The Battle of the Luxury Resale Business Models: RealReal Vs. Relant

Just as The RealReal began appearing on high-risk bankruptcy lists, Reflaunt announced a new partnership with Balenciaga and Saks Off 5th for its resale-as-a-service offering. Maybe you believe in coincidences, but I don’t.

Both The RealReal and Reflaunt compete in the same $32 billion luxury pre-owned market, which Bain reports will grow five times faster than the primary market from 2017 to 2021, at 65% growth compared to 12% for first-hand personal luxury. But the companies operate on completely different business models.

RealReal follows a more or less traditional consignment business model. The individual consignor sends an item to The REAL where it can be sold or bought directly for cash or site credit. REAL also offers a selective concierge service where it goes into the consignor’s closet and hand-picks items. It then authenticates, photographs and lists the items for sale on the website or delivers them to one of its 19 stores.

Reflaunt works quite differently within a resale-as-a-service (RaaS) model. Essentially, it makes it easier for brands and retailers to seamlessly integrate resale and circular fashion directly into their own business models. Although it offers consumers direct shipment through its concierge service and direct exchange on a limited basis, brands are its primary focus.

As well as Balenciaga and Saks Off 5th, it also offers resale services to Net-A-Porter, Harvey Nichols, The Outnet and more.

Reflaunt works this way, using Balenciaga as an example. A Balenciaga customer can return a favorite item to the store for credit. The item is then sent to Reflaunt where it is authenticated, photographed and priced. This is followed by listing the item for resale on Reflaunt’s global network of resale sites, which includes Tradesy, Vestiare Collective and 28 others. Some brand partners also offer items for resale directly from their websites.

Reflaunt also helps keep its resale partners’ sites full of new inventory as well, coming not only from their own sources but also passed on from the original brands. In fact, Reflaunt considers The REAL an important distribution partner.

The luxury resale ecosystem is still in its infancy, and there will obviously be winners and losers. But a company’s business model can make the difference. The business model determines the added value of the company from which profits are made. In this sense, Refluant has an advantage.

The differences are increasing

The key difference between the two companies is their customers: For the REAL ones, it’s the consumers; for Reflaunt, it’s brands. There is a big difference between the two.

REAL needs to go out and find customers and shippers. Reflaunt’s brand partners have already incorporated them. And while The REAL has done some brand partnerships, like the one just announced with Jimmy Choo for National Consignment Day, they’re add-ons, not core, to the business model.

The REAL one requires customers to go on a separate journey to the customer. Reflaunt expands the brand’s existing customer journey to include resale. It’s a value proposition that brands understand as their customers wake up to the circular economy and want to take advantage of the existing value in their own wardrobes.

Reflaunt calls it “positive consumption,” and by offering RaaS, brands help their customers participate in the circular economy by returning used items back to the store and receiving credit or cash back to start a new customer journey.

“As a retailer, you provide an additional, positive service to customers where they are invited to resell before they buy new,” said CCO Felix Winkler, who along with CEO Stephanie Crespin co-founded Reflaunt in 2018.

“Our view is that resale will become a major component of the fashion industry and one of the services that retailers will ultimately provide to their customers,” he continued.

Instead of letting the REAL people profit from the badge value, goodwill and reputation that a luxury brand has worked hard for over the years, Reflaunt allows brands to keep it ‘all in the family’, leading to greater brand loyalty and ongoing customer engagement.

Reflaunt reports that some brands offer cash back to customers who return items for resale, but more give credit with an additional 10% incentive. About 85% of sellers choose the credit option to reinvest in new purchases, and distributors’ lifetime value is extended four to seven times that of their average customer.

Taking control

“We’re allowing brands to take back control of their secondhand market,” Winkler said. “The relationship with the brand’s customers is not only maintained, but also strengthened.” And their brand reputation also grows, encouraging customers to make a positive difference for the environment and understand the lasting value of the items they purchase.”

Brands have a financial incentive to partner with Reflaunt because they don’t make any profit from reselling an item on The REAL. “If reselling becomes part of the brand’s service offering, they have an opportunity to create a new source of cash flow,” he said.

But perhaps more importantly, reselling offers brands a way to create a new circular customer journey as they help customers tap into the circular economy.

“Brands don’t have much opportunity to engage customers outside of the sale. Upselling is a good way to re-engage them and increase retention,” he continued.

Reflaunt’s business model also overcomes the authenticity problem that has plagued The REAL since its inception. Brands know what their customers have bought and can easily spot fakes.

REAL relies on its staff of authenticators who don’t always get it right. REAL recently settled an $11 million class action lawsuit brought by shareholders who claimed they were misled in the company’s 2019 IPO about the level of authentication it provided.

Problem solved

In effect, The REAL has become a problem for luxury brands, while Reflaunt solves one for them. “Reselling can be a challenging new business model to implement for brands whose core business is to manufacture and distribute new products. Reverse logistics is quite complicated,” says Winkler.

“And then there’s the technology part. It is difficult to integrate into the merchant backend. We focus on that. We’ve done all the work, we have the expertise and we have a proven model that brands can use to incorporate resale into their model and service offering,” he said, adding that prior to Reflaunt, co-founder Crespin founded one of the leading second-hand markets in Southeast Asia called Style Tribute.

“Stephanie has been in the second-hand trade for decades,” he said.

Which do you choose?

As a private company, Reflaunt does not release figures, but reveals it grew by 25% every month in the last financial year and now has a portfolio of over 40 luxury brands, retailers and resale partners that reach over 100 million resale buyers worldwide world. It currently has a strong presence in Southeast Asia and Europe, with North America growing rapidly. And it is looking to China, Korea and Japan as markets for expansion.

As a public company, REAL’s numbers are there for all to see. While six-month revenue to the end of June rose nearly 50%, from $204 million in the same period last year to $301 million this year, it still lost money, $64 million in adjusted EBITDA over the past six months. This results in a loss of $24 million to $30 million in the third quarter. And in a potentially troubling sign, its average price fell to $486 in the second quarter, down from $520 last year.

Adding insult to injury, REAL is without a CEO after founder Julie Wainwright left the company last June. The company’s president and chief operating officer, Rathi Sahi Levesque, and chief financial officer, Robert Julian, currently serve as co-acting CEOs.

While Wainwright was tight-lipped about why she took sticks from The REAL, she may have seen the writing on the wall. The RealReal was a good thing while it existed, but its business model was not designed for the long haul.

Time will tell for Reflaunt, but it appears to have all the pieces in place to do so as it doubles down on helping luxury brands make circular fashion part of their own business model.

Note: This story was updated on Oct. 7 at 2:35 p.m. to include the fact that Reflaunt is shipping product for resale through The RealReal, which was unknown at the time of original publication.

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