The RealReal Inc. has always been a disruptor, bringing luxury resale online in a big way and upsetting the delicate, branded balance of fashion along the way.
But now that the rapidly growing company is preparing for an initial public offering, having quietly revealed its registration statement late Friday, the vision of founder and chief executive officer Julie Wainwright has been fleshed out — and translated into the language of investors.
The result is a take on the luxury ecosystem that reframes consumers’ closets as a vast, disconnected and poorly managed network of warehouses filled with inventory that can be put back into circulation.
To investors, the pitch is that of a techie, data-driven growth company with great potential — although there are also some legal and competitive question marks that linger as retailers and brands in the full price business come to grips with secondhand resurgence.
The RealReal operates in the $294 billion luxury business, but it does so with an arm’s length relationship with the designers that make the actual goods — outside of Stella McCartney, who has a deal with the resale company to support the circular economy.
Despite that, the company has what it sees as a vast supply of goods, noting that Frost & Sullivan pegged the total addressable market of luxury goods in U.S. homes that were “potentially available for resale” at $198 billion.
“The existing luxury resale market is outdated, fragmented, difficult to access and laden with counterfeit goods,” the company said. “Primarily due to these challenges, a vast quantity of consignable luxury goods languishes in homes, and buyers can be hesitant to purchase pre-owned luxury goods. We are transforming the luxury resale experience by addressing these challenges.”
The RealReal takes luxury items on consignment and then goes to work authenticating, photographing, pricing, selling and handling fulfillment and returns.
And it does all that with a decidedly techie approach. The company said each item “has up to 50 unique attributes. Informed by this data, we have developed proprietary algorithms and business processes to optimize our operations, including supply sourcing, merchandising, authentication, pricing and marketing.” Consignors received a commission rate of about 65 percent on average last year.
All of that essentially lubricates the luxury business, letting people liquidate their closets and convert the funds into new goods.
Since 2011, the company has paid out $987.7 million in commissions, building a resale machine that now has plenty of momentum.
Last year, the RealReal processed 1.6 million orders, an increase of 42 percent, with an average order value of $446 and a total gross merchandise value of $710.8 million, two-thirds of which came from the women’s category.
The company’s total revenues rose 55 percent to $207.4 million while losses widened, to $84.7 million from $54.9 million.
“A strong network effect drives the growth of our online marketplace,” the RealReal said. “As we bring more consignors onto our platform, we unlock more high-quality, luxury supply, which increases our merchandise assortment and attracts more buyers. This, in turn, increases sales velocity and commissions for our consignors. In addition, a meaningful share of our consignors becomes buyers and vice versa, which creates a differentiated flywheel that enhances the network effect of our online marketplace.”
But all that growth, in addition to piquing the interest of investors, has also garnered the attention of brands wanting to protect their turf.
Chanel, for instance, sued the company in November with trademark- and advertising-related claims, alleging that the RealReal leads consumers to believe that Chanel has authenticated its goods on the site and asserting that only the brand can authenticate its own goods.
“This litigation is in its early stages and the final outcome, including our liability, if any, with respect to Chanel’s claims, is uncertain,” the RealReal warned would-be investors.
The filing also notes that retailers could become more promotional and cut prices on new goods, hurting the RealReal’s business.
But Wainwright, who still owns 8.8 percent of the company, is bullish in a letter to investors.
“Going public now paves the way for our next leg of growth,” she said. “Our initial public offering will provide access to capital, elevate The RealReal brand to drive further business to our marketplace and demand continued discipline from our management team to execute optimally.”