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Will the Poshmark IPO Be Good or Bad for Physical Thrift Stores?

Jan 11, 2021 by Deidre Woollard
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Secondhand clothing stores have always been popular with thrifty fashion hunters, but buying in these stores has increased in recent years. Generation Z and millennials are keenly aware of the environmental cost of fast fashion and have embraced secondhand clothing as a way to stay trendy and help the planet. This has also fueled a growing interest in resale clothing sold via e-commerce.

While eBay (NASDAQ: EBAY) and other sites have done a brisk business in these types of sales over the years, social sites like ThredUP, Depop, and Poshmark represent the future of social shopping.The rise of these e-commerce platforms actually may turn out to be a positive development for real estate investors.

Poshmark is expected to have its initial public offering in January 2021. It will debut on the NASDAQ under the ticker POSH, and shares are expected to be priced at $35-$39. The company wants to raise $257 million and could get close to a $3 billion market cap.

The company was newly profitable in 2020. As of September 30, 2020, Poshmark had over 201 million items for sale, 31.7 million active users, 6.2 million active buyers, and 4.5 million active sellers. Its revenue was $192.8 million, up 28% year over year.

Why e-commerce resale won't make thrift stores obsolete

According to NARTS: The Association of Resale Professionals, there are over 25,000 resale and consignment stores around the United States. Research from Dun & Bradstreet (NYSE: DNB) puts the revenue of thrift stores at over $17 billion. The overall revenue for the secondhand apparel market (including online stores) is anticipated to reach $51 billion by 2023.

If people can sell their goods online, will they still donate to thrift stores? The popularity of these stores has made people more aware of the potential value that lurks in their closets. In some cases, they could turn to an app instead of donating their clothing or consigning in a physical store.

However, on the other hand, there's also increased interest in thrift stores from dedicated sellers on Poshmark and other services who are turning their selling into a sizable side hustle. In its S-1, Poshmark reported that it has 70 million users who have sold over 130 million items. Many of those sellers aren't just raiding their own closets -- they're combing thrift stores for designer labels they can resell at a premium price.

Thrifting ends up being something between a hobby and a second source of income for many of these shoppers. Fashion site Refinery29 recently cataloged this Gen-Z phenomenon, interviewing thrifters and resellers who see their shopping trends not just as a hobby but as a lifestyle. Given the size and influence of this generation, that's a good sign thrift stores may stick around for a long time. Another statistic to consider is that 16% to 18% of Americans shop in a thrift store each year, nearly as many as who shop at traditional apparel stores.

Existing department stores are aware of this growing trend. In 2020, Nordstrom (NYSE: JWN) opened See You Tomorrow, what it calls a "re-commerce experience" that includes both an online platform and physical locations. H&M (OTCMKTS: HNNMY), one of the most well-known sellers of fast fashion, introduced the Resell platform for its COS brand in the U.K. Services like these could eventually be competitors for traditional thrift stores.

The real estate investor take

Thrift stores generally operate on a triple net lease. These stores often take up a substantial footprint. The average Goodwill store is around 7,000 square feet, which is larger than many traditional stores. And some Goodwill stores can be much larger. Thrift stores often need space to process donations as well as retail floor space.

The rise of the larger resale e-commerce brands can also be good news for real estate investors. ThredUP, which is also rumored to have an IPO in 2021, offers a system that allows consumers to send in their clothing and then receive a percentage of the sales profit. In order to maintain that business, ThredUP has four large distribution centers in the U.S. The RealReal (NASDAQ: REAL) sells both online and physical stores and maintains warehouses as well.

The Poshmark IPO is a reminder that thrifting is currently in the midst of a strong upswing due to demographic preferences toward sustainability. This trend has the potential to offer additional opportunities for real estate investors even as other retail falters.

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Deidre Woollard has no position in any of the stocks mentioned. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.