How Fashion Brands Can Assess the Financial Value of Their Second-Hand Market

Hayley Veal

Hayley Veal

Content Specialist,
440 industries

Introduction

The fashion retail industry is fueled by innovation and trends. Often, we see advertisements designed to persuade customers to buy the newest and best products to avoid having an “outdated” wardrobe.

With the disruptive second-hand apparel market gaining traction in the global fashion industry and new information out on consumer trends, more and more brands are starting to recognize that heavy promotion of first-hand goods may not be the direction retail is going in. Trends like increased awareness of environmental sustainability are driving brands to reconsider their positioning and analyze how much profits they are missing out on by not directing official second-hand reselling practices.

To capitalize on shifting consumer preferences, many brands are considering making the move to control their second-hand product offerings and distribution. Consumers are showing sustainable alternatives to fast fashion practices can reduce environmental footprint and introduce new channels for purchasing/selling clothes that are just as trendy as first-hand goods!

From strategic partnerships to in-house purchasing, restructuring, and reselling, we are going to cover how the second-hand apparel market works,  how brands could derive value from embracing their second-hand market, and how analyzing consumer trends that guide purchasing behaviour can help brands assess the financial value of expanding into the second-hand market. Let’s get started!

  1. How Second-Hand Apparel Markets Work
  2. Why Some Fashion Brands Are Slow to Join the Second-Hand Market
  3. Benefits of Expanding into the Second-Hand Resale Market
  4. Motivations for Consumer Second-Hand Shopping
  5. Marketing Channels in the Resale Market
  6. Conclusion

1. How Second-Hand Apparel Markets Work

It is no secret that second-hand fashion stores have been around for decades. But with the rise in globalization and improvement in mobile technology tools, second-hand shopping is more accessible than ever before and competition is heating up. In fact, the apparel resale market is expected to cross 40 billion within the next 4 years.

So, what is exactly is the second-hand apparel market?

  • The second-hand apparel market, also known as the resale or pre-owned apparent market, refers to a market where businesses and consumers sell and buy previously owned fashion items.

  • The different marketing channels of the second-hand apparel market give businesses and consumers the power to buy, sell, and repurchase items in a manner that compliments the existing business models they fit into.

We could agree that most brands want a return on their investment and most consumers want to have some sort of need satisfied. But when it comes down to it, how can brands really determine which method of embracing their second-hand market is best and if it is even worth it for them to pursue this extension in the first place?

First, we need to evaluate the reasons why many major fashion brands have been a little bit late to join in on second-hand market profits.

2. Why Some Fashion Brands Are Slow To Join the Second-Hand Market

There are several second-hand businesses in industries outside of fashion that has found success. Take automotive brands, for example. Instead of paying full price for a brand-new model, many companies offer pre-owned vehicles that often exhibit the same qualities and performance somebody would expect to find in a newer vehicle. Leading in the second-hand technology market right now are tech retailers like Apple, Microsoft, and HP, who frequently encourage customers to bring in old products so they can refurbish and sell again.

So, why is it that these industries have been quick to pivot in an age of rapidly changing consumer trends, but the fashion industry is now just accelerating?

Many brands are hesitant to make the move towards second-hand markets due to these potential downsides:   

  1. Risk of diminished product sales and perceived exclusivity: If products are more accessible at a lower price, some brands feel this may hinder future sales of regularly priced items if customers opt for a more affordable choice. This can also affect a customer’s perceived value of items they purchase, especially for consumers in the luxury market. The exclusivity factor is highly valued and more people with the same product draws away from that.
  1. Risk of recycled items being stolen and resold for profits outside of the business: Product materials obtained through upcycling, or, the process of taking damaged or old materials from products to create something new, could be at risk of theft and sold without the company’s knowledge.
  1. Cost of fully “verticalizing” the business structure may be high: If brands do not have an interest in partnering to jumpstart their resale offerings, they can also extend their operations in-house. This would allow them to maintain full control of distribution, pricing, and customer engagement. The catch? These costs can add up quickly, especially if the brand is considering upcycling products and creating an entirely separate extension of their branding and marketing package.
  1. Risk of counterfeits infiltrating the market: Counterfeits can be a huge threat to a brand’s intellectual property. Pre-owned items accessible to a much larger market have increased exposure to landing in the hands of someone who will replicate and potentially scam consumers looking for authentic

Because the fashion industry thrives on creative intellectual property and clothing is relatively easy to alter and redistribute (as opposed to a large vehicle or intricate tech framework), all of these are very understandable and serious concerns for brands to be aware of. In the next section, we’re going to discuss the opportunities that address these concerns and provide great incentives for brands to enter the resell market.

