The clothing resale market is attracting a lot of attention from newly public stocks, including Poshmark (POSH) and ThredUp (TDUP -0.56%), as some forecasts call for it to be a major growth sector.

In this episode of "Upgrade or Topgrade," Millionacres Editor Deidre Woollard and Fool Contributors Jeremy Bowman and Nicholas Rossolillo rank Poshmark, ThredUp, Depop parent Etsy (ETSY 3.33%), and The RealReal (REAL 7.31%). Keep reading to see which came out on top.

10 stocks we like better than Etsy
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Etsy wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of November 10, 2021

 

Deidre Woollard: As we wrap up, I wanted to know how you would rank these companies if you were making a basket. Which ones are most appealing to you right now?

Jeremy Bowman: If we're talking about Etsy as a whole, I like Etsy as a whole. I think Depop fits in pretty well with that. I think as a straight business, I like that they have a direct commission with their interface. It makes the most sense to me. I think ThredUp is the most creative in this industry, and they seem they have the most potential for disruption. I don't know if it will work out for them, but I think they seem to be doing the most, they're going to own the resale space in five years. They have the greatest potential of doing so. I think those two of the four that we talked about intrigue me the most.

Deidre Woollard: You think ThredUp has a better shot than Poshmark?

Jeremy Bowman: Poshmark seems to be more direct. I get their business model, but I think with the resale as a service and I like those cleanup [Clean Out] kits. Some of the ThredUp materials, I think they're thinking about it more. They have more of that environmental angle, too, and the retail partnerships. So I don't mean to knock Poshmark if you like Poshmark, but I think of all these companies, ThredUp was, they seem to be thinking about this in a new way.

Nicholas Rossolillo: I am a little partial to Etsy because I owned it before it even became a part of this little niche of apparel and accessories. I think I have to stay [inaudible] on that. I still like Etsy, and I like what they bring to the Depop model. They've done great things for some like Reverb. Etsy acquired Reverb, which is a reseller market for musical equipment, a few years back, and they've done fantastic things for that marketplace. I think they'll do the same thing for Depop in the coming years. After that, I think I like Poshmark. For a couple of simple reasons: I think the model is a little bit more proven, their free-cash-flow positive, and they've raised a massive amount of cash from their IPO early this year. That alone, even though the stock price has obviously done very poorly since January, I think the market overall longer-term believes in the business model for that reason. I think there was a reason why so many investors paid up for that IPO and gave them so much cash.

After that, ThredUp, I think it can take a few years for the business model to dial some things in, selling that high volume of lower value items, but that could be interesting.

Then The RealReal, I think I'd put at the bottom of my list. I think there could be some problems with the authentication process. It just seems like it's a model that should work and it should be highly profitable, but it seems complicated to me, too. I think that shows up in the very, very large negative free cash flow numbers that they're turning out right now. It's going to be difficult for them to dial in their process, I believe.

Deidre Woollard: I really agree with that. I think the more I think about this space, since this is "Upgrade or Topgrade," I think they're better options than The RealReal. I think the total addressable market worries me. I think the authentication service is actually the better part of it. If they dialed that in, I think it could actually be a service within others. I'm not sure that they really have the cachet to be a solo brand for the long term. I'd rather see them potentially get acquired by somebody else. I could immediately think of a few that might be good for that.

I still love Poshmark, and it's interesting to me that I still love Poshmark after going through this process because I really, rally like what ThredUp is doing with their resale as a service. I think that's so, so smart. I think the thing that concerns me, though, is that low dollar volume is that problem over time. I think about things, shipping going up, labor going up, inflation in general, and it just worries me that they are in a situation where they're always going to be dealing with the lowest-margin items, and I think that is a concern that makes me feel less optimistic about it over time. And I think the other thing that there isn't as much of that stickiness with ThredUp as there is with Poshmark. Poshmark has done a really good job with having conferences, using this sort of influencer economy to make people excited about the brand, excited about being Poshers, excited about the process itself. And that, I think, it's a mushy metric to look at, but it is something that matters when you're talking about a company like this.

Nicholas Rossolillo: Absolutely. I agree. Just that Poshmark has done a good job with that, and it's a mushy metric because you can't put a number on it, but it's a real metric, though, like the number of users you're able to acquire and retain. That's one of the driving metrics for internet-based businesses is user metrics. I agree on ThredUp. I almost think it's an interesting business model, it could work, but I would still pick the traditional like treasure-hunt style business over ThredUp at this point. I would just go invest in TJX Companies or Ross Stores over ThredUp at this point. But I would keep an eye on ThredUp because if they can figure that out, it might be interesting someday.

Deidre Woollard: I think that we may see some changes with ThredUp with that Farfetch donate program. It's still early days on that, so that's one of the things I want to keep an eye on because I do think that partnerships they've made you think of like Michael [inaudible], Adidas, Crocs  -- they're not low-end, but they are a little bit more high-end than some of the other basic thrift. I feel like that might be a direction they go in. That gets me a little more excited about that in general. Just to wrap up all of these companies, with the exception of Etsy of course, these are all still babies in the space. They are all recent IPOs. There's going to be a lot of ups and downs over the next few years, but I think all of them have the potential to stake out their own niche in this space because it's just going to keep growing.