Gap partners with second-hand clothing retailer ThredUp

Holiday shoppers are participating in the first Black Friday shopping deals at the Gap store in Times Square in New York City.

Brendan McDermid | Reuters

Gap is the latest retailer to enter the second-hand clothing market, along with Macy’s, Nordstrom and others, in an effort to stay relevant in an industry rocked by changing consumer tastes.

The company announced its partnership with the resale platform on Thursday ThredUp, which bills itself as the largest online thrift and thrift store. At select Gap, Banana Republic, Athleta and Janie and Jack stores, ThredUp bags and tags will now be available for customers to mail in their clothes, in exchange for credits to be used in Gap’s store wallet.

Macy’s, JC Penney and J.Crew’s Madewell brand are three of five retailers who have partnered with ThredUp in recent months, hoping to get a glimpse of what analysts say is a consumer trend still in its infancy. However, the verdict is yet to be reached as to whether these efforts will drive people to stores and boost sales. How each retailer partners with ThredUp may also vary.

Macy’s now has 40 ThredUp pop-up stores in its stores, where customers can get their hands on American Eagle and Victoria’s Secret discount clothing, among other brands, organized by ThredUp. Penney has 30 such locations that he’s testing. Madewell has six of the ThredUp pop-ups.

Taking a slightly different approach, Nordstrom launched its own resale store last month, called “See You Tomorrow”. Shoppers can browse second-hand clothing online and at Nordstrom’s recently opened flagship store in New York City. The company said it stores See You Tomorrow with items that are returned, then cleaned and refurbished, if damaged. Its website lists a pair of second-hand Rag & Bone jeans, for example, on sale for $ 90 to $ 99 (depending on size), for a typical sticker price of $ 195 – or a discount of over $ 50. %.

The interior of See You Tomorrow at the Nordstrom flagship store in New York City.

Source: Nordstrom

Similar to Gap, Nordstrom also offers gift cards to shoppers if they donate their used clothing at Nordstrom stores in New York City. The department store said it plans to launch its own online second-hand admission program soon.

“I think it’s becoming a tabletop issue for brands and retailers to say they support sustainability,” said Melissa Gonzalez, CEO of retail consultancy The Lionesque Group. “We can’t deny that there is a movement.… Some put more money into it than others. For some it will work better than others.”

Still, “it’s early to see how much businesses will be able to monetize this,” Gonzalez said. “Consumers want to know that a brand stands for something.”

Businesses tout consumers’ willingness to shop second-hand, but they don’t break down the revenue, making it harder to assess the financial impact this has on these businesses.

“Through extensive research… we know consumers value new brands, as well as an engaging experience finding the unexpected,” said Michelle Wlazlo, executive vice president and chief retailer of Penney, in a statement. “Customer demand for used items is strong and our thredUP partnership allows shoppers to find select national brands in our stores for the first time. “

Macy’s, Nordstrom and Madewell did not immediately respond to CNBC’s requests for comment on the performance of their initiatives.

‘First rounds’

What is clear, however, is that the resale market as a whole is worth billions of dollars, and its growth is explosive.

The overall resale market in the United States is now valued at around $ 20 billion, with the potential to reach $ 33 billion by 2022, according to a report by Cowen & Co. in November.

The resale market today represents a meager 6% of the entire apparel and footwear industry in the United States, said Ike Boruchow, analyst at Wells Fargo. It is estimated to reach around 10% by 2022, stealing shares from traditional apparel players. “The consumer’s willingness to switch to resale is still in its infancy,” Boruchow said.

The booming resale trend comes as clothing retailers struggle to grow. There have been numerous bankruptcies in the industry, from American Apparel to Wet Seal to Charlotte Russe to Forever 21. Others are suffering financially and are closing stores to cut costs. The last holiday season was particularly difficult, with Kohl’s, Macy’s and Walmart each cite clothing as a weak point.

It seems the pain continued too. Receipts at clothing stores fell 3.1% in January, the highest since March 2009, the Commerce Department said earlier this month.

Gap felt this pain. He ousted CEO Art Peck in November and called off his plans to split the Old Navy into a separate state-owned company in January, as sales slowed. In the wake of the 2019 holiday season, Gap is calling for total comparable store sales and net sales in fiscal 2019 to be below average and below single digit, respectively. Its stock has fallen about 30% in the past 12 months.

Department stores are in particular need of a solution. These multi-line retailers accounted for 22% of retail sales in 2008, but are now expected to see their share decline to 9% by 2028, according to data pulled by GlobalData Retail.

New life for excess inventory

Going into resale offers businesses the opportunity to extend the life of a dress or pants, while also hoping to gain an additional purchase and tackle the problem of excess inventory, Cowen said.

About 15 to 20 percent of the total U.S. clothing, footwear, and accessories market is considered excess inventory, such as unsold clothing and returns, Cowen said. And about 10% of the market is destroyed or donated, depending on the company.

Granted, a department store chain selling second-hand jeans can also mean not selling jeans at full price. And that could hurt profitability.

“There is a risk of cannibalizing higher margin sales on new products,” said Greg Petro, CEO of the consulting group First Insight.

But “the combination of organized product offerings and sustainability will definitely result in positive net sales,” he said.

Fifty-six million women bought second-hand items in 2018, up 27% from the previous year, according to an annual report from ThredUp and GlobalData Retail. Fifty-one percent of resale buyers say they plan to spend more on second-hand goods over the next five years, according to the report.

Plus, and this should be good news for Macy’s and Gap: almost a third of consumers surveyed said they would spend more money with their favorite retailers if these companies also sold second-hand clothing in-store. or online.

“Our partners have access to great products… and we get brand awareness,” ThredUp Founder and CEO James Reinhart told CNBC of his company’s partnerships with Madewell and Stage Stores department stores. , its first retail partner. “People forget how much Macy’s sells each year. I think we learn a lot from them … and they learn from us.”

ThredUp is spending much of its latest $ 175 million capital injection on technology “to route and support a network of stores,” he said. “These investments have enabled us to recruit new partners.”

Ultimately, ThredUp must figure out how to make sure supply meets demand – that it has enough inventory coming from consumers, through Gap stores or by mail, to sell on its website and in local stores. Macy’s, Penney, Stage and Madewell pop-ups.

ThredUp is considered the leading platform in its field and has processed over 100 million garments in the past 10 years. The business started in 2009. Other similar second-hand providers include Poshmark and The RealReal.

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Anne G. Cash