Retail Chronicles | 31.03.2021

Emerging trends in retail and new commerce.

Hello, it’s Alexandre from Spring Invest, a French investment fund that is shaping the future of commerce. Welcome to the latest edition of Retail Chronicles, our bi-monthly newsletter about emerging trends in (e-)retail, brands, and new commerce.


♻️ ThredUp: a deep dive into second-hand

As you know, we are closely following what is happening in the second-hand market (see this previous edition). Last week, ThredUp, the online consignment store for second-hand products, went public on the NASDAQ (TDUP), raising 168m$ at a 1.3bn$ valuation. Like almost all recent IPOs, the market warmly welcomed this new entrant as ThredUp closed the day up 42% from its listing price.

Who is ThredUp?

You are probably familiar with companies like Vinted, Poshmark, or Depop but ThredUp has a very different model than these companies as users do not transact directly with each other.

As a seller, you ship your items directly to ThredUp, they handle inspection, photography, pricing, listing, and then sell the product on your behalf. For each item sold, ThredUp takes a commission that varies from 20% to 97% (yes, 9-7) mostly depending on the price of the item sold.

ThredUp in numbers

In 2020, the company made 186m$ of revenues (still in the red zone with 47.9m$ of net loss - questionable but that is not a problem for an IPO these days), has 1.24 million active buyers (+24% from 2019) who visit the site an average of 6 times a month and place 3.2 orders a year and 428,000 active sellers (-4% from 2019). In 2020, ThredUp processed a total of 4 million orders.

What is so special about ThredUp?

There are 3 things that essentially made ThredUp so special :

  1. 📦 A logistic-first business

  2. 📊 Distribution-like unit economics

  3. 💰 Cracking the working-capital issue

Now, let’s dig in…

  1. 📦 A logistic-first business

Even though the company is marketed as a second-hand marketplace, we believe this is first and foremost a logistic business.

Indeed, to win the game ThredUp has no other choice than to reach excellence at opening operation centers that collect, process, store, pack, and ship items, as well as handle returns. Not to say that there are no marketplace challenges like balancing supply and demand but what they are doing on the logistic front is way more challenging as it is unprecedented.

To be very concrete, ThredUp has to solve two main logistic problems :

▶️ The entire flow is composed of single-SKU products

That is why ThredUp has to re-build an entire logistic business that works well with single-SKU products, meaning that every item processed is unique, came from, or belongs to an individual seller and is individually tracked using its own SKU. Therefore, each facility runs on a suite of custom-built applications specifically designed for that purpose.

▶️ There are no barcodes on clothing.

ThredUp is working on a real-time database to identify, categorize and value each secondhand clothing item that they receive. Their data set spans over 100 million unique items processed across 35,000 brands. By doing that ThredUp is optimizing its logistic process while leveraging data to optimize economic decisions, such as pricing, seller payouts, item acceptance, merchandising, and sell-through.

Last but not least, just look at this number: out of the 1,862 employees, 1,570 are production and operating workers located in one of the 4 warehouses.

Logistics is what they do but most importantly logistics is WHAT THEY SELL. Not only this is the value propostion to individual sellers but they are also starting to work on enabling brands and retailers (21 so far) to plug into their own operating platform to unlock the resale value in the closets of their customers.

  1. 📊 Distribution-like unit economics

The second element that makes ThredUp so special is unit economics.

Now that we have seen that ThredUp does not operate as a traditional marketplace, let’s look at the numbers. While the marketplace’s commission rates typically range from 5% to 30%, ThredUp takes a 68% cut (FY 2020), taking from 20 to 97% on transaction values. It sounds surprisingly high, right? Well, again, this is because ThredUp is no traditional marketplace.

A quick note on marketing, this is interesting how ThredUp completely reversed the message from a marketplace mindset as “WE TAKE X% of commission on the transaction” to a true proposition of sharing the profits with the sellers as “YOU GET an X% cut on the transaction”. This is coherent as they are trying to move away from marketplace comparison to be more of a business partner to sellers.

Going back to our number, is 68% enough to reach sound unit economics?

That is a fair question as the main recurring problem of the second-hand market is that the value of each item is very low by design (as products are sold at a fraction of their initial value). During the past 10 years, startups have followed two paths to address this economic issue by being either :

▶️ a “don’t-touch-the-product” marketplace like Vinted, or

▶️ a “high value-added-product” marketplace like Vestiaire Collective.

We believe ThredUp is opening a third economic path…

Indeed, while the average item value listed on ThredUp is very low (35% are priced below 10$, 36% are between 10$ and 20$, 21% are between 20$ and 50$, and only 8% are above 50$), the average order value (AOV) is very decent at 68.95$ as composed of 4 items on average, leaving ThredUp 46.92$ of revenues per order (the 68% commission-like) after deducting what they owe to the sellers.

Further deducting permanent pricing discounts made by ThredUp to display promotions, the company is still generating 32,32$ gross profit per order. Finally, when deducting the entire distribution center operating expenses and payment processing expenses, it leaves ThredUp 12.74$ per order.

ThredUp has therefore solved the paradox of selling mass-market second-hand products at a very low price (15-20$ on average) while still having unit economics consistent with an operated business.

  1. 💰 Cracking the working-capital issue

As with any distribution-like model, one of the main critical issues of building physical product inventory is… CASH.

That is why ThredUp operates a “consignment model”. It means that they do not pay sellers for inventory until it has successfully been sold and the two-week return window has passed. Even more interesting, when ThredUp credits sellers’ accounts with their payout, sellers then take an average of 60 days to use their funds.

To conclude…

ThredUp is a great mix between old commerce basics (consignment model, owned-logistics, profitability that is highly correlated on how efficiently goods are moved) together with innovative ingredients (sourcing supply to individuals, favorable working capital dynamics, tech-enabled logistic flows, data-optimized decisions).

This story illustrates precisely what we mean by “future of commerce” at Spring: a model that has proven fundamentals, that can be operated more efficiently with the help of technology, data and the courage of doing hard things, so that it results in unlocking a significant value on large markets.


🏆 The a16z Marketplace 100 is out

Andreessen Horowitz has just released its ranking of the 100 largest consumer-facing marketplaces (the full PDF report is available here). Few takeaways below :

▶️ Instacart (grocery delivery) accounts for 70% of the total GMV

▶️ Second-hand fashion is booming: ThredUp is up from #17 to #7, Vinted is up from #94 to #82, and Depop is entering the ranking as #46.

▶️ COVID losers are childcare, ticketing, and office space marketplaces

▶️ COVID winners are celebrity engagement, grocery delivery, and wholesale

▶️ The 5 fastest-growing startups are growing at more than 10x YoY (!). Two of them (Mercato and Dumpling) are connecting consumers with local grocery providers.


🐦 Tweet of the week: scale to a 9-figure acquisition


📷 Picture of the week: the Suez canal


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About us

Spring Invest is a French investment fund dedicated to companies that are shaping the future of commerce. We invest both in Enablers, B2B companies providing innovative solutions to (e)retailers and brands, and Disrupters creating new models of distribution. Our investment approach relies on strong relationships with 50+ European Retailers and Brands in order to provide sales acceleration to our portfolio. We also provide operational support with a dedicated team of Venture Partners working with our portfolio on sales, communication, HR, and internationalization.