Can The "Two Class Market" Of Luxury Goods Burn To China?

Luxury consumption is closely related to the global economic environment. When the global economy has entered a period of oscillation, luxury consumers have begun to tighten their belts and begin to choose the second best.

On Friday, the US luxury goods dealer The RealReal officially landed on the Nasdaq Stock Exchange. Its stock price surged 44.5% to 28.9 dollars on the first day, and its market value was as high as 2 billion 390 million US dollars, far ahead of the previous market's 1 billion 500 million dollar valuation of the platform. Prior to that, rumors about The RealReal's IPO had been brewing for three years.

Compared with the traditional luxury fashion retailers in the capital market gloomy, recent Revolve, Farfetch, Stitch Fix and other fashionable Internet start-ups have been very popular. However, unlike the conventional fashion business model, The RealReal is the first second-hand luxury transaction platform, which means investors have turned their attention to the luxury secondary market which is constantly erupting.

The RealReal was founded in 2011 by Julie Wainwright, a 62 year old female entrepreneur. It mainly sells second-hand clothing and accessories of luxury brands such as Chanel and Gucci. In addition to online official website and Instagram merchandise window, The RealReal has opened 10 physical shops in major cities of the United States to provide door-to-door high-end services. The RealReal said that since its inception, it has sold $988 million worth of merchandise and has become a "pioneer in changing consumer habits".

According to public information, The RealReal rose by 55% to 207 million dollars in 2018, and the net loss increased by 40% to 75 million 800 thousand dollars compared with 52 million 300 thousand in 2017. In the first quarter of 2019, its revenue rose 49.6% to 69 million 250 thousand dollars, and net loss was 23 million 220 thousand dollars, a net loss of 14 million 100 thousand dollars in the same period last year. During the reporting period, the active buyers of the platform were 456 thousand, compared with 326 thousand in the same period last year.

That is to say, The RealReal is not yet profitable, and it seems very difficult to make profits in the short term. At present, the platform has more than 1700 employees and continues to invest more in investment entity stores, marketing and team expansion to attract more buyers and consigners. The platform is expected to continue to lose money in the foreseeable future.

Internet commentator Lei Jianping said, The RealReal and Julie Wainwright once created a listed company pet business website Pets.com, are facing the problem of profitability. The latter, despite obtaining $60 million from Amazon, and IPO financing $110 million, broke down when the Internet bubble burst and the website finally collapsed.

But in today's capital market, whether or not to make profits is no longer a big problem. This does not prevent capital from flowing into new business models. In July 2018, The RealReal completed the $115 million G round of financing, and private equity fund Perella Weinberg Partners's PWP Growth Equity leads, including the New York private equity fund Sandbridge Capital and the existing investor Weinberg.

If three years ago, the fashion electric business is still a new model of the industry, now, online second-hand luxury trading platform is undoubtedly grabbing the limelight. The latter cut the two mindset of consumers: to be cheap and environmentally friendly.

Young consumers want luxury goods but do not want to pay the full retail price, and they want to be responsible for the environment. These consumers increasingly choose to buy old goods or rent clothes. It is reported that more than 75% of The RealReal buyers and sellers have annual family income of more than 50 thousand dollars. Although old stores and even eBay have existed for a long time, start-ups specializing in secondhand clothing and accessories have provided more advanced shopping experience, attracting the attention of VC and traditional retailers.

Liz Dunn, founder of Pro4ma, a retail analyst, said that the consumption patterns of some groups are changing. The launch of The RealReal will test whether the trend is short-term fever or long-term trend.

Since the global economy has revealed signs of recession, second-hand trading has begun to flourish, and has gradually covered the whole category from cheap fashion to luxury goods. Websites like The RealReal, Poshmark and ThredUp are also known as "re business" (Re-commerce). Application Poshmark is the main medium price clothing, including mainstream brands such as Anthropologie and J.Crew. According to people familiar with the matter, the company has raised about $160 million since 2011, and hired banks earlier this year to prepare for IPO. ThredUp has raised over $130 million since 2009, while Depop, a second-hand platform in London, has recently invested $62 million.

