How fast-fashion backlash gave ThredUp a marketing edge

0:06Hello, everyone, and welcome to the Modern Retail Podcast.

0:30We'll give an intro about the company, but it's been around for a long time. It's been leading the charge for resale, apparel resale. I know that in the last few months, it's been making a lot of tweaks and improvements, especially on the AI side. And also, ThredUp comes out every year with a report that us journalists love, just looking into the state of resale. And it came out with its report pretty recently. So I want to go into some of the stuff that they found. I believe, correct me if I'm wrong, James, but I think resale, according to this report, is growing three times as much as regular retail on the apparel side.

1:03Is that right? Yes, growing much faster than the traditional retail side. Much faster. Congrats. That's good news for you, I suppose. I think so. I think so. But anyway, I want to get into all of that, what you're seeing, what the plans are for the future. But James, how are you doing? I'm doing great. It's great to be here. I mean, I love what you guys have been doing on the content side. So I love the podcast. Well, thank you for listening and joining. We appreciate that. But let's start with you. You have been at ThredUp since the beginning, which 2009, right? Is that when you founded? Yes.

1:34Yes. Makes me feel old when you say it like that, though. No, no. That was only a hop, skip and a jump away. But what were you doing before and what led you into the world of digital resale? I was in school at the time. So the true story is, before I went back to business school, I was a teacher and worked in education, which is code for I didn't have really any money. And so I went to while I was in business school, I actually went to sell my clothes at a local consignment store as a way to like make some money because I didn't have any. And, and they wouldn't take my clothes. And that's truly like how ThredUp got started.

2:10I was like, this is this doesn't make any sense. Like this was nice stuff. It couldn't be worth zero. And so, yeah, I started ThredUp in the middle of the last year of business school. And so I've been at it ever since. And it's been quite a journey. Yeah, I will say I live in New York City, the mecca of hip thrift stores. And I think in my over a decade here, they've taken one of my items and I've tried multiple times. It's funny, my original pitch to investors, I said, you know, setting aside the economics piece of why this clothing has retail value. I was like, the judgment for the consumer, right, who goes into a thrift store or a vintage store, a consignment store with the things that they have purchased to then, you know, I used to joke like a sassy 25-year-old fashionista basically telling me all my stuff was crap.

3:02I said, that's like a really hard thing to experience. And so I actually thought the internet moving resale online could actually remove some of those barriers. Got it. And so one thing I wanted to ask you, because what I find very interesting about ThredUp is, you know, it's a peer-to-peer marketplace. And if you want to, you can probably give a much better and thorough description of how it works. But you've also, over the years, been focusing on other aspects, specifically what you guys call resale as a service, where you're working with businesses to essentially white label and power their own resale marketplaces.

3:33But do you want to just give for the five to 10 listeners who don't know what ThredUp is. Can you just explain, give a truncated history of it? I hope there's more than five to 10. That's like a customer acquisition strategy, Kale. So I want there to be like double, at least double that. No. So look, it is a managed marketplace for secondhand goods. And so I think the distinction between what people I'm sure are familiar with, whether the eBay model of peer-to-peer, right? I think we're peer-to-peer in a way that's a little bit nuanced, which is We get all the clothing from sellers. We send you a clean out kit that holds a laundry basket worth of stuff.

4:14You fill it, you send it to us. And then we manage the process from there. So we run four distribution centers around the country. We process all the goods in. We photograph them. We categorize them. We kind of do all the heavy, heavy work. And then we make them available for sale to buyers. And so we we source from directly from consumers and we sell to consumers. we just manage that flow of goods, which we think really creates more opportunity in the market. Because, as you mentioned, the one item that was taken when you went to sell, the vast majority of people, they don't really want to sell their own things.

