Apparel resale marketplace thredUP reported a difficult third quarter as apparel overstocks and endless discounting chipped away its value-priced advantage.
The confluence of record industrywide apparel overstocks and a hyper-promotional environment strained the resale marketplace, as did high returns and a slowing in its core resale as a service (RaaS) offering.
During a Q3 earnings call Monday (Nov. 14), thredUP Founder and CEO James Reinhart said, “We observed initial deterioration in consumer health towards the end of Q2, and this continued into Q3,” adding that, “The thredUP brand stands for value and that message is being washed out in this hyper-promotional landscape.”
Calling out the October sales blitzes from Amazon, Walmart and Target specifically, Reinhart said, “What we’re seeing is a combination of demand pullback at a time when retail inventories are overflowing with apparel, and this is resulting in significant price compression in the apparel market. And while we don’t have the same inventory risks that other retailers have, we’re not immune to the pressure on prices.”
As it is, thredUP’s stock has fallen 90% this year, pushing its valuation below $100 million and its share price below $1, down from an all-time high of nearly $32 shortly after its March 2021 IPO.
In response to an analyst’s question on how budget- versus upscale-shopper behavior differed in Q3, he said, “The same sort of trends on the budget shopper and the more premium shopper are consistent. That really is a customer that is sitting out right now from what we can tell.”
It’s not brightening for the holidays either, as he added that, “As customers’ wallets are feeling pinched and they think about gifts around the holiday, we think they’re focused more than ever on new than used.”
Looking for an upside, he said consumers conditioned for extreme apparel discounts will benefit RaaS as the broader market stabilizes, although that recovery remains an unknown.
Reinhart said thredUP had 1.7 million active buyers in Q3, 1.6 million orders, and “a structural supply advantage where we have never had to spend direct marketing dollars for suppliers ever,” but nevertheless added that thredUP is “restricting the number of cleanup bags we’re sending to suppliers to flex supply, as well as evolving the mix of goods” to match lean demand.
In scaling down the volume of inbound bags being accepted, thredUP closed its remaining dedicated processing center in Tennessee and is shifting those resources “strategically to Dallas, which will be our largest flagship facility upon completion,” he said.
Returns Reach New Highs
To move more of its overstocks the company has been leaning into curation through visual filters, style-matching algorithms, recommendations, as well as mobile swiping and favoriting features designed to increase conversions and lower returns. The latter was a Q3 sore spot.
CFO Sean Sobers said, “We’ve seen the return rate continue to increase as times have gotten worse and things a bit more challenging. The consumer’s maybe a little more focused on cash back or buyer’s remorse, whatever it is, but we’ve seen the return rate kind of spike up and we’re working on quite a few different things internally to help resolve that.”
On the question of the returns, Reinhart added that thredUP is considering “not just changing the price equation to the consumer, but how do we present the product in better ways that reduce returns and, or how do we change what can be returned and what can’t be returned?”
Asked by an analyst about prospects for the first half of 2023, Sobers replied that thredUP does not expect a recovery, saying, “The only thing that we are assuming in our plan for 2023 is that the extreme promotional environment and the inventory access will have subsided.”
The company said revenue for Q3 was $67.9 million, an increase of 7% year-over-year.