GlobalData, a retail analyst, showed that sales of second-hand clothing totaled $24 billion last year and could double to $51 billion in five years. According to a report by Bain, the US high-end goods resale market in 2018 is estimated at $6 billion and is expected to reach US $51 billion by 2023. In the past, Depop, ThredUp and Poshmark targeting the mid market began to enter the luxury industry.

Earlier this year, Neiman Marcus, a high-end department store in the US, invested in the Fashionphile website of second hand luxury website. Consumers can consign used luxuries at some stores in Neiman Marcus and purchase new products from the proceeds from the sale of second-hand goods. Similar market forces are driving the growth of Rent the Runway, Le Tote and other rental platforms. These companies can enable consumers to get very expensive luxuries at a low price.

Authenticity is the core issue of second hand luxury goods transactions. When consumers choose second hand luxury goods, they face a counterfeit market worth 461 billion dollars. Vestiaire Collection, which is the most similar luxury transaction platform with The RealReal, has implemented a similar business model, but The RealReal has performed better in identifying and certifying the authenticity of the product, or decided that the latter was favored by the capital earlier.

As the name of The RealReal shows, the platform emphasizes the authenticity of selling products. By hiring over 100 experts including art appraisers, luxury experts, geminists, and clocks, the platform can verify the luxuries it brings, proving that the platform does not sell products. Julie Wainwright believes that finding a number of trustworthy expertise experts is the key to The RealReal business.

In fact, the second hand luxury transaction and the traditional Luxury Retailing are not a non-interference parallel market. Recent signs suggest that the rise of second-hand luxury goods has obviously exerted an adverse reaction to the luxury market.

According to the latest New York Times report, with the growth of the resale market and the emergence of new resale platforms, cheaper second-hand luxury goods have attracted many ordinary consumers. The luxury stores in Japan have greeted tourists from all over the world. The Hermes platinum packages that were once available for sale were no longer difficult to buy. Bernstein luxury analyst Luca Solca said that at present, the number of platinum packages on the global market has exceeded 1 million.

Scarcity was once the most precious feather of luxury brands, but the emergence of the Internet changed everything. Julie Zerbo, a fashion critic, has investigated several luxury resale websites overseas. The resale website Priv. Porter from Miami has nearly 80 new Hermes platinum packages every day. It can be easily purchased with just a click of the mouse. In less than five years, Priv e Porter has sold over 60 million dollars worth of handbags, most of which happen in social media Instagram.

Recently, the goods sold on resale websites are becoming more and more valuable, and the large handbags at the price of Hermes are more than 10 thousand dollars. Resale business website The RealReal has more than 300 platinum packages available for sale, including rare color matching materials such as crocodile skin and bright red, and the price can be up to nearly $40 thousand. The resale website StockX is famous for its sports shoes, and has now extended its products to handbags. At present, there are more than 230 kinds of hermes handbags available for consumers. Last week, the platform received $110 million in financing and said it would enter China and Japan.

According to the resale platform The RealReal report, Hermes, Gucci and Canada goose are the most resale value luxury brands in 2018. The average price of Hermes Constance handbags increased by 67% over the same period last year. Vestiaire Collective also lowered its commission percentage last week, and the price of its products also dropped by about 10%. The company said the move was aimed at attracting more target customers and introducing more luxury goods. According to Vestiaire Collective estimates, the resale industry now accounts for about 8% of the luxury market, which will double in 2022.

In addition to Hermes, Chanel is the most carefully maintained brand of luxury goods. Compared with Hermes's earlier control over production and supply, Chanel handbags are even more abundant, but it keeps the scarcity of products through regular price hikes, making their classic and limited money become consumers' investment targets, and indirectly leads to a huge second-hand resale market.

In recent years, the second-hand luxury market in Japan has become a climate. Chanel, as one of the signboards of the market, seems to have acquiesced. However, with the advent of the Internet economy, the attitude of Chanel to second hand luxury resale websites has changed greatly, which stems from the distrust of luxury brands for electric providers, because it is easy for electric providers to magnify the adverse effects of fake products instantly, thereby damaging the brand value.

