ThredUp acquires Kindermint, further proving that pre-owned and premium aren't mutually exclusive
In the average American closet, only 30 percent of items are worn regularly. The other 70 percent of items are simply taking up space, and, in many cases, exerting a cognitive tax as people struggle to sort through their wardrobe looking for something to wear. The options for fixing this problem are well known – throwing away excess clothing, donating to charity, giving items to friends, selling items online, traditional consignment, and yard sales – but none of them are terribly efficient and all fail at scale.
Over the last half-decade, a number of entrepreneurs and investors have bet big that this problem is one that can be solved through technology – namely via ecommerce marketplaces that bring consignment online. But as with most online industries, second-hand clothing is a winner take all (or at least most) category, meaning that with the market leaders now beginning to emerge, some consolidation is in order.
ThredUp, which describes itself as the largest online marketplace for like-new women’s and kids’ clothing, has clearly proven itself to be among the small handful of most promising companies in this category. Today, ThredUp is extending its reach with the acquisition of designer and boutique brand kids' clothing reseller Kindermint.com. The terms of the transaction were not disclosed.
The Kindermint acquisition marks the continuation of a trend within the ThredUp business toward higher-end merchandise. After expanding from kids, to juniors, and eventually into women's apparel over its first three years in business, the company launched its X Collection in April of last year, for the first time prominently featuring premium women’s designers like Tory Burch, Kate Spade, DVF, and Helmut Lang.
Through Kindermint, ThredUp is in a way getting back to its roots, but adding a dash of luxury to its kids game with the acquisition of existing inventory from brands like Gymboree, Hannah Andersson, Ralph Lauren, and Tea Collection. The company also gets a list of customers accustomed to purchasing premium secondhand kids clothing items online. The crossover between these and the customers for its women's offerings is likely significant, making this a highly strategic pickup.
ThredUp co-founder and CEO James Reinhart says he has yet to decide whether the Kindermint brand will live on, post-acquisition. Kindermint had publicly disclosed just $180,000 in total funding. The company's small staff, the majority of which were remote, will not be retained post-acquisition.
Kindermint is the first of what will likely be multiple acquisitions to come from ThredUp in the near future, according to Reinhart, who says that he has his eyes on several more companies within the space. With $53 million in venture capital raised to date, and more than 350 employees powering what many industry insiders describe as best-in-class distribution infrastructure, the company appears well positioned to absorb these smaller operations. As Reinhart is fond of saying, "It's easy to sell things online, but it's hard making money doing so." The quality operations and distribution infrastructure plays an enormous role in the health of any ecommerce business. ThredUp is backed by Upfront Ventures, Redpoint Ventures, Trinity Ventures, Highland Capital Partners, Founder Collective, and NextView Ventures.
In addition to moving up-market in terms of fashion brands, ThredUp has been leading the pre-owned clothing category in another key area: premium customer experience.
As Reinhart recently explained to an audience of investors and fellow startup founders at the Upfront Summit, the apparel industry is going the way of autos and consumer electronics. People no longer buy used cars: they purchase “certified pre-owned vehicles,” gladly paying a bit more for the piece of mind and seal of approval of a dealer inspection and an accompanying limited warranty. In the consumer electronics space, rather than buying second-hand items, consumers now purchased “refurbished” devices – and in the case of Apple and others, they do so direct from manufacturer. With the help of online retailers like ThredUp, the apparel market appears to be headed in a similar direction.
ThredUp delivers a premium experience to its customers by inserting itself as the middle-man between buyer and seller. This is unlike first generation online marketplaces like eBay and Craigslist, which to this day blindly connect buyers and sellers without making any representation as to the quality of the goods being sold. At least eBay layers on a reputation score and has some guarantees against outright fraud. But even with these policies in place, both buying and selling through eBay remains a manual and largely uncertain process.
ThredUp, on the other hand, removes the majority of all friction for sellers looking to empty their closets. The company sends its members a giant branded "Clean Out Bag" and a pre-paid shipping label, asking them simply to fill the bag with all the items they want to get rid of. That means, women’s clothes, kids’ clothes, shoes, and handbags, from ready-to-wear and designer labels alike, can be shoved into a bag and sent to the ThredUp distrubution center in Oakland. The company accepts more than 25,000 different brands, according to Reinhart. (Just don’t send it dirty, damaged, or men’s clothing)
ThredUp employs a team of professional buyers to sort through items, catalogging and photographing those that they think can be sold. Any items that are not accepted for resale are either donated to a charity of the customer’s choosing or redurned for a fee. But the point is, ThredUp offloads all the work of deciding what to do with each individual item. Customers can trust that the company will maximize any latent value in their closets and then simply sit back and wait for a check to come in the mail (a proverbial check, this is the digital age, after all). For items priced under $59.99, sellers get paid between 10 to 40 percent of the expected selling price, upfront. For items priced at $60.00 and up, the seller gets paid 50 to 80 percent on consignment (meaning after the items sell).
For the buyer, this sorting process means all items on ThredUp.com have been vetted by the company for quality and condition, are properly labeled, have been photographed professionally, and are priced fairly. The company also offers free returns and the option of flat-rate shipping, expedited