4:51They don't necessarily participate. I often poll people. I say, hey, how many of you have sold something on eBay in the last year? And out of 100 people, you get 10 hands. And then, yes, the same person, hey, have you given away a bag of clothing or a box of clothing to Goodwill or to charity or to a friend over the last year, you get almost 100 out of 100 hands raised. And so we are really trying to invent a modern resale ecosystem that allows everybody to participate. And that's how we've been built. Got it. Got it. One thing I've always wanted to ask you just as you've grown over the last few years is because your ThredUP is a company that is working at scale currently, but I can only like how can you and I don't you don't need to go into the nuts and bolts or say the secret formula but how like when you have four distribution centers you have people just throwing chucking their stuff into a bag and they go through how have you been able to make the economics work at scale look a lot of we've built a lot of software a lot of technology we've put a lot of steel in the ground around the infrastructure for resale on the internet in some ways I describe us as really the infrastructure and backbone of how resale works on the internet.

6:06And so what I mean by that is we have been innovating for more than a decade around how do you take four, 500 ,000 photos a day of clothing coming in? How can you do that? How can you move product around on carousels and conveyors to keep the cost down? How can you use photography to do image recognition? How can you use automated Bluetooth to do measurements and tagging? And so there's so many things, Cale, that I think, look, we've made an enormous amount of mistakes over the past 10 years getting this right. But I think what we've built now is this incredible engine that can ingest anything at any time across these four distribution centers and magically turn it into an online listing that makes a lot of sense for a buyer.

6:56And I think when you shop ThredUp, you get this standardized experience that it makes you feel like you're shopping new. We often tell people that's really our goal is to make it feel as though the buying experience of shopping used feels indistinguishable over time of buying new. And that's all the technology on the back end. But I think we're at least 100 million unique items processed through our facility. I'm guessing we're closing in on 150 million unique items through the facility. More than 50 ,000 brands, 100 categories. And yeah, we never know what's in the bag when it comes in. And so I think it's a bit of alchemy.

7:37How much of that process of intake and marketing and outtake or, you know, like how manual is it? So there are people in our distribution centers. But what's happened over the past 10 years is that we would use great associates in our facilities to help understand what is the right way to deliver this process that makes sense, that would be good for a buyer. And then we start to ask ourselves, OK, can a machine, can a computer do this that can help us move faster, process more goods over time? So, you know, I think if you looked at over the past 10 years, the number of associates we've have in our distribution centers, we've actually grown the number of associates.

8:22Right. But we've grown the number of pieces of clothing we're processing, you know, even faster. And so so there definitely are folks in our facilities doing hard work every day. but increasingly our process is either fully automated or we have our associates working with machines and technologies that have been specifically developed with resale in mind. And so it's kind of exciting. I was actually just in our facility a few weeks ago. I hadn't been there and probably, so we have four. I hadn't been in the one we have in Atlanta, which is I think really our most automated. I hadn't been there in probably six months.

8:58And the level of change around how the process was working, the new technologies that we had developed, really blew, you know, as the co-founder, CEO, like, kind of blew me away. I was like, man, we are moving so fast. So anyway, it's a long answer to your question, but we see people and technology working together to bring this to scale. Are there a few specific changes that you've seen that surprised you? Like you said you didn't recognize some things. What didn't you recognize? Yeah, I mean, so for example, we have this, you know, so we have conveyors that are moving product around, right? And so six months ago, nine months ago, items would have to come off conveyors, right?

9:45And then we would shoot some of the photography and then the items would go back on the conveyors, right? So there was this sort of manual process that was set inside a conveyor like carousel system. I watched a prototype where things are moving on the conveyor and they're moving through a camera array, right, like a high def camera array that we have designed and engineered so that the item actually doesn't even need to come off the hanger, doesn't need to be pulled off the carousel. And it's getting high def three dimensional photography taken of the item so that it can be immediately recognized and then put online.

10:22And so that's a process that's been years, you know, in the development. And to be able to see that like live working at a way that I could not have imagined, you know, just a few years ago was pretty neat. Wow, that is pretty cool. We'll go into the current stuff, but I want to just get a little lay of the land with, I think it was 2019 you launched Resale as a Service. Is that correct? Correct. Yep. So I feel like as a journalist who checks in on companies, gets pitched by companies, the last couple of years, you guys have been really focusing on that. Has that been still one of the main focuses?