It is noteworthy that Chanel is the key sales brand on the The RealReal platform, and the latter has set up a special zone for Chanel in its physical store. In this regard, Chanel has been intolerable, since last year frequently fired The RealReal.

In November last year, Chanel filed a trademark infringement and counterfeiting lawsuit against The RealReal, accusing the resale website although it claimed that the product was 100% authentic, but actually sold counterfeit Chanel handbags. In March of this year, The RealReal asked the federal court of New York to revoke the lawsuit, but Chanel counterattacked in April this year, and again initiated the lawsuit on the same grounds.

Chanel questioned The RealReal's authenticity and authenticity of its opponent's bag, and expressed distrust for its so-called training to verify Chanel products. The brand claims that knowledge of training and certification exists only within the brand, and only Chanel himself has the right to speak. In response, The RealReal spokesman Christine Heerwagen responded that Chanel was just trying to stop consumers from resale their second-hand products or buy them at discounted prices, and Chanel has not responded to the new lawsuit.

In March last year, Chanel filed a lawsuit in New York for What Goes Around Comes Around (referred to as WGACA), the first lawsuit between luxury brands and second-hand retailers. Chanel also called WGACA misleading consumers to believe that the retailer had a formal partnership with Chanel, and explicitly rejected WGACA's request for official cooperation.

Although many luxury brands have begun to accept resale sites, Chanel is clearly not one of them. Julie Wainwright said in an interview last year that the company was negotiating partnership with LVMH group and Kai Yun group. However, she pointed out that at least one brand named "C letter" did not want to cooperate with it.

In an interview with New York Times, she said, "we do not need brands to accept us, because we are consumer oriented C2C businesses. Having said this, most brands understand that the powerful two tier market has finally evolved into a primary market. "

Although the sale of second-hand goods, The RealReal is actually trying to enhance consumer shopping experience, so that second-hand luxury goods become "decent". In the The RealReal store, the seller can make an appointment with the staff, identify and consign the product. Interested sellers can also request door-to-door delivery.

In the ideal blueprint of The RealReal, the identity of buyers and sellers will be switched freely. The platform sees a lot of opportunities for more luxury consigners to become buyers on the website, and vice versa. As of March, 53% of the sellers also bought things on the website, while 13% of the buyers also sold their products on the website.

The RealReal's implementation of the circular economy model also touched on the current situation of the world's unstoppable sustainable development. According to Business Insider, posters for sustainable development efforts are posted near the The RealReal fitting room. The company has recently started working with Stella McCartney and other sustainable fashion designers.

At present, although the second-hand luxury trading platform is playing a hot role in the European and American markets, the Chinese market still immersed in luxury consumption carnival is not interested in it.

Some analysts believe that the reason why China's market is difficult to raise second-hand transactions is the fear of traditional Chinese culture. Old goods used to be unseemly and unrespectable, not to mention fashion vogue. This contrasts sharply with the Vintage ancient culture prevailing in Europe and the United States. In the course of decades of development, Vintage and retro culture have been integrated into the fashion system of Europe and America, and become a way of life favored by young people.

But with the constant opening of young Chinese consumers, things are changing.

The rise of second-hand trading platforms such as idle fish platforms reflects the demand for C2C transactions in China's huge market. The trade in makeup and clothing is expanding on the leisure fish. Although the leisure fish mainly rely on the middle end products, celebrities sell personal products, including luxury goods, to leisure fish, and also promote the signs of luxury second-hand transactions.

Over the past year, a number of online buyer shops specializing in the sale of medieval luxuries have sprung up on WeChat. Although Vintage culture appeared in the first tier cities 10 years ago, some stores also run WeChat and Taobao shops, but the online buyers' shop that has emerged in the past year or two has really launched the Vintage behind the scenes. Consumers often find shop buyers who specialize in the sale of medieval products by buying word from mouth to mouth. They can see stars on the Instagram, all kinds of Louis Vuitton handbags, Fendi old flower sticks, and DIOR out of print saddle bags, and these Vintage styles are obviously not available at the door shop.

A buyer shop owner told WeChat public No. LADYMAX that the second hand luxury craze was mainly due to the fact that many celebrities, models and net red all like Vintage, and they match the Vintage products with good looks and personality, affecting the Chinese consumers' aesthetic attitude.

