Luxury Briefing: Luxury resale is poised to receive billions in incentives from new legislation

But after the full bill was officially introduced by Senators Bill Cassidy and Michael Bennet and Representatives Maria Salazar and Adriano Espaillat last week, another section was included: subsidies and incentives for circular fashion companies. The bill would lower taxes for businesses involved in the recycling, reusing and reselling of apparel by 15% and offer billions of dollars in loans and grants for those companies to improve their technologies supporting circularity.

If passed, the bill could be among the largest pieces of legislation affecting the circular fashion economy. The luxury resale industry has been booming for years, relatively unabated through the pandemic years, even without any legislative help. In 2023, the global luxury resale market was worth nearly $40 billion with no signs of slowing. According to people in the resale space, tax incentives and funding would be a valuable shot in the arm for the industry, though there are other potentially helpful legislative moves that the bill doesn’t cover.

Gayle Tait, CEO of the resale company Trove, which works with brands like Canada Goose to run their resale programs, said the biggest potential impact she sees is the ability to further fashion’s sustainability goals. According to Trove’s own analysis, resale initiatives can help brands lower their carbon emissions by as much as 15%. But the complexity of a circular supply chain — including retaking, cleaning, sorting, recycling and reselling clothes — is a barrier to many brands.

“To scale resale programs, and process the millions of items that will make these meaningful revenue streams for brands, requires built-in efficiency at every stage of the logistics chain,” Tait said. “Minimizing physical touchpoints translates to more cost-efficient operations, which means resale can also be reliably profitable. The Americas Act offers a compelling solution by providing incentives and other funds to shorten supply chains. This not only streamlines resale processes but also reduces our environmental impact.”

Charles Gorra, founder and CEO of the luxury handbag resale platform Rebag, said he found the tax incentives discussed in the bill to be the most compelling element. But as the bill is still being deliberated, its current wording merely describes “tax incentives” without specifying exactly how they would be structured. The specifics will determine exactly how beneficial the bill is to platforms like Rebag.

“The most immediate lever would be sales tax,” Gorra said. “There’s an argument that you could remove the sales tax for resale purchases. After all, the sales tax has presumably already been paid on the item when it was sold the first time. Then you could either pass that saving entirely to the customer or maybe you share it with the customer; if you remove 10% sales tax from the customer but you charge 5% more, then essentially you’d get 5% more money while the customer is still paying 5% less.”

However, if the tax incentives are in the form of lowered corporate taxes, that may be less effective. Gorra said many resale companies, especially newer ones without much profit, are already paying minimal taxes. Lowering taxes that are already quite low may not have a major impact, he said.

Resale has grown continuously through the pandemic without much help from tax breaks or friendly legislation, primarily because it offers customers a chance to buy high-quality products at lower prices. Emily Gittins, founder and CEO of another resale company, Archive, which works with brands like Oscar de la Renta and Diane von Furstenburg, said resale’s growth has been driven primarily by younger generations.

“A third of Gen Z are buying high-end brands secondhand,” Gittins said. “It’s not a second choice for them. We’re seeing people increasingly wanting to shop from brands that have a strategy for a second life for their products.”

With continued growth, getting people to buy secondhand luxury goods isn’t an issue. The real challenge, and one on which resale companies could use help from future legislation, is attracting sellers.

“In luxury resale, getting the product is always harder than selling it,” Gorra said. “There are many more buyers than sellers in luxury, and the people who are sitting on a rare Chanel or Louis Vuitton bag might not want to sell it. What would be most helpful from the government would be help incentivizing people to sell.”

Gorra outlined a potential government program where consignment companies like Rebag could purchase used bags from consumers and a government program chipped in to pay the seller an additional 10% of the price. That would help improve the flow of product through the luxury resale ecosystem, discouraging people from keeping valuable products sitting unused in a closet and strengthening the sector as a whole.

“There are a lot of costs in this industry,” Gorra said. “Most resale companies operate at really tight margins. There’s always a tension between being buyer-friendly and seller-friendly. Something that helps incentivize sellers to sell would be huge for the industry.”

Nora Cummings, head of impact at the luxury resale platform Fashionphile, said that resale is a difficult business. Despite the growth, it’s still an expensive industry and any favorable legislation would be a boon. 

“At the very least, this legislation would provide a 15% net income tax exclusion for many businesses engaged in circular activities such as resale, repair, rental, fiber recycling, sorting, and reuse,” Cummings said. “Making it easy for individuals to not only sell the items that they already have, but have more options on where to go to buy those things that they need that are used is not an easy job. It’s expensive, laborious and very few resale platforms have ever found a way to do this work profitably. Incentives like this could be meaningful in reducing the production of new products and making it easier to get along with the things we already have.”