Much discussion about The RealReal—the marketplace for consigned luxury items whose stock price soared 50 percent following its June 28 IPO—has centered on the potential profitability of the resale market in general and The RealReal’s operations in particular.
Such discussion overlooks the real news: how The RealReal epitomizes a retail landscape that is evolving based on the evolving consumer.
Is The RealReal sustainable?
Questions about The RealReal’s ability to execute its business model center on two areas. First, can the company find sufficient supply? As it grows, can it continue to offer enough high-quality, interesting luxury items to meet demand and keep shoppers coming back for more? This concern may be overblown, because generating additional income is alluring to Millennial women and “recycling” clothing is intrinsically motivating.
Second, and more significantly, can The RealReal maintain its commitment to authentication, economically and at scale? The RealReal’s ability to authenticate items, especially jewelry, is essential to making its consignment model work.
This capability is particularly important in an online model, and represents a key differentiator from traditional offerings like eBay that have been providing a platform for resale for years. Yet authentication is far more labor-intensive than the “ratings and reviews” models of other online marketplaces.
Certainly The RealReal has yet to prove that it can solve the challenges posed by scaling its authentication process. But given its customers’ interests, the company is wise to try solving those challenges rather than avoiding them. When shopping online, Millennials want data to make sure they are making the right decision—and in luxury items, that means making sure it isn’t a fake.
Retailers and consumers
More broadly, The RealReal exhibits characteristics that suggest it possesses a deep understanding of the evolving consumer.
In recent years, the treasure-hunt format exemplified by TJ Maxx and Ross has used scarcity to drive purchase. As an online marketplace supported by brick-and-mortar stores, The RealReal ups the ante on treasure hunts. Compared to other online retailers where online shopping carts get filled but then abandoned, the scarcity of each item at The RealReal urges customers to shift from browsing-at-leisure to action.
Furthermore, The RealReal model understands that young female shoppers are value-based consumers wanting to purchase brands at a price they can justify. Almost 90 percent of Millennial women consider price as the most important factor of their purchasing decision, according to the Merkle + Levo report “Why Millennial Women Buy.” But when A.T. Kearney asked Millennial women across consumer goods categories whether price or brand matters more, they were almost evenly split.
Although much has been made about how this generation prefers renting to owning, the rent-or-buy “choice” may merely be an expression of balancing quality and value—and “pre-owned” may better achieve that balance.
When The RealReal says, “We’re making luxury sustainable,” it’s emphasizing a connection with its core audience. Young female consumers care about a brand’s stance on an issue, and the environment is capturing significant Millennial head-space. The RealReal’s introductory email for new members congratulates them for doing something good for the planet.
Likewise, A.T. Kearney consumer surveys show that 68 percent of women ages 20–36 would rather spend money on experiences than products. Experiences are preferable because they come with a story that can be shared with others to foster connection. Unlike normal purchases, each pre-loved item comes with its own story and the story about how it was found—suggesting that, just like Millennials, it is unique.
The RealReal’s successful IPO signals that the resale market is worthy of more attention. Competitors such as Poshmark, rumored to be considering its own public debut this autumn, are keen to get a piece of this growing pie.
Meanwhile, luxury brands need to think through how they will participate. Although resale extends the life of products, it won’t fully take over. Resale markets depend on constant supply, and these markets drop the effective price of purchasing a new item—while increasing the importance of quality and durability.
But perhaps the biggest implications lie with all those trying to capture the discretionary income of young female consumers. Traditional retailers, for example, should be paying close attention: New entrants like The RealReal are developing fresh perspectives on today’s consumers and quickly bringing them to market.
A.T. Kearney is a global strategy and management consulting firm.Favorite