10:59Or give a little history of how that works and how that fits into the overall business model. Sure. So, yeah, so we've been we've been tinkering with this with this idea, you know, in sort of 16, 17, 18 of how do we leverage all this incredible technology infrastructure that we have built inside our facilities? We always had this this I think this like intellectual honesty that we could not we could not single handedly make resale, you know, omnipresent. that inevitably we were going to need partners with scale and distribution and customers, right, to accelerate, I think, what we've been trying to do all along, which is to be, to drive circularity at real scale.

11:45And so we started to think about what would the relationship with a brand be where the brand has a relationship with a consumer, where the consumer counts on the brand day, you know, day in and day out, year in, year out to develop, you know, fashionable, high quality clothing. What would it look like to help that brand take back items that their customers had purchased that were no longer wearing? What would it take for us to help a brand resell some of their, you know, the goods that they had produced years ago that were still in demand and looked in great shape? And so that's how we got started with RAS is what we call it, Resale as a Service.

12:23And it's a full suite of offerings where we help any brand who wants to participate in resale get into it in an easy way. And so we handle all the logistics on the back end. So think about everything that we do for our core marketplace, our core business. We do all of that, but then we stand up a resale site for a brand. And so typically a brand would have a link on their homepage that says shop our used collection, shop our pre-loved collection. We sort of call it whatever they want. And then on the back end, we have all that product that we have helped them take back, whether it's in store or online.

12:59And so what's great about it for our brand is that resale is hard, right? We've been at this a while, and it allows them to get into the resale economy, deliver that value to their customers without having to build distribution centers, build take back programs. They can leverage all of our tech for it. And so it's gone well. We're over 50 brands now, you know, big brands, small brands, sustainable brands, mass market brands. I think we try and be agnostic about the clients that we work with because we think every opportunity that we can give a brand to be more sustainable and be more circular is a good thing.

13:37And so that's the journey we've been on. And I ultimately think resale will be a big part of what brands do over the very long term. Right. And I think that's like the important point is I always try and let people know that it's going to take a while for this to be a big part of what a brand does. But I think every brand gets started somewhere. And then, you know, maybe over time, it becomes, you know, 10, 20 % of what a brand does. And I think that we'd all be better off if that were the case. Yeah, I wanted to ask, and I sort of kind of answered it where you said, you know, it can be anyone, but like, is there a sweet spot of apparel brands that you think are best poised to grow the business?

14:16Or do you think it's higher end, a certain price point, a certain type of product? It depends a little bit on what the brand's goal is, right? So there's some brands for whom it's really about recycling and take back, right? And it's all about, we want to be responsible, good corporate citizens. And we want to get all of our product back and make sure that we are being good producers. And so it would be like anybody else who makes containers that are fully recyclable, right? It's just like, hey, we want to make sure that the stuff can get back in a way that makes sense. Those brands, they have a different sort of goal than, say, a more premium or luxury brand for whom, yes, they want to bring their products back, but they also see a way to monetize by reselling that item a second, third, fourth time.

15:07So I think it depends a little bit on the brand. I will say that it's definitely easier for a brand to make resale work if they are able to work at a higher price point, right? Because the economics of selling an item for, if you're selling an item that's new for$20, right? Selling that item used for seven or eight or whatever it could be, those economics get difficult for a brand. And it's hard enough to build a great retail brand these days, right, without having to have that margin compression. So I do think brands that are able to sell new products for$80,$100,$120, I think that's really the floor, I think, for a brand that can really build something at, like, real scale.

15:50And I think lots of the brands that are in resale today fit that pattern. J.Crew, Madewell, Banana Republic, Athleta, right? Those are the brands for whom that new price point is in that range. We're going to take a quick break and we'll be right back. Well, let's talk about some of the more recent stuff. I know, I think a couple of weeks ago, maybe it was about a month ago, you came out with your annual report. Yep. You've been doing this for a long time. Yeah. But do you want to just, I guess, what are some of the major stats that you think were most important this year? Yeah, I mean, I think like there's a handful of things that were newer this year.

