Fashion as an asset class
A FLAT WHITE might last three minutes; a bottle of fine whiskey a year if it is savoured slowly. iPhones are typically replaced after two or three years, and cars after a decade or so. Some possessions are likely to outlive you, most notably your house. Some outlast civilisations: look at Ancient Roman jewellery. Everything you own lies on a spectrum, with consumption goods, such as a coffee or newspaper, at one end and investment goods, such as a house or a diamond, at the other. In the middle are durable or “durable-ish” goods, such as cars, coffee tables and washing machines.
Investment goods decay so slowly that, if scarce, their value may increase. Durable ones have utility and thus value for many years, but tend to depreciate while you own them. (Rare exceptions include vintage cars and Moon-landing editions of the New York Times.)
Where goods lie on this spectrum determines not only how long they last but what sort of market develops to trade in them. Many more people buy used homes or rent properties than buy new-builds, and only around a quarter of car purchases are of new vehicles. No one, by contrast, tries to resell bagged lettuce. Clothing lies in between. Well-made leather or denim items may last for a decade; a flimsy silk camisole for a season. But durability is not the only factor. Fashion matters, too: desirability can be fleeting.
All the more so in an era of just-in-time supply chains and social-media influencers. People now spend a lower share of their income on clothing than ever before, but the number of items purchased each year has ballooned. Many items are worn a few times before being discarded; 95% of the clothes Americans send to landfills are in good enough nick to be reused or resold. This is wasteful and environmentally troubling. Reliable estimates are scarce, but industry studies reckon that clothing manufacture and distribution account for between 2% and 8% of global carbon emissions. The fashion industry probably emits more carbon than aviation (3% of emissions) or shipping (2%).
Yet technology is reducing the friction in trade of all kinds. This started in financial markets, where whizzy algorithms and vast amounts of data have pushed trading costs practically to zero. More recently online platforms such as OpenDoor and Redfin, which use data about property features and locations to estimate values of homes algorithmically, have started to drive down estate agents’ commissions. The trend then extended beyond investment goods. That was entirely more radical since it made markets where none had existed. Look at Airbnb and Uber, which turned empty homes and idle cars into sources of income.
Now it has moved to goods in the middle of the investment-consumption spectrum. A decade ago you would have struggled to offload second-hand clothing, let alone get paid for it. Emptying your closet meant a trip to a charity shop. A few high-value items could be resold, says Julie Wainwright, the founder of The RealReal, an online second-hand-clothing site, but largely in “pawn shops or local consignment stores, where the experience and the payouts were not good”.
This all meant that the market, in economist-speak, was thin and illiquid. Matching buyers and sellers was tricky; transactions were rare; commissions were high. “One kind of illiquid market used to be the market for knick-knacks in the attic,” says Alvin Roth, an economist at Stanford University who won a Nobel prize for his work on market structure. “But the internet made it possible to have your lawn sale on eBay.”
The fashion industry probably emits more carbon than aviation or shipping
Once Airbnb and Uber had propelled the idea of a sharing economy into the mainstream, firms turning used clothing into an asset class were not far behind. As with accommodation and transport, not just resale but rental was revolutionised. By Rotation and Rotaro act like sharing-economy apps for wardrobes. Now, whether people are reselling knick-knacks, lending out old clothes, renting a spare room or picking up passengers in their spare time, they are making better use of their assets than before.
In 2021 resold clothing fetched around $15bn, up from less than $1bn in 2013. A further $21bn was spent on garments from charity and thrift shops. The total spent on second -hand garb, some $36bn, is slightly bigger than the $30bn spent on “fast fashion” in shops such as Zara or H& M. By 2025, according to GlobalData, a research firm, the value of resold and thrifted clothing will climb to $77bn as resale revenues triple to $47bn annually and charity-shop revenues climb to $30bn. Combined revenues will dwarf those from fast fashion which are expected to grow to just $40bn.
Online clothing resellers’ business models vary. The RealReal and Vestiaire Collective target higher-end fashion—think Chanel bags and Gucci loafers. They make selling easy by, for example, sending couriers to collect items. But they are fussy about what they take. The RealReal charges at least 20% of the sale price (and as much as 60%). In return they stand between buyers and sellers, setting or suggesting prices, organising shipping and authenticating garments so that buyers can trust that their purchases are genuine.
