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Secondhand Clothing Is Long on Hype, Short on Impact for Mall Retailers

By James Brumley - Updated Feb 4, 2020 at 5:09PM

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Several big-name retailers now peddle used apparel, and consumers love it. But there's just not enough scale.

The department-store industry has been wading deeper into secondhand waters for a while now. Nordstrom (JWN 1.67%) embraced the idea of dealing in used clothing in mid-2019, partnering with Rent the Runway by becoming a pickup and drop-off point for the apparel-renting outfit. In August, Macy's (M -2.92%) added select merchandise from used clothing name thredUP to its inventory at 40 of its stores, as part of a pilot program. J.C. Penney (JCPN.Q) unveiled a similar partnership just a few days later, releasing plans to open thredUP shops in 30 of its stores. Then just last week, Nordstrom launched its See You Tomorrow shop at its flagship New York City locale. See You Tomorrow will resell curated third-party items, as well as Nordstrom inventory that can't quite be sold as new merchandise in stores.

This evolution of the secondhand-clothing business was inevitable. The entry of chain stores into the business, once limited to thrift stores and consignment shops, offers used apparel an enormous sales platform.

If thredUP's outlook is anywhere close to being on target, though, secondhand apparel won't end the "retail apocalypse" that's hitting department stores particularly hard. It's just not big enough. Indeed, the chain stores may be surprised just how much they end up cannibalizing themselves by adding other shopping options to the mix.

Woman shopping for apparel in a thrift store

Image source: Getty Images.

Three reasons to not be excited

The secondhand-clothing market was worth around $28 billion last year -- according to thredUP's most recent state-of-the-business report -- and is on pace to reach $51 billion by 2023, now that consumers and used-clothing companies have found their groove. That works out to a compound annual growth rate of 16%.

If investors are counting on the introduction of used clothing to save retailers like Macy's or J.C. Penney from their own irrelevancy, however, think again. A trio of hurdles stands in the way.

Chief among them is a closer look at thredUP's outlook. While the used-clothing market is on pace to expand rapidly, not all of the projected $51 billion will be won by names like thredUP or rivals The RealReal and Poshmark (or their brick-and-mortar partners). Four years from now, the bulk of the secondhand business will still be controlled by thrift stores such as those run by Goodwill and the Salvation Army. Come 2023, thredUP estimates, it will only be splitting $23 billion worth of higher-end "resale" business with rivals.

That's not to suggest $23 billion is insignificant. But for perspective, Coresight Research says the U.S. retail apparel market is worth on the order of $200 billion right now and could reach $232 billion by 2023. That puts secondhand apparel on track to be a modest 10% of an already-struggling industry's revenue mix.

The second reason used clothing won't pull department stores out of the doldrums: The retail landscape's fragmentation only makes such partnerships even more anemic as growth drivers. Macy's offers thredUP goods at 40 locations right now, and J.C. Penney is managing 30 in-store shops. But those two companies still operate, respectively, around 900 and 850 stores. Only a fraction of them are now able to drive foot traffic to a particular location. However, adding a thredUP shop at each store and divvying up adequate mixes of marketable used merchandise could prove challenging.

This brings the third hurdle to light. It's entirely possible that the presence of lower-cost or higher-quality (or both) consumer goods in department stores like Nordstrom or J.C. Penney could merely divert spending, rather than induce more of it. GlobalData Retail analyst Neil Saunders suggested in August, after Macy's and J.C. Penney announced their experimental partnerships with thredUP, that they could cannibalize each name's existing product lines. Saunders concluded that "this won't be unhelpful, but it won't be transformative."

More bark than bite

None of this is to suggest there's no upside in tiptoeing into the secondhand-apparel arena. Half of all consumers support sustainable initiatives, and nearly one-third of them are willing to pay more for sustainability-minded products, making used clothing a great publicity tool.

As far as turning retailers around, though, used-apparel initiatives matter little to the bottom line. Nordstrom's spin on the idea appears to be the savviest as a sales tool: Someone renting a gown for a party from Rent the Runway might also buy shoes to match. But even there, rented clothing and ancillary purchases are only a tiny piece of Nordstrom's revenue mix. There's just not enough accretive scale for department stores getting into the business.

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