When I was growing up in a middle class family in Milan, my mother forced me every 6/12 months to give away toys, computer games and clothes to other children that didn’t have the opportunity to afford them.
For generations there has been a stigma associated with buying used goods in the Western World, where they have been associated with poor quality and poverty,
Why somebody that can afford something new, will instead decide to buy a used good?
Well, welcome to the word of Gen Z!
In Europe, US and China a young generation of consumers is embracing the second hand economy with sales and purchase of pre-owned goods from I-phones to clothes, being fuelled by online platforms.
According to the Financial Times, sales of second hands good in China are forecast to reach $150bn next year, doubling from 2017. Investors are taking note and pouring billions of dollars into platforms selling used goods from car to luxury handbags.
The generation difference is striking. Around 90% of users of second hand platforms are under 34 years, and 40% are younger than 24 (Gen Z).
I believe that the luxury sector will be the big winner of the second hands goods trend: sales of pre-owned goods account for 10% of the luxury market and are forecast to achieve 20% by 2025 according to Bain.
Several online platforms are fighting the battle and some winners are already emerging.
Last month www.therealreal.com, one of the major luxury second hands platforms, IPO and is now valued over $2.5bn, 12.0x the Revenues 2018.
The French player www.vestiairecollective.com completed a $40m investment round with Balderton, and I personally analysed in the paste few months several new start-ups in the UK entering in the space.
Lets dive into RealReal financials. The company generated $207m of revenues in 2018 (+100% over 2017), with a Gross Profit Margin of 66% (very good), but due to the high marketing expenses the EBITDA was negative for over $70m.
The Average Transaction Value is $440 (similar to the ATV of Net a Porter);
The Cost to Acquire a Client is $120. This is low compared to the Net a Porter (>$250) and the main reason is related to the fact that 40% of the buyers are also sellers on the platform. Network effect!
The beauty of second hand luxury platforms compared to pure Direct to Consumer players (like Net a Porter) is the level of engagement of both buyers and sellers.
Those platforms have a substantial opportunity to grow the business by having buyers also become consignors and vice versa. As of March 31, 2019, 13% of real real buyers had become consignors and 53% of consignors had become buyers.
I believe that we are just at the beginning of a revolution in the second hand shopping experience and I can not wait to invest in the next winning platform.,