Marketplaces are moving from horizontal to vertical.
The problem with horizontal marketplaces is the winners have already been declared – and they’re very difficult to disrupt head on. Because there’s not room for many more horizontal Goliaths, vertical marketplaces (businesses that cherry-pick elements from broader horizontal incumbents) become more compelling.
By exploiting the inherent weaknesses of horizontal leaders and intently focusing on a single product or good, these companies can deliver a vastly improved customer experience, presenting an opportunity for vertical competitors to gain traction.
One of the outstanding sector of the vertical marketplaces is second hand apparel and accessories marketplace.
In the UK, there are some clear winners, mainly on the low end side, Spock and Depop, while in the US we saw companies like Poshmark, Twice, ThredUP, Tradesy, and The Real Real grew very quickly.
The spectacular growth of digital flea markets is due to an increasing need of sustainability and responsibility for the environment, workers condition and waste usage of both Gen Z and Millennial.
37% of Generation Z bought second hands clothing last year, generating a $22bn second hand fashion market.
There are 2 main categories of second hands apparel and accessories marketplaces:
Capital Intensive model: when the item trading on the marketplace is expensive (luxury goods or watches), the items should be verified by the company, and just after the internal approval, it can be sold. Those type of marketplace (as RealReal or Vestiaire Collective) demand a fee between 40% and 50% of the selling value;
Pure marketplaces: the buyers and the sellers meet online and the items is sold directly without any previous verification. This model is mainly used for fast fashion items and the fee charged by the marketplace is around 20%.
I believe that both models could be successful, assuming that the Long Term Value of a clients is 3.0x-4.0x the Cost of Acquisition.
Several other vertical categories will take advantage of the model (for example second hands furnitures). There have been dramatic improvements in the ability of marketplaces to target and advertise to specific consumer subsets, such as highly targeted Facebook advertising, which can narrow an audience based on specific zip codes or interests.