guittins said, “Brands are about unlocking this to make this even more valuable to everyone, and that’s beginning to prove.”

As she explains, having a brand involved in reselling the products they produce has multiple benefits.

Higher Price: Like certified used cars, consumers have a high confidence in the indirect goods sold by the original manufacturer, and command higher value. Greater Trust: Buyers are confident in their reliability when purchasing from the brand itself. Reduce costs: Brands can streamline certification, product descriptions and imaging, reducing overhead. More powerful customer loyalty: Consumers reselling through a brand’s ecosystem are more likely to remain involved with that brand and buy more products.

Major brands, including Doc Maartens, The North Face, New Balance, Mmlafleur, Sandro, Hanna Andersson, Faherty, BA & SH, have already partnered with Archive to take advantage of this model.

The power of specialization

Another Rising Suctus story, Leprix, built its business by sourcing luxurious second-hand goods from the established Japanese auction market, primarily for Resold products. The company specializes in high-end brands such as Chanel, Hermes and Louis Vuitton, and compared to Threadup and RealReal, it only 550 total capital (per pitch book) compared to RealReal, which has raised over $1 billion in total. It is reportedly made a profit despite raising 1,000 yen.

The Leprix model is a classic case of arbitrage, purchased in one market and sold in another. Barrier to Entry – Freeing Japan’s gorgeous resale ecosystem and effectively managing cash flow leads it to a defensible position and room for growth.

What’s next for fashion resale?

The challenges facing mass market reselling platforms are summarised in the inefficiency of scale. Unlike traditional retailers, where you can stock a large amount of the same product, resale relies on handling unique, one-time items that require certification, pricing, and individual marketing. The cost of handling $100 items is as high as $1,000 items, making the high ticket category much more viable.

Results are occurring in companies that focus on high value narrow product segments. Some of them told me they prioritized:

Luxury: Items that command premium prices can absorb certification and operational costs. Tight Product Focus: Specializing in select categories increases authentication and marketing efficiency. Efficient Sourcing: It is important to ensure large-scale, high-value inventory through established resale markets like Japan through direct brand partnerships.

Unlike traditional retail, where supply is abundant and demand is challenged, reselling works in the opposite way. Although consumer demand is high, ensuring desirable inventory is a limiting factor. Industry insiders frequently cite the same constraints. If we can source more products our customers want, we will sell them immediately.

The Future of Resale: Innovation to Imitation

Anyone who wants to successfully resell has to deal with the fundamental characteristics of a conflicting business.

On the positive side, consumers want it because the products are cheap, what they accumulate in their closets can be cleaned up, it’s a cash source and it’s more environmentally sustainable.

In the negative aspects, there are umbrellas at a price that allows you to sell most resell products, as they must be proportional to the new product. Also, there is a competitive market for purchasing the desired product and you cannot beat the cost of the item.

Market operators must be very efficient and the margins are hardly excessive as external factors put pressure on both cost and price.

Despite the difficulty in scaling the resale business with traditional retail, consumer interest in indirect fashion cannot be denied. The challenge for entrepreneurs and investors is rethinking the model. Rather than replicating department stores with used products, it is about developing a streamlined, profitable approach that responds to market realities.

Companies that recognize these dynamics and build business models around efficiency, specialization and strategic partnerships are ready to succeed. Expect more innovation to be seen in this area as reselling continues to evolve. If done correctly, we hope that the second-hand market will not be sustainable for both consumers and businesses as well.