3. Benefits of Expanding into the Second-Hand Resale Market

Despite the potential risks associated with expanding, both regular and luxury retailers are gradually making moves to embrace second-hand sales. The second-hand market represents a profitable opportunity for brands to appeal to rising consumer sustainability awareness trends, grow and retain first-hand buyers, combat counterfeiting issues and gain insights into unique purchasing patterns from larger target markets. Let’s break these down further:

  1. Access to insightful data: By partnering with resale platforms and/or facilitating the entire resale operations, fashion brands can leverage additional trends and buying patterns discovered in the second-hand sales data. This data can help brands develop their marketing plan for transitioning second-hand consumers to a first-hand market. In other words, utilizing resale data helps brands learn about their customers and their preferences so they can build a system for evaluating the longevity and profitableness of products according to the value of future resell revenues.

  2. Capitalizing on shifting consumer sustainability trends: Consumer support for sustainability measures and tendency to weigh the social and environmental impacts of their purchases are on the rise. Offering pre-owned items is not only a way for brands to boost their sustainability credentials to attract customers from this rapidly growing market, but it also drives the circular economy and decreases contribution amounts to the growing number of landfills filled with old clothing.

  3. Address & eliminate the demand for counterfeits: Because the luxury market reputation is built on trust and transparency, the capability to appropriately authenticate goods and guarantee the quality of their inventory is critical. While some brands would argue the opposite, many would say having full control over the chain of re-distribution of pre-owned items will aid in anti-counterfeiting efforts and minimize risk of fraudulent production because they are tuned in. Secondly, expanding a target customer segment by offering lower prices does attract more consumers, but they will likely be consumers who desire affordable, but genuine options. Offering a more inclusive solution to their luxury wants and needs increases the likelihood they’ll opt to buy authentic products over fake products.

  4. More purchases and improved customer loyalty: Understanding the life cycle of goods after the initial sale is important for brands. First-time buyers of products that are able to sell in a contained second-hand resale market are more likely to purchase another first-hand good because of their now-flexible purchasing power. Increasing customer lifetime value is no easy task. It requires a well-designed resale strategy, as brands—especially luxury—must retain strong brand associations and excellent quality standards. Taking an active role in the reselling process is a great way to improve these statistics.

So far we have covered potential threats and opportunities of expanding. Let’s cover some of the most recent trends shaping this major movement.

4. Motivations for Consumer Second-Hand Resale Market

Many fashion brands are mapping consumer purchasing factors and trends to strategically alter targeted consumer segments in order to transition into a more inclusive business model that will have the ability to successfully expand into the second-hand goods market.

  1. Increased Social Acceptance of Shopping Pre-Owned Items: It is no secret buying second-hand has been around for years. For many people who shopped second-hand before newly famous social media influencers made it a trend to be watched, walking into thrift stores could be a highly stigmatizing experience. Today, shopping second-hand is not so much perceived to be for those who are low on funds, but rather for younger generations like Millennials and Gen Z who have statistically taken the most interest in purchasing second-hand products and making fashion TikToks to show off their upcycled outfits. While the stigmatization of thrifting may not be eliminated, consumers are becoming much more accepting.

  2. Nostalgic & Emotional Feelings: Have you ever gone through old clothes in your closet and felt an overwhelming feeling of joy when you found that shirt you lost 4 years ago? Some consumers feel the same way about shopping second-hand. For example, if a brand releases a limited-edition collection with an exclusive quantity amount, customers may be able to come across the product again the future. This is also the one the reasons vintage clothing has become a booming business as well.

  3. Economic & Income Status: As mentioned before, second-hand businesses do offer more affordable prices for both regular and luxury apparel brands. Those who are looking to save money are more likely to shop second-hand as opposed to those who shop without price at the forefront of their decision making.

  4. Environmental Awareness: The fashion industry is moving faster than ever. Rather than putting out new clothes and designs 3-5 times a year like brands used to, they now are releasing new collections every single week. The amount of clothing produced has exponentially increased while prices went down. As a result, pollution and water waste is becoming a large problem. A quality product is no longer enough to win a consumer’s approval. Consumers want to shop for clothes with brands that align with their personal values and are working towards achieving sustainable business models.

By analyzing the different factors that affect target consumer’s decision making when purchasing products, brands can gain a better understanding of how to successfully expand into their second-hand markets, if it is worth it for them to do so.

Once brands have a thoroughly reevaluated their target customer segments and weighed the potential risks and opportunities, it is time to examine different channels to determine which would align best with their vision, their customers, and their product offerings. Keep on reading to learn more!

5. Marketing Channels fo the Resale Market

A ) Buy/Sell Items to Consignment Shop Businesses: Consignment shops are fashion retail stores that accept items for sale and agree to pay the seller a percentage of the proceeds, either up front or at the time of the final resale. If they choose to, brands work directly with consignment shops to release collections and restructured collections. At the time of sale, the brand earns a percentage that is split between them, the consignment shop, and the customer making the purchase.