"Compared with the old generation's rejection of old goods, today's young people are more interested in individuality and their own style. "Many Vintage styles are designed by the former soul designers of the brand. They are very collectible, and many styles are out of print, which are more special than the new ones." She believes that compared with the traditional purchasing agency, the management of medieval luxury luxury stores is a test of the people's aesthetic taste, because it is a style that buyers buy from the auction and then share them with consumers. It is not like buying a shop just to help others buy the style they want.

Unlike the European and American market, the form of secondary luxury goods is different. China's WeChat ecosystem has created a more intimate and tight shopping environment. The chief executive said that the advantage of selling at WeChat is that it is closer to consumers, so that people can chat, exchange and match, and the relationship between sales and customers is very much like a friend. But the challenge lies in the fact that consumers do not trust or doubt their stores at the very beginning.

Unlike the official identification mechanism of The RealReal, China's second hand luxury transactions rely heavily on word of mouth, which still has great risks. A buyer who engaged in medieval luxury goods purchasing said to WeChat public number LADYMAX that in the course of operation, a batch of goods would be extracted to a professional appraiser for identification, and if it was purchased from regular shops such as the middle ancient shop in Japan, it would not be specifically identified, because these stores had already carried out relatively strict identification of the goods.

The luxury stores in Japan greet tourists from all over the world, and a large part of the second-hand luxury handbags sold in China also come from Japan. The reason why Japan has formed such a perfect second-hand trading market is directly related to the outbreak of luxury consumption in the 80s.

The public number, the modern middle class, is a revelation from the Japanese consumer collapse: don't make a golden dream! "From 1987 to 1991, Japan's economy has surged for 51 consecutive months, and consumption has become a great bell. In 1989, every day, 40 thousand "Europe and the battalion brigade" flew overseas, and they rode away in the name of perfume. After visiting princess Diana several times, all Japanese girls are buying Princess Polka skirt and shoulder padded jacket.

But in 1990s, the consumer spending craze ended abruptly, and Japanese consumers began to return to reason. Now Ryui Masa, the founder of Japanese clothing retail sales, has discovered that Americans dress casually and have no brand names, so they think that price and comfort are the pursuit of consumption in the post industrialization era. Scholars say that the world has entered the fourth consumer society, and the trend of population decline and aging has become the trend. People's consumption outlook will tend to be simple and practical. In a generally prosperous society, comparisons are meaningless, and commodities will eventually return to their essence.

If China is replaying the luxury mania of Japan, then the craze will eventually fade away. When consumers return to simplicity, luxury purchases will flow into the secondary market.

According to the "China second-hand luxury industry analysis report 2019 - market operation situation and development planning trend" released by China Research Institute, the market size of China's second hand luxury goods industry is developing rapidly, with an average annual growth rate of over 20%, and in 2018, it reached about 12 billion 100 million yuan. However, the scale of the second hand luxury goods market in China accounts for 2% of the market scale of the luxury goods industry. In developed countries, the consumption of second-hand luxury goods has reached more than 20% of the luxury consumption. Therefore, the development potential of China's second hand luxury goods market is huge.

Compared with the self-contained and rapid development of the online luxury market, China's luxury trade is still in its infancy. According to the data released by the secondhand luxury Work Committee of China second-hand goods association, the total circulation of luxury goods in China reached about US $56 billion in 2017, while the second-hand luxury market was less than 9 billion 800 million yuan. Last year, the market size of China's second hand luxury goods industry was about 11 billion yuan.

In 2018, the proportion of secondary luxury goods sales in China reached 68%, and online businesses became the main trading venues for second-hand luxury goods in China. Although online companies account for a large proportion of sales, the second luxury market is not mature enough, and there are not many enterprises in the market.

The world has predicted that the size of China's second hand luxury goods will usher in a significant growth in the future and is expected to reach 46 billion 900 million yuan by 2024. At the same time, because of the influence of consumption concept and the continuous improvement of China's economy in the future, the richer Chinese will spend more on luxury goods.

In the era of deepening globalization, the second hand luxury trade will burn to China sooner or later. Author: Drizzie