The RealReal Returns to GMV Growth

The RealReal Inc. is bouncing back — once again visiting people’s houses to collect secondhand inventory and opening new stores — but founder and chief executive officer Julie Wainwright believes all is not back to normal. 

“What a difference a year makes,” Wainwright said on a conference call with analysts covering first-quarter results, which showed wider net losses but sales momentum. “There’s a lot of positive enthusiasm in the employees and the team. We are seeing people excited to shop the site, shop in the stores. We’re hoping this continues. And honestly, it’s all about getting people vaccinated at this point and the government stopping with their care packages.”

That is a reference to government spending, which is intended to help support people and the economy during the pandemic but which some claim has made it harder to fill lower-wage jobs. 

Wainwright said The RealReal’s starting wage is $17 an hour, but it’s been hard to fill openings as, she claimed, people seem to be choosing to live on government support instead. 

“There is some pushback,” Wainwright said. “What we hear, and this is anecdotal only, that the government is paying them too much not to work…What we’re hearing is some people would rather stay home. So I would say that I really do hope the government does stop subsidizing the workers. I think there’s something to the low unemployment numbers…. Do we have to raise our wages? No. We don’t have to do that. We think it’s all going to equalize. So if you think of how many people at Perth [Amboy, N.J.], about 725, we have 50 openings. We’ve never had that many openings. So in the grand scheme of things, we’re fine, but we’ve never had that many openings and had to recruit that hard to fill them, because they tend to be really good jobs versus other jobs in the area.”

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(Wainwright last year received a salary of nearly $366,000 as well as stock awards valued at $4.9 million and dependent on the share price). 

Staffing up — which no doubt is an issue for other companies as well — is just one of the many changes The RealReal is facing as the economy starts to reopen. 

The company’s first-quarter net losses widened to $56 million, or 62 cents a share, from $38.5 million, or 44 cents, a year ago. Adjusted losses tallied 49 cents a share and were in line with the results Wall Street had penciled in. 

Revenues for the three months ended March 31 rose 26.6 percent to $98.8 million from $78 million. The result outstripped the 17.9 percent sales gain analysts projected. 

Gross merchandise volume — or the value of the goods sold on the platform — rose 27 percent to $327 million after falling 1 percent in the fourth quarter. 

Investors were cautious headed into the aftermarket report Monday and traded shares of The RealReal down 10.9 percent to $20.31, leaving it with a market capitalization of $1.8 billion. Shares fell another 5.2 percent in after-hours trading following the quarterly update.

But last month, the company passed an important milestone having paid out a total of $2 billion consignor commission payouts, money that many sellers have used to buy more luxe.

That milestone — and GMV growth — proved welcome respites after a tough year. 

Wainwright said in a statement: “After more than a year of navigating the tough challenges created by COVID, we are incredibly pleased to report our return to growth. As we build on our recent momentum and march toward profitability, we remain focused on driving scale and operating efficiency gains. While the pandemic limits our visibility, with our return to growth and widespread vaccine distribution, we are optimistic our performance will continue to improve significantly throughout 2021.”

The company is continuing to build out its physical presence with smaller “neighborhood stores” and is on track to have 10 open by the end of this quarter. The RealReal also resumed nationwide, at-home concierge appointments in April, getting closer to the source of secondhand goods. 

There are some signs of pent-up supply when the company does get into people’s homes. And Wainwright noted that, where an in-home pickup would have yielded 17 to 20 units before the pandemic, the average can now be 30 units per visit.

A letter to stockholders from Wainwright and chief financial officer Matt Gustke said: “We brought another 1.5 million members into our community in [the first quarter], educating them about the lasting value of luxury goods and driving a shift toward more conscious consumption. We also added the greatest quarterly number of new consignors to date to our marketplace in [the quarter], and, as of April, surpassed $2 billion in cumulative consignor commission payouts. We accelerated from paying out $1 billion in commission over our first eight years to paying out the next $1 billion in just the past two years, helping our community monetize pieces they are no longer wearing or using and contributing to a more sustainable future.”

The RealReal said Gustke decided to leave the company after eight years — a run that saw the firm establish itself, scale up and ultimately go public in 2019. He will continue to serve as CFO until he leaves at the end of the year or when a successor is found. 

“Being on the inside of becoming an industry leader and building a massive movement to grow the circular economy and reinvent luxury resale has been immensely gratifying,” Gustke said. 

As part of the team that took The RealReal public, Gustke and Wainwright opened up what’s becoming a secondhand fashion sector in its own right on Wall Street, fleshed out by IPOs this year from Poshmark and ThredUp. 

While they all have their own focus — The RealReal is the luxury specialist, Poshmark is a peer-to-peer platform and ThredUp operates a managed marketplace — they are also birds of a feather. 

They all have come to market with an eco-pitch since they don’t rely on faraway factories and new materials, tap into a newly thrift-obsessed consumer and keep goods from landfills. 

On a business level, they don’t so much cut out the middle man as, say, a vertical retailer like Warby Parker has. Instead they have cut off the first half of the supply chain, using goods that have already been made and are sitting underused in people’s closets.

But now that they are public — and almost by definition growth-obsessed, although they can hold back the animal spirits of investors for some time — they are all also looking for ways to expand. 

Part of that means working closer with brands that are looking to talk to shoppers in new ways and through new outlets or just to move some excess inventory. 

And part of that also seems to be taking secondhand goods in the marketplace and making something new out of them, a kind of found art for fashion. 

WWD reported Monday that The RealReal is hiring a senior fashion designer for what looks to be a budding “private label” program. 

In a job posting, The RealReal said it was looking for a designer in New York or San Francisco to set the “overall direction in the conceptual and final development of product lines within TRR (private label).” The search is for a “seasoned designer with end-to-end experience in the entire design process from market research to sketch, specs and fit” who will “help launch a series of strategic initiatives around sustainable product development and upcycling.”

A representative of The RealReal said the job was for special projects. 

Even so, the search and the growing number of upcycling programs across fashion suggests that the secondhand players are coming for more than just a narrow slice of the fashion industry. 

The RealReal might have been first to market, but it’s still going to have to prove itself to some. 

Analysts are watching the company closely.

A research note from Jane Hali & Associates ahead of the report noted: “The momentum is favorable in the luxury resale market; however, RealReal remains a weak player in the resale landscape.”

Hali said the company “continues to struggle with attracting new consignors due to their 55 percent commission. Other competitors have better rates. For example, Vestiaire Collective is now offering ‘No Seller Fees’ to all consignors who are new sellers, selling an item under $300 or who list items from their top 20 brands when priced under $500.”

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