ThredUP also takes possession of items, but will accept anything a seller wants to get rid of, from high-street fast-fashion brands through to designer labels, before sorting, pricing and listing items that pass a quality inspection (rejects are returned or recycled). Users get paid a fraction of the sale price (as little as 5% for a $5 item; up to 80% for those that sell for more than $200). Others, such as Depop and Poshmark, are peer-to-peer platforms. These allow users to list their own items at a price of their choosing, but also leave them to do the legwork and shipping. They take simple flat-rate commissions: Depop’s is 10%; Poshmark 20%.
From bags to riches
All are now firmly established. The RealReal became the first to go public in 2019. ThredUp and Posh mark listed in 2021. Depop, which was founded in Britain, was acquired by Etsy, a New York-based online marketplace, in June. Vestiaire remains privately held. Between them these fashion resellers are valued at around $8.4bn, a tiny fraction of the market capitalisation of the fast-fashion giants, Inditex (which owns Zara) and Hennes and
Mauritz (which owns H& M along with & Other Stories, COS and Weekday), of $100bn and $30bn respectively.
But retailers, too, have cottoned on to the idea that old clothes can sell. ThredUP works with high-street brands such as Madewell, which now offer used (or “preloved”) items alongside new stuff in stores and online. Brands can customise what they take. “Madewell wanted to tell a particular story about denim,” says James Reinhart, the co-founder of thredUP. Merchandise and tech from thredUP lie behind the resale arms of many major retailers, such as Walmart. The proceeds are split between the retailer, thredUP and the sellers who ship stuff in to be resold.
The boredom of covid-19 lockdowns may have boosted resale by giving people time to clear out their wardrobes and browse second-hand fashion online. According to estimates from GlobalData last year saw over 33m new buyers and 36m new sellers of old garb.
The idea that clothing is for a season, not forever, is even clearer in the peer-to-peer rental market. Eshita Kabra-Davies set up By Rotation, a wardrobe-swapping app, in 2019. It allows users to list items available to borrow. The fee is usually around 5% of a garment’s retail price per day. Dresses tend to be rented for three or four days, to wear over a weekend, or to take on holiday. Ms Kabra-Davies was inspired by trying out an American service that rented garments it owned, only to be disappointed when the selection felt outdated. “I actually want to borrow the outfits that women are wearing on Instagram right now,” she says. “That was when I thought we should just let people share.”
With renting out clothes, as with allowing strangers into your car or home, comes the worry that they will ruin your prize possessions. By Rotation allows lenders to bill borrowers extra if a hem is ripped or a dress stained (it steps in if owner and borrower cannot agree). But mishaps, especially ones requiring intervention, are rare, says Ms Kabra-Davies. And rental yields can quickly add up. Some frequent lenders with big wardrobes make up to £2,500 ($3,300) per month.
Clothing is not the only high-value durable good being shared for a fee. FatLlama, a British platform, allows people to rent out anything (fancy camera equipment does well). Indeed, the idea of renting out durable, or durable-ish, goods makes such sense that it is surprising that it did not take off before. In the case of clothing that may be because perceptions needed to shift. Only close friends could have been asked for the loan of a jacket or dress—and even then they might not share your taste, or indeed vital statistics.
The very thought that an item might be rented out or resold in the future changes how consumers approach buying it in the first place. Ms Wainwright of The RealReal says that most of its users regularly shop at posh department stores. Its proprietary surveys find that they “are starting to check The RealReal first to see how a luxury item retains value on the secondary market before making primary market purchases”. That is, they are more likely to buy high-quality garments, knowing that at least part of the cost may be recouped.
The biggest shift in perception, however, is not among people who sell or rent their clothing, but at the other end of the deal. A poll in 2016 by GlobalData found that 45% of adults had bought second-hand clothing, or said they would consider doing so. That share is now 86%. Influencers document trips to charity shops and show off their purchases. A decade ago wearing second-hand clothes was uncool, and teens hung out in Abercrombie & Fitch or Jack Wills. Stroll a hipster neighbourhood today—Williamsburg in Brooklyn, say—and passers-by will have bought their outfits in thrift stores like Goodwill and Housing Works, or curated shops like Awoke Vintage.
In this way the shift towards second-hand fashion is self-reinforcing, with fashion tastes changing because…well, because fashion tastes have changed. Once a trendsetter wears something, others seek to emulate the look. The more people sell their old stuff, the cooler wearing it becomes, too. ■
ILLUSTRATION: FRANZISKA BARCZYK
This article appeared in the Christmas Specials section of the print edition under the headline “One woman’s trash”
