ThredUp (TDUP -0.61%) has only been a publicly traded company since spring 2021, but shares have taken quite a beating since its initial public offering (IPO). With the stock down nearly 60% since its IPO, is now a good time to buy shares of the online consignment retailer? In this segment of Backstage Pass, recorded on Jan. 10, Fool contributor Rachel Warren dives into what investors need to know about the company's core business model and revenue structure.
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Rachel Warren: The second company I'm going to talk about, kind of in the same vein as Poshmark, but different, is ThredUp. Again, one of those companies that I think a lot of consumers think of, this is very much a company that has a narrower focus in the sense that while Poshmark caters to all types of fashion and now pets and electronics and home goods, ThredUp is specifically an online consignment and thrift store.
You can buy and sell pre-owned clothing, handbags, jewelry, accessories, and shoes on the site. ThredUp is geared specifically toward women and kids clothing. Found in 2009, also a founder-led company, one of the co-founders of the company, James Reinhart, is also the acting CEO and has been, I believe since the beginning.
He said:
I started ThredUp back in 2009 after staring at a closet full of clothes that I never wore. I knew there was value locked up in those clothes, and I knew I wasn't the only one. Looking back on that moment. I certainly didn't appreciate how that insight could eventually upend how we look at innovation in retail, the apparel industry, and our environment.
ThredUp, they have some interesting statistics on their website, and there was just a couple of them I wanted to go over. One was saying: "New clothing production is hurting the planet. One new garment takes 77 gallons of water and creates 17 pounds of CO2e. Over 100 billion garments are produced each year, which is two times more than 15 years ago."
The point is there is a lot of garments and where do they go, what do we do with them? This was also saying on their website: "Perfectly good clothing is being discarded. One in two people further their clothes straight in the trash, 73% of apparel are sent to landfill or incinerated, 95% of which could be reused or recycled."
The point of the company and it's what they say on their website, extending the life of clothes fights fashion waste, and that it not only does good for people but for the planet as well.
So far, ThredUp has processed a 100 million-plus garments and made $3.3 billion off of estimated retail value, so really interesting. Again, a narrower business focused than the previous stock I talked about, really focusing in on that online consignment thrift space for women and kids clothing.
How does it work? Let's say you want to sell something on ThredUp, let's say you've got a bunch of clothes you want to get rid of, how does that work?
You can actually order a free clean-out kit from ThredUp. They will send you a bag that you can put all your stuff that you want to get rid of in. ThredUp provides the shipping label and you drop it off at FedEx or USPS. ThredUp then does everything else.
Assuming the items that you send are accepted, they do everything from listing, to photography, etc. They have a 12-point inspection for items to meet their quality standards, and then once the items sell, you can get a cash-out for that amount or you can have it credited to your account to then spend if you want to buy something else on ThredUp.
Unlike Poshmark, ThredUp doesn't really have the same simple fee structure in terms of take rate per item, so ThredUp's commission fee can be anywhere from 20-90% of the selling price. That depends on how much the item that is being sold costs.
For example, if an item is being sold for a price between $50 and $99.99, their take rate would be anywhere from 30%-60%, so pretty steep. They also have other ways that they generate revenue, for example, sellers have an option to purchase return insurance if they're not sure they want to sell an item, there's a $10.99 return assurance fee.
If you want your items to be processed faster, you can pay a $16 expedited processing fee, and then there's certain fees depending on how you take out the funds.
