What’s this “Thrifting”?
Thrifting is a word that is being thrown around a lot on social media these days. Any and every small clothing business is calling itself a “thrift shop”. Even Macklamore has a song by that name! So what is it exactly?
The much awaited reboot of Sex and the City, And Just Like That, aired last month and fans are already clamoring to get an in on the new fashion trends that the show is going to start. Back in the day, when Sex and the City first aired (late 1990s and early 2000s), it had a definitive impact on fashion.
However, this time the costume designers teamed up, not with a company that sells fresh off the runway fashion must-haves, but with ThredUp, a second-hand clothing store that resells the clothes from the wardrobes of the likes of you and me.
This draws our attention to the second hand fashion market. The fashion industry was worth about $2.5 trillion but was walloped by lockdown- and it also faces environmental reckoning. Recycling is not a common practice when it comes to clothes, shoes and handbags. Fashion industry contributes massively to water and land degradation and its carbon emission is estimated to be somewhere between 4% to 10% of the global emissions. Even the average of that is more than that of aviation and shipping combined.
All goods lie on a spectrum with consumption goods (like coffee, newspaper) on one end and investment goods (property, jewelry) on the other. The position of a good on this spectrum largely determines the kind of market available for it. Desirability is just as important as quality and durability.
The fashion industry is used to moving fast. 100 billion products are produced annually. This over production is a result of inefficient demand prediction. Often, the right product is not in the right place at the right time for the right consumer.
However, things are changing. Spearheaded by influencers like Emma Chamberlain, the idea of selling, buying and wearing clothes from thrift stores or consignment stores has really hit the mainstream. Several companies like Depop, thredUP, The RealReal have shown the opportunity and success of the resale market.
Now, before moving ahead, let’s first understand what thrift and consignment stores are. Simply put, thrift shops are donation-based, pulling from a charity or non-profit organization. So, for example, people donate clothes and home goods to a local non-profit donation organization, and then those donations are taken to the thrift shop. The items donated are then sorted and priced by volunteers and are then sent to the floor for purchase.
Consignment shops, on the other hand, are a lot more selective and won’t take whatever you bring in to donate. Furthermore, consignment shops sell the items on behalf of the original owner. This means that the owner receives money from the store for the clothes they accept.
James Reinhart, the CEO of Thredup, saw an opportunity when a nearby consignment shop refused to buy his clothes because they only dealt in luxury goods. He realised that the items he wanted to sell were definitely not worth zero but he still did not have a suitable market to sell them in. So, he started Thredup.
At Thredup, sellers can get anything between 5% to 80% of what their items are sold for, depending on the quality and brand. Thredup is a US based company which also expanded to 9 other European countries. It has 1.4 million active buyers and half a million active sellers.
Business models differ from company to company. Those like Thredup and The Real Real collect all items and take them to a centralised hub and distribute them as per the orders. Others work from cupboard to cupboard. They just facilitate the exchange by providing shipping services.
Just as buying and selling of second hand clothes is gaining pace, fashion rental sites make it possible to loan out under used clothes. Rent the Runway and By Rotation are two such companies. Renting clothes enables consumers to save money, make money and leave a smaller footprint when it comes to how much they consume. It has been observed that people prefer to pay 10-15% of its actual price to wear a dress once. This makes fashion an actual asset to invest in.
Fashion faced a decline of approximately 20% between 2019 to 2020 because of the pandemic. Resale, however, is one sector of the industry that benefited. Thredup, Poshmark, Rent The Runway all went public while Depop was purchased by Etsy. Their user base grew rapidly fuelled by lockdown induced cupboard clear-outs. Their market capitalization at $8 billion is a mere fraction of that of fast fashion giants like Zara and H&M- but it’s still pretty huge. Even though none of these big resale players are profitable yet, they all feel confident about future growth because of the combination of increasing sensitivity about the planet and people’s desire to look unique.
James Reinhart is optimistic about the future of resale as he believes that in coming years, every store, every apparel retailer will have a used section. Resale and renting of clothes will be much more normalised.
One might wonder how did a market that was practically non-existent a couple decades ago, suddenly grow exponentially in the middle of a global pandemic?
Alvin Roth, a prominent American economist and professor at Stanford University, won the Nobel Prize in 2012 along with Lloyd Shapely “for the theory of stable allocations and practice of market design.”
He says there are a few things necessary for a market to run efficiently, one of which is thickness. A thick market is one which has an abundance of buyers and sellers and commissions of middle parties are low. Back when technology was not as advanced and consignment stores worked only physically, the market for resale clothes was thin and illiquid. Matching buyers and sellers was tricky, transactions were rare and commissions were high.
Technology turned out to be the magic ingredient that combined all the required elements. It is reducing the friction in all kinds of trades from lawn sales (made easy by eBay, OLX) to taxi services (Uber, Ola). Thus, technology made the second hand clothes market thick. When most of these resale companies started, around the 2010s, the world was in the middle of a technological transition. New consumer experiences, including the likes of Spotify and Airbnb, were coming up and apparel couldn’t be immune to this change.
Technology has also made the operation of these companies much easier than you can imagine. Pricing, profit margins, likeliness of being sold, how much the seller can expect- everything is calculated and estimated by data algorithms in real time. Data gathered from resale is also of crucial importance, not only for the companies reselling but also for bigger brands. It can help them understand which of their products have longevity and value. It also improves brand perception among consumers.
It is estimated that by 2025, the value of resold and thrifted clothing will rise to $77 billion, dwarfing fast fashion at $40 billion.
In the words of James Reinhart, “Customers will take some time to get used to this circularity but this is a real directional change in consumer behavior, not just a fad.”
I don’t know about you, but I am definitely looking forward to this kind of fad taking the Indian fashion industry by storm!
FYBSc Economics (2021-2024)