The RealReal Sharpens Resale Focus but Still Reports Loss
It was once said, “The RealReal is a total mess and I can’t quit it.” That said, keeping up with the company’s progression has been an engrossing tale to follow, as it has looked to various ways to craft its path to profitability but continues to endure loss.
The RealReal’s Profitability Won’t Happen Overnight
During a Q4 2022 earnings call, The RealReal CEO John Koryl told investors that the company’s money-losing days were numbered.
“I have no illusions that The RealReal’s path to profitability will be achieved overnight, or with only minimal effort,” Koryl said at the time. “But based on what I’ve seen in my first month … I am confident we can achieve profitability in the near future.”
Fast forward a quarter later to Q1 2023, the resale marketplace is still aiming higher but still reporting losses.
Sharpening Business Focus
In March, PYMNTS reported that the luxury resale marketplace was shifting its resources from its direct business to its luxury consignment business and would be discontinuing its beauty products category after a five-year run. The luxury reseller and retailer also looked to wind down its offerings within the particular category.
At the time, when PYMNTS reached out for comment, a spokesperson from The RealReal stated that the company is focusing on expanding its luxury consignment business and, therefore, has been deprioritizing the direct aspect of its business, including the beauty category, which only constitutes a small segment of its marketplace. The spokesperson said the company would continue to sell the remaining inventory before phasing out the category entirely.
See also: The RealReal Sharpens Focus on Consignment, Shrinks Direct Business
During the company’s Q4 earnings call, Koryl took to investors to explain that the company should be considered a “bifurcated business,” with two-thirds of the company experiencing growth while the remaining one-third was not. At the time of the call, the company had reported an annual loss of $196 million.
Koryl delineated two narratives, with the profitable consignment business experiencing healthy growth, while the unprofitable direct business saw shrinkage.
To improve profitability, The RealReal made changes by updating its commission structure in November. The updates restricted the consignment of lower value items and increased the availability of higher value items.
The RealReal reduced its workforce by 7% and closed two flagship stores, two neighborhood stores, and two luxury consignment offices to downsize its real estate footprint.
Additionally, as of Feb. 6, Koryl assumed the roles of CEO and board member of The RealReal. The company stated that Koryl’s primary objectives would be to improve the customer experience, reduce costs, and increase profitability.
Why The RealReal’s Focus Is Critical
In August 2022 an article from The CUT explored the evolution of the user experience on The RealReal platform, from its inception in 2011 to shopping on the platform today. Emilia Petrarca, the author of the piece, wrote, “The RealReal was an ideal platform for a particular type of consumer for a prolonged period.” Petrarca also noted that drops occurred twice daily, at 10 a.m. and 7 p.m., and competition was so intense that she was reluctant to miss either of them.
Since The RealReal file its IPO in 2019, customers have registered grievances about the diminishing user experience. These complaints encompass a variety of concerns, including the abundance of counterfeit products, inferior product quality, and the sense of being undercompensated when selling items for cash.
At the same time, employees reportedly experienced high levels of stress due to the expectation to acquire more merchandise in a shorter time frame in order to earn commissions, leading many to feel overworked and underpaid.
According to Petrarca, this shift in focus from customer experience to quantity is purely aimed at pleasing investors.
The RealReal had seemingly lost its mojo — a once prized platform not only for sellers to offload designer goods they no longer wanted but also for buyers who looked to score deals and looked to those coveted daily product drops as a treasure hunt of sorts.
The Refocus Continues
During the Q1 2023 call, Koryl commented, “We are of the opinion that our approach of concentrating on the higher-margin consignment business is beginning to yield fruit.” The RealReal’s consignment revenue rose by 22% during the first quarter, while revenue from direct sales of RealReal-owned inventory decreased by 49%.
Koryl went on to state, “Moreover, we effectively reduced the quantity of lower-value consigned items. These endeavors resulted in an upsurge in our gross margin during the first quarter. We achieved a higher take rate, greater gross profit dollars, and improved profitability.”
Koryl also said, “We are pleased with the initial outcomes of our primary initiatives and we remain confident that these actions will lead us to profitability. It’s worth noting that we anticipate achieving adjusted EBITDA profitability for the entire year in 2024.”
Despite not being profitable, The RealReal has generated significant buzz that has fostered the expansion of the luxury resale industry.
In the first quarter, The RealReal’s gross merchandise volume (GMV), which represents the total value of goods sold through the platform, increased by 4% to reach $444 million. The number of active buyers on the platform also increased by 22% from the previous year, reaching 1 million.
In addition, the average order value of the company rose by 2% to reach $499.
While the resale market is growing in popularity, thredUP has recently reported a shift towards attracting and resonating with premium buyers rather than bargain shoppers, The RealReal’s history of turmoil with questions surrounding the authenticity of products and overall product curation, may or may not play some sort of role in its path to profitability. That said, as a luxury marketplace, it may need to focus on improving its brand image and reputation before it can achieve profitability.
See also: thredUP Moves the Needle With Premium, Not Bargain, Buyers
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