The RealReal’s management revealed in the company’s Q2 earnings call last month that it will continue to open new retail stores in the year ahead, saying that they are looking to grow their existing set of 19 stores by “anywhere from one to three stores.” San Francisco-headquartered The RealReal, which has made its name as “the leader in luxury resale” thanks to a seemingly endless supply of Chanel bags, Rolex watches, and high fashion garments, is not the only secondary market company that is currently growing its physical retail footprint; the likes of Rebag, Fashionphile, and Prive Porter, among others – all of which initially launched as digitally-native businesses – have opened brick-and-mortar outposts in furtherance of a segment-wide effort to expand beyond e-commerce or in Prive Porter’s case, beyond Instagram and WhatsApp.
All over the world Consumer goods brands profit by maintaining brick-and mortar stores, in which consumers typically spend more per transaction (compared to online shopping) such as or where returns are generally lower. However stores are efficient and cost-effective driving force behind new customers. (For an overall view the past was dependent on sales from e-commerce and advertising on the internet only, Warby Parker revealed last autumn that its retail stores are “valuable marketing vehicles for introducing new customers to our brand and driving repeat purchases and, in turn, positively impact our sales retention rate.” The brand’s eyewear has nearly 170 stores at the time of May. (There are plans for additional openings in the coming year.)
The same holds true for the secondary market, the advantages of brick-and-mortar development are more specific in the realm of fashion and luxury resales.
One reason is that brick-and-mortar stores can be an essential way for resales companies to build up inventory. The reason is that, as The RealReal, which began by opening its permanent stores for retail in the summer of 2017 as a result of a space of 6,000 square feet located in New York, has consistently said that its stores aren’t solely a method in which to “drive new traffic” or create sales, but rather to collect used products from consignors to sell to customers. In its earnings call last November, management of the company claimed that the stores are an “cost effective channel for securing supply,” and in the end it’s an “big win,” as the number of drops of used products to stores is outstripping only by visits to homes made by The company’s representatives to the homes of consignors.
In terms of supply, NASDAQ-traded The RealReal states that it receives around 30% of its customers “continue to come in from stores.” For the demand for its products, management of the company claims that, as traditional retail stores that sales are higher and returns lower when you shop in a brick-and mortar store in comparison to online. However TRR’s former CEO and founder Julie Wainwright revealed last year that “in the past, the average order in stores [has been] about two times greater than when [a customer shops] online” and claimed that this is still the case.
Utilizing stores to generate more revenues is also at the core of Rebag’s expanding move into brick-and-mortar stores however there is an aspect of building trust for the luxury handbags-focused New York-based company that resells. Rebag CEO and founder Charles Gorra told in the past year that the typical price for their products is approximately $2,000. “So, when you spend that kind of money,” Gorra states, “you want to build trust” with the business that you purchase from. Rebag is seeking traditional retail models – with the “experience that fuses transparency and flexibility with personalized services” in order to establish a connection with customers. It currently has more than 10 retail locations. This includes its newly-opened branch located in Sawgrass Mills, its third store in Florida. It’s not stopping here, Rebag that has raised $35 million through the Series E round on December 20, 2021 is preparing for more brick-and mortar openings that will be in the form of “both standalone stores, as well as a continued presence in major luxury malls.”
Take Rebag’s average ticket and multiply it 20 times, and you’ll have Prive Porter, which opened its first retail store in Miami’s Brickell City Centre in November 2020. In in addition, it has helped demonstrate that their exclusive Hermes model can expand beyond the Instagram-only company that Michelle Berk began in 2008 co-founder Jeff Berk says that the Birkin and Kelly-filled store has led to “incremental customers” for the business, “ones who would otherwise be reluctant to make such a huge purchase (our average retail is $35,000) without seeing and touching the bags.” Since the store’s opening in November, Berk says that sales have surpassed $12 million and this is without traditional advertising.
It is also evident that, as per Berk the company, it is true that “new customers who contact us the ‘old way'” – i.e. in Prive Porter’s shop – “are empowered to purchase as they are talking to staff at an actual physical store as opposed to someone working from a private office or from home.”
Although Prive Porter is profitable and is planning to turn its current success in brick and mortar into two additional stores, including one in Dubai which is scheduled for opening in the month of November, and another one in Las Vegas after that, this isn’t the situation for all other secondary market players that shed light on another factor in the expansion of retail. For example, The RealReal – which has reported sales of $468 million during the year the year 2021 (up 56 percent from year-to-year) and its losses for the full year also increased (up 34 percent , to $236 million) The company is working toward the point of profitability, but doesn’t expect to reach the milestone until 2024.
Alongside increasing pedestrians to the store and enabling it to accumulate vital stocks, the RealReal’s relative low average value of orders (“AOV”) can probably being a factor in its efforts to increase its stores. The AOV of the company has been hovering around $500 which is 486 dollars for the three-month period that ended on the 30th of June in 2022. It was lower by 7 percent when compared to the same timeframe in 2021. The first quarter of the year, AOV stood at $487, which is an growth of 3 per cent over the previous year. It is likely that The RealReal is looking to gain from the increased costs that customers will pay in-store, as opposed to online, by filling its expanding variety of stores – that extend across New York and Greenwich, Connecticut to Dallas, Texas and Newport Beach that carry more expensive items, be it expensive jewelry or barely used Birkin bags. This is just one of the levers it has to utilize to boost the AOV of its entire business, and ultimately, to move toward profitable growth.
In the context of the company’s efforts to become profitable and increase its AOV, efforts to boost it aren’t a minor factor to consider for RealReal (or other high-end resales players in the industry) since, if they do not increase AOV, the value average of each order, it’s difficult to envision any kind of cost reduction that could place the company in a profitable direction. (On this issue a top executive of luxury has told TFL recently that to be profitable and avoid a similar fate to the one Gilt Groupe, Gilt Groupe, The RealReal is likely to increase its AOV to at least $800 or higher.) A few physical retail outlets across the country , equipped with the finest (and expensive) products – could aid.