Example: Thredup is a popular, more thrift-based consignment shop. Luxury consignment sites, like The RealReal and Vestiaire Collective are marketplaces for customers to shop specifically for second-hand luxury items. Gucci recently partnered with The RealReal and featured an exclusive Gucci e-shop of consigned products in addition to merchandise pulled directly from the Italian fashion house.

      1. Pros: Consumers may pay less than if they were buying from second-hand directly from the name brand. Brands have access to an external platform to handle and manage the reselling responsibilities.
      2. Cons: If a brand does decide to partner, they have to split profits and pay for the consignment shop’s services.

B) Buy/Sell Items to Brand Directly: Buying a product directly from the brand is the first step in a second-hand good’s journey. These items are sold at full price and offer the highest selling point based on the expected standard of quality. Some consumers may have the option to sell their product back to the original store they purchased it from. This of course depends on the brand and if/what type of channel they chose.

Example: Nordstrom made headlines when they announced one of their latest projects: See You Tomorrow: A Resale Shop. Consumers had the choice to shop used items directly on Nordstrom’s website or come into the store. If they wanted to sell their items back to the brand, they could drop the products off or mail them in and receive up to 60% of the value.

  1. Pros: This option provides the most control and oversight over the reselling process. Consumers may feel more comfortable shopping for a brands product in their store or website as opposed to with a third party. The brand keeps all profits.
  2. Cons: This option can be more expensive than others. Businesses may need extra space, resources, and authentication training for employees to certify quality. Luxury brands would have the easiest transition going this route.

C) Buy/Sell Items to Consumers on Peer-to-Peer Online Platforms: Platforms like Poshmark and Mercari connect users to a marketplace where they can buy and sell a variety of pre-owned fashion goods. Resellers on these types of platforms earn profits by selling to each other, not through profits given to them by the website based on the quality of their good. So, the main differentiator is the seller chooses the price point, rather than the middleperson.

Example: Poshmark & Mercari

  1. Pros: Individual sellers are not limited to another entity’s valuation for their product and can resell at whatever price they would like. Buyers have access to more affordable luxury items and can practice sustainable shopping.
  2. Cons: The second-hand marketplace on peer-to-peer platforms like Poshmark and Mercari is comprised of individual sellers and buyers, not brands. Some platforms partner with boutiques to ensure a healthy supply of inventory is always coming through, but these products are all new and not pre-owned.

D) Rent from B2C Fashion Service Brands: Business-to-consumer fashion service platforms that provide customers temporary access to high-end luxury designer items for a rental fee. As opposed to spending a significant sum of money on evening attire for one night, users can rent the pieces and return for a fraction of the cost. This model provides financial incentives for the sellers as well due to the sustainable nature of the process.

Example: Rent the Runway

  1. Pros: More accessible products of higher quality. Customers do not have to break the bank for a one-time event. Eventually, the revenues generated from consumer rentals have would proceed the initial cost of purchasing the items to offer in the store.
  2. Cons: The second-hand marketplace on peer-to-peer platforms like Poshmark and Mercari is comprised of individual sellers and buyers, not brands. Some platforms partner with boutiques to ensure a healthy supply of inventory is always coming through, but these products are all new and not pre-owned.

6. Conclusions

The second-hand fashion market is growing rapidly. Although consignment shops and thrift stores have been around for ages, the emergence of new consumer trends are forcing traditional retailers to adapt to new practices.

As attitudes towards ownership and sustainability continue to evolve, the momentum of the resale market will most likely continue to rise. Other consumer trends that will likely play a role in the growth of the resale industry include:

  • The positive reception and reduced stigmatization of second-hand shopping.
  • Economic & income status.
  • Nostalgia, thrill, & excitement of finding new products.
  • Desire to engage in more sustainable shopping practices.

Whether brands opt for strategic partnerships with resellers or attempt to ramp up resale efforts on their own, the benefits of expanding into resale markets include:

  • Taking full control and overseeing extended operations.
  • Gaining valuable insights into more consumer trends to identify new niche markets.
  • Increasing customer loyalty through exposure to a larger range of products with new purchasing power.
  • Taking advantage of consumer awareness to position themselves as sustainable fashion leaders.
  • Combatting counterfeiting and threats to intellectual property.

We hope you enjoyed this article and found it to be informative on second-hand apparel markets!

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Hayley Veal

Hayley Veal

Hayley Veal is a passionate and results-driven professional with a background in interdisciplinary marketing. She specializes in digital presence, brand development, and customer relationship management.

As an honors graduate from the W.P. Carey School of Business at Arizona State University, Hayley is currently working towards her MBA where she is focusing on digital business innovation. Her mission is to help people bridge the gap between creative and financial spheres in order to optimize value creation for their businesses.

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