16:33I mean, one was, you know, I think it was the first time that the data showed that consumers who are shopping secondhand were more likely to purchase a secondhand item online. And I think that's a it's kind of an inflection moment. I remember back when, you know, you started to see e-commerce penetration, where all of a sudden I think you had to be a real, like, you had to kind of open your eyes. Like, hey, this trend, this is not going away, right? And so I think it's pretty compelling now to see resale online starting to get the sort of traffic and consumer dollars. So I think that was one. I think the second is that like you're continuing to see, you know, momentum on RAS and brands, right?

17:23And so, you know, every year that we do this, we've already sort of talked about that, but I think that's like an important point that like you're still seeing really strong growth on the second, on the RAS piece. And then the third, I think for me was, you know, we did a lot of work talking about the role of legislation and, you know, I think, and we should get into this if it's interesting to you, but we've had two bills introduced in the last six months that have the circular economy in mind. One was in the House, or the biggest one I think that we're talking about is the America's Act, which was a bill introduced in the Senate, sort of a bipartisan bill, all around circularity, sustainability was a big part of this bill.

18:07And in our research for the resale report, we talked to consumers around how they were thinking about how they would vote, you know, based on these types of things. And look, it's a presidential election year. We thought it was interesting to call out some of that data. And so I think you're starting to see finally some momentum around supporting resale, circularity, sustainability. So those are kind of the three that I thought were sort of new and interesting this year. So let's talk about the legislative stuff, because that gets into something that I always love to talk with founders about, specifically founders in the quote unquote sustainability space, which is when, and you're, I think ThredUp is in a privileged position, just by the way the bottle works.

18:48But when you, I talk with a company that is quote unquote sustainable, I'm always interested to see if they talk with their customers, the customers will say, of course, I want to be, I want to buy well, I want to be sustainable. I don't want there to be waste. But I also think that when offered a more value based position, they might go the opposite way. And so but like, how are you seeing this? Are you when you think about legislation and getting people to actually vote or think about these issues? Do you think that there is a change in that where it is becoming more of a forefront issue in terms of who they support or how they're thinking about their candidates?

19:22Yeah, I mean, I think to your first question around, you know, how does the consumer value sustainability, you know, relative to price? Like, I could not agree even more. I think it's a very privileged person who can say, I don't care about the price as long as it's sustainable. And look, that is the way a lot of these things get started. Remember, the first computer was not an affordable first laptop from, I forget who it was now, Gateway or Dell, right? Like those laptops were super expensive. And so I think there is this, like any sort of big innovation around this, like it does cater to people who have much higher willingness to pay.

20:06And I think that has been true in sustainability for a long time. So I think that in order to get sort of mass adoption of these things, I think it actually, the government plays a big role. You know, I think when government wanted to drive more adoption of solar panels, for example, right? You know, tax credits were a big part of that. And getting people that, you know, the upfront cost to install solar was very expensive. And so you could only make it work if the tax credits work. The same thing, I think, for electric vehicles. Electric vehicles are very expensive. Tax credits help, like, bridge the gap.

20:39And I still think you're in a world where if you really want to make government help drive adoption of EVs and solar, like, credits are going to continue to have to be a part of that. And so from where we sit on the resale side, we just think that there's an opportunity for government to make similar investments to get either brands to produce more sustainably, to fund fiber to fiber recycling, to incentivize companies like ThredUP or others to build better take back and recycling programs. So I'm a big believer that government has a role to play in bridging the economic innovation gap that it takes to sort of develop some of these new technologies.

21:24And, you know, I laugh sometimes now. It's like we had to do it the hard way, Cale, right? For the last like 15 years, like government didn't care really at all. Like we have not benefited at all from government, you know, subsidies around this type of stuff. And so I take a lot of pride. We got the hard work done on our own. But I think perhaps the next 15 years in resale and sustainability and circularity can go faster, I think, if government gets involved. Do you think the reason why there is an increased interest, at least on Capitol Hill, is because of the rise of overseas companies like Shein who are dominating the headlines?

22:04Absolutely. Yeah. And look, I think you always need a catalyst. Right. For these things, I think for when it was solar, it was like the rising cost of gasoline. Right. And the cost of oil, like, you know, to pretend that that legislation gets done in Congress out of the goodness of people's hearts. You know, I that naivety has been beaten out of me long, long ago. Right. I think these things are real catalysts. And and so so maybe there maybe there'll be a great irony. right? That Shein and Temu's biggest contribution in the U.S. was helping stimulate, you know, laws around sustainability. Well, I've noticed and I've been, you know, maybe this is just because writers have these two names in their head, but often when there's a recent article about you, it's often in distinction to Shein or Temu or something like that.

22:58And it's like ThredUp is fighting fast fashion or something along those lines. So have you seen, are you seeing a sort of bump as a result of this? Or is this part of your marketing strategy where you're like, we're going to name this and we're going to say we're fighting it? Yeah, it's definitely not part of the marketing strategy. And I don't think it's a bump, but I will say that, look, it's easy to have a boogeyman. And so, you know, it can be effective to find somebody to juxtapose what we're trying to do against. And I don't think we're malicious about it. But look, I do think the fight is real.

23:38And despite what you think about Xi and Ertemu, they are taking advantage of a tax loophole in the US. And for many, maybe that's good business. But we just can't pretend it's not a loophole. And it just doesn't seem fair for companies that produce in similar fashions overseas to be paying hundreds of millions of dollars in taxes. And so either the loophole needs to be closed where nobody pays it or everyone pays it. So I think the government needs to be the referee and it needs to call fouls on both sides. and I think everybody would agree that as long as we're all treated fairly and equally, I don't have a problem with it.

24:25And so I think that's the thing I have a lot of problems with. And I think that to get a step further, my worry is that it actually then creates a whole perverse set of incentives for companies that have been doing it correctly, right, paying the taxes to be like, well, if these guys are going to get away with it, then I'm going to play by those rules. And so I think you can really get into a trap there that I don't think government wants and I don't think is ultimately good for us as citizens. Got it. Got it. Makes sense. I wanted to ask another thing that popped out to me when I was going through the report earlier, which is and this isn't surprising, but it was pretty interesting just seeing you have a graph that shows the overall projected growth.

25:08And it is the biggest now, but just how big it's going to get in the next, you know, eight years is Asia. And so I wanted to ask just about what you are seeing and what are you focused on in terms of international expansion? Because you're U.S. and Europe, is that correct? Yes, U.S. and really Central and Eastern Europe. But yes. Yep. Got it. And so are you like, given that it seems like there is such a huge opportunity per your report in Asia, have you ever thought about going there? Or how are you approaching overall international expansion? Yeah. Yeah. Look, I think if you took the very long term, right, and I say that, you know, if we were having this conversation 10 years from now, right, yeah, there's a chance we would explore something, you know, in another part of the world.

25:54But I'm really focused on the two big markets that we operate, you know, the U.S., North America and in Europe. And because I think resale, the sort of unique dynamics of like how the market works and the price points that work and the transportation networks. And right. I think they're all uniquely different around the world. And so I would not presume that we that we could do that, you know, as a as a side note. Right. To what we're doing today. And so I think it would take a lot of effort. And I want to do it at the right time. But I think we've got our hands full, right, in our core markets.

26:30And I think we can create a lot of value there. How has it been going in Europe specifically, given that, you know, you launched in the U.S.? Has that been working out? Yeah, I mean, you know, look, we had earnings last week. I talked about there's really three things we felt very good about sort of momentum in our European business. One is the continued switch to consignment. And so it's a big part of what we do is helping consumers clean out their closets. But that European business, I don't want to bore your readers with the details, but they paid up front. So you kind of held, I mean, people who listen to this podcast will know, the distinction is like holding inventory versus not holding inventory.

27:10And I think everyone would agree, hey, if you could not hold inventory in general, that can be better. And so I think we're evolving that business to not hold inventory the way it used to. And that transition has been going very well. And then the second piece is we just hired a new general manager there, a guy named Florin, who's, I think, going to be great. And so we're very optimistic on the European business relative to where we were six, nine months ago. So I feel good about Europe. But I think the U.S. business has been doing very, very well. and I think gives us a lot of confidence that the blueprint, the manual for how to make this work is stable and makes a lot of sense.