Armed with a fresh investment round of $50 million, The RealReal is preparing to expand its online brand of luxury resale into the real world.
The six-year-old company, which has now raised a total of $173 million in venture capital, is using its latest cash injection to open its first permanent retail store in New York City later this year. Last December, a two-week run in a SoHo pop-up space in Manhattan served as an initial testing ground for an offline iteration of The RealReal. The store generated $2 million in sales, according to internal figures.
Its expansion edges The RealReal closer to the front of the luxury resale race for winner-takes-all, as the initial boom of online consignment has been through a few shakeouts since it first swelled in 2009. Over the past eight years, competitors like Vaunte and ThreadFlip have folded into other companies or shuttered, while leading players like The RealReal, Vestiaire Collective and ThredUp have become increasingly flush with cash. The RealReal’s latest round makes it the most funded online luxury resale startup. It’s reportedly on track to sell $500 million worth of merchandise through the platform this year.
But in an industry that deals only in merchandise that’s already moving through the market — in the form of pre-owned luxury goods — beating out the competition boils down to how many people companies can convince to sell on their site. Founder and CEO Julie Wainwright has said that, for every four RealReal buyers, there is one seller, and about half of its sellers are also buyers.
Plenty of online pure plays — from Birchbox to Bonobos, to even Amazon — have migrated to physical retail in the name of building brand awareness. But for The RealReal, a brick-and-mortar strategy is an exercise in high-stakes customer and seller acquisition. Despite the quick $2 million in sales made during the pop-up (which took place during the holidays and had limited-time-only appeal), The RealReal is not going in with expectations that its store will be a cash grab. Instead, it’s focused on the people who trafficked the pop-up. According to The RealReal, half of the people who visited the store were new to the brand.
“It’s survival of the fittest in the pre-owned luxury space, and brick-and-mortar is a huge step for a company’s survival in this case,” said Malinda Sanna, CEO of the creative insights consultancy Spark Ideas. “VC interest was really high in this space two years ago, and that’s waned. There are a lot of players, but not everyone is going to make it. If you have the resources to go into physical retail, you can win over the skeptics.”
As of now, The RealReal’s point of differentiation is its rigorous authentication process. That process — which includes at-home visits from authenticators and an internal system that verifies all products before putting them up for sale — built trust among its buyers. Meanwhile, its high-touch, white-glove customer service experience helps woo over sellers who may be enticed to follow lower commission fees somewhere like eBay, said Sanna.
Those two strengths will come alive in the physical store, where The RealReal plans to offer personalized customer service from a team of gemologists, who verify the value and authenticity of the fine jewelry and watches category (which pulled in $100 million in sales in 2016), art curators and authentication specialists. The final piece: showing off its best inventory in a curated offline setting, all to win over customers who might be on the fence when it comes to buying secondhand luxury online.
“Some [customers] had heard of us, but they hadn’t shopped because they didn’t understand the quality,” said Wainwright in a recent interview with TechCrunch. “So now, we’re opening our first real store in SoHo. When you have 100 Birkins on the wall, and people have never seen that — even at Hermès — they tend to call their friends.”
Wainwright said The RealReal will start with one store in New York City and open more in locations with highly concentrated customers, following the strategy the company took when opening valuation offices last year in its top seven cities. At these offices, potential sellers can come in, receive a valuation for a product and then leave it with the company if they decide to sell. The RealReal stores will be equipped with their own valuation offices, as well as a product assortment tailored to the community, based on its vast customer data.
The RealReal still needs to better incorporate a global customer — something that competitor Vestiaire Collective, headquartered in Paris, has angled itself on — in order to win the overall market. Competition in the physical space, however, is already diminishing. Citing pressures from the online market, 40-year-old consignment chain Second Time Around, which sold both high-end and accessible brands, announced this week that it would be closing its full store fleet this year.
“Retail is going through some tremendous earthquakes right now, and The RealReal is leading a transformation that’s challenging the conventional model of consignment,” said Sanna. “If they can play out their authentication process in real life, that would be fresh and revolutionary for in-store consignment.”