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ThredUp Has a Lot of Optionality

By Jeremy Bowman and Nicholas Rossolillo – Nov 21, 2021 at 10:00AM

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The reseller is opening a facility that can process 16.5 million items, and there's a potential for technology to revolutionize the industry.

ThredUp's (TDUP -11.65%) Clean Out Kits help distinguish the company from other secondhand sellers, giving individual sellers an easy way to ship to the company. With some technology advances, the company could make that process much more efficient.

In this episode of "Upgrade or Topgrade," recorded on Nov. 12, Millionacres Editor Deidre Woollard and Fool Contributors Jeremy Bowman and Nicholas Rossolillo discuss the potential for the company's capacity expansion and Clean Out Kits.

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Deidre Woollard: The volume issue is interesting. So on their earnings call, they talked about this distribution center in Dallas that they're building. It's going to handle 16.5 million items. It's going to double their current capacity. They're really trying to think about how to scale versus how to make more money off each transaction, which I think is great. But also it's a little concerning, but they're really thinking about resale at scale, and so I just want to share my screen for one second because it's pretty interesting what they're planning to do. They've got this idea of distributed process infrastructure you see here that they're talking about. They're really building this whole massive factory using data science, finding a way to make it all automated as possible. Because one of the issues that I think we talked about every company right now, but especially with something this. Thrift in general is labor-intensive sorting through clothing, cleaning clothing. There's so much, especially when you're dealing with so many items and you have to track the items, you have photograph the items. All of that is just massive, which I think is one of the reasons that some of the companies don't want to take it on because of single items. You mentioned Ross and TJ Maxx and those companies. One of the reasons that they don't get into e-commerce and they've been really slow to do it is because a lot of times they're not dealing with 40 of something. They are dealing with two with something and it's not worth it to put it online. With companies like this. I think that's one of the challenges that they face.

Jeremy Bowman: Yeah, there's a lot of costs with selling clothes online that you don't think of. In addition to shipping and returns are pretty common and then you got to photograph every item, like you said, for a unique item, at least a ThredUp if you're handling that from a centralized. If the company itself is doing that. That's going to be a significant costs too I would think.

Deidre Woollard: One of the things that they also decided to do away with that I thought was interesting was their subscription box model. They had that for, I think about a year and they've decided not to do that. I find this interesting because I think that the subscription box model is starting to go away. We had that Birchbox acquisition recently. I have started to see less of an interest in it from people. I don't know if that was a trend that maybe is fading out or if sustainability concerns might be part of that with some of this. I don't know what's driving it, but wondering if you guys are seeing that in other areas as well.

Jeremy Bowman: It does feel a bit of a trend that is fading away. I also think that came up along the same time as Blue Apron and other of those subscription meals, which is a similar idea. I think it's a business that just hasn't worked that well and it's hard with clothes, it's hard to get that right and people don't necessarily want. Same thing with Blue Apron you might not want it every month or every week or whatever the cadence that they're doing it. It's a difficult thing to get right.

Deidre Woollard: Yeah, I would agree with that. Let's talk about some of the pros and cons of this company. I love the resale-as-a-service model. That's the thing I'm most excited about. I think that the idea of having everything gathered at stores is going to be a lot better than having to deal with these Clean Out Kits as successful as they have been. So that's one thing I think that is really exciting about this company.

Jeremy Bowman: Yeah, I think the Clean Out Kits are pretty interesting. It seems they are the only company doing something like this. This made me think of my grandmother passed away earlier this year and she just had so much clothes and all the stuff and it just obviously, we all could probably get rid of some of our clothes. You think of people just dying and leaving behind all their stuff that usually just gets donated. But I would've loved something like you could just dump all the clothes into a bag and send to a company like ThredUp, and maybe you'll make a few bucks selling some things and maybe some of it will just get donated. But you can think of AI [artificial intelligence], too, on a higher level or you can get technology that maybe can tell you, "Oh, this would be suggested price or this is what we think what you have is worth." I think there's opportunity to go deeper in there, but I think that's a good idea that they have that.

Nicholas Rossolillo: Yes, that could be a real differentiator, too, if they get the logistics technology right on the back-end to solve the problem inherent with the volume that they need because it is lower-value items that they're dealing with versus the RealReal. This is an interesting one to keep an eye on, I think, for that reason exactly.

Deidre Woollard: Some of the cons, I think to logistics and all of that is interesting with the lower end of the market. At some point, do prices get too low? Is it not going to be worth that, especially when you factor in shipping and processing and labor concerns and all of that?

Nicholas Rossolillo: Again, I was just looking at their commission rate. It's even more aggressive than the RealReal. If it's $15 or less item, you're only getting 15% payout if you're sending your stuff into them to have them sell it. But then you get the majority of the payout, if it's a couple of $100 item that you sell. I think that's interesting. When I initially looked at that, I thought no, this is a con. This is a reason not to invest in this company, but if it's low-item stuff, they may have solved that problem a little bit, with the profitability piece of the puzzle. If people were selling lots of low value items on their platform, that take rate is going to help solve some of the problem inherent with, gosh, is it worth it to sell all this lower item stuff? Yeah, I think actually it would be for ThredUp.

Deidre Woollard: Well, I think for consumers, these items aren't the high-value items. For the most part they'd be donating them anyway, so to send them to a ThredUp and maybe, something's better than nothing. I think there's at least a little bit of incentive there like, well, I'm getting a little bit of money back and I know that it's not going to end up in a landfill somewhere because I think that's another concern is that there have been those articles in the media about Goodwill and, I'm not sure if it was Goodwill, but some of the other thrift stores, the idea that they clothing gets shipped off different places or end up in landfills. That's a concern for people when they donate now.

Nicholas Rossolillo: Absolutely. Not to mention save yourself the trip to Goodwill.

Deidre Woollard: Yeah. [laughs] I think it's interesting, Jeremy, talking about that idea of the stuff problem. I think I want to do an "Upgrade" on storage stocks at one point because it's fascinating to me our relationship with stuff as a culture. We're dealing right now with the aging of baby boomers and, my goodness, they have a lot of stuff and watching this antiques market completely fall apart and things become of less value. I think that's something that's interesting that we're going to see potential concerns. Are we going to almost see too much supply? I don't think so, but it could be a concern.

Jeremy Bowman: There's definitely a lot of stuff out there. You make a good point. I think this isn't about things becoming trash or going to the landfill. I mean, I think for a lot of us, we have stuff that we would get rid of if a company came and made it easy and you got to make a few bucks out of it, I think a lot of us would donate some clothes or books or whatever items you have around the house that you don't really need. But to me, that's part of the opportunity here that I think is interesting and that can also significantly expand the market for secondhand products.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

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