The RealReal (NASDAQ:REAL) is taking a unique approach to the luxury and resale markets, investing in authentication software and other tools so buyers know they're getting a real product and not a counterfeit.

In this episode of "Upgrade or Topgrade" recorded on Nov. 12, Millionacres editor Deidre Woollard and Fool contributors Nicholas Rossolillo and Jeremy Bowman break down the company's business model and discuss its strengths and weaknesses.

Deidre Woollard: Let's start with this company I wanted to cover as an upgrade or topgrade. That's the RealReal. I first heard about The RealReal a couple of years ago. I was it a real estate conference. Friend of mine had these really cool handbags she was showing off, but she's like oh, my God, you wouldn't believe what I paid for this. I got it on the site called The RealReal, it was so much cheaper than if I had bought it in the store. It's part of the overall handbag culture. You guys probably not into the handbag [laughs] culture, I'm guessing, but it's been this thing that's gone on for maybe early aughts, when you had this Paris Hilton kind of era, is when you first started seeing a lot of interest in handbags. Handbag collecting, like Sex in the City with the Fendi baguette was really trendy. These handbags now have this incredible resale value. What's been fascinating to me is watching the auction houses. So Heritage Auctions, Christies, Sotheby's, they all auction off some of these ultra-high-end bags. A Birkin bag last year sold for $300,000 at an auction in Hong Kong. That's just amazing to me. But that's the ultra high end, and with the RealReal, what we're talking about really is those mid-range collectibles in handbags, shoes, watches, things like that. But their stock, I don't know if either of you follow this stock, but it hasn't done that well since IPO.

Nicholas Rossolillo: No, it hasn't. I have started to follow this group of stocks that you're going to talk about today, Deidre and we'll talk about the reason why I think at the very end because of Etsy, but I'm curious. You're talking about these trends with the RealReal. This is like a U.S. company only. All these businesses are primarily just in the U.S. at this point, right?

Woollard: They are starting to expand. We'll talk about Poshmark later. They're trying to expand. I know Depop is international. The RealReal, I think is mostly the U.S., although they get a lot of luxury tourism because a lot of people come specifically from China, but from other countries to shop here. It used to be huge for luxury, not so much the past couple of years, but that was really part of an ongoing trend where a lot of those luxury brands are now actually operating in China more. The RealReal is mostly in the U.S.

The model is that it's got the RealReal and the name because part of the model is that the items are authenticated. Counterfeiting in handbags and other luxury items is this massive billion-dollar problem. Amazon has had issues with it. Just about every company that sells things has had issues with it. Part of the RealReal's value prop was that it authenticates, and we'll talk a little bit more about that later because there was a lawsuit that they just recently settled. They are really looking at the highest end of the market. It's online, of course, they've got a robust website experience, but they've also got some retail stores because they've got 18 stores and 15 of them are shoppable, the others are consignable. Traditional consignment stores, which are usually independent. It's different than a thrift store. Thrift stores, people donate stuff. It's all over the map. Consignment stores, someone brings in items that they feel have value and then they get a certain percentage of the sale price when it sells. That's the model for the RealReal. They've got these retail stores where you can go in and consign stuff. They've also got at-home concierge appointments for someone who's got a bigger haul. That sounds like a not great business model but when you think about some of the closets that some of these people have, they are quite extraordinary. These are high-ticket items. That's really what they do. They have these authenticated items, they sell from central locations. This way RealReal is a little different than some of the other brands we'll talk about because apparel is less of their total shopping. One of the things that we'll talk about with all of these companies is this idea that consigners are buyers and buyers are consigners. Very different, unlike Etsy or some of the other places where there's a buyer on one side, seller on the other. With thrifting, this is a real lifestyle thing. It really is this total circular cycle.

Rossolillo: Right. The idea of, if you consign something, you get a small payout for what you traded in and then maybe you turn around and go spend that on a new item with RealReal.

Woollard: Exactly. They just released their third-quarter earnings as well.

Jeremy Bowman: I think here, the point you are getting to is, this is a lifestyle or a hobby for a lot of people that are into it. It's a form of entertainment as much as a way to make money or spend money. I think that's why we see some overlap. Some of these companies in a way that you wouldn't with Etsy where you have your crafters on one side and your shoppers on the other?

Woollard: Yeah. Exactly. One of the things The RealReal does is when you're consigning if you want to get paid now, they might give you the value in merchandise or even like a gift certificate so that you can begin shopping for something else immediately. That's part of what they try to do is really get you involved in this cycle because this is a supply-demand thing. They need to keep getting supply. It's interesting one of reasons I wanted to talk about resale today was thinking about supply chain issues, and how these companies don't necessarily have to worry about that the same way. That's actually one of the things I think it's a tailwind for these companies right now. One of the things that RealReal talked about in the earnings call was that they're pretty prepared for a robust holiday season, because they believe that a lot of people who maybe would've tried to get things in stores and maybe finding that there's better options on their website.

Rossolillo: That's an interesting point. I think that's a valid point, especially as Gen Z gets older, and they start to get jobs and have money. In addition, there's nothing in the stores that they want to shop for. Well, maybe I can get something authenticated and unique that no one else is going to have at a place like The RealReal. That's an interesting point to keep in mind this holiday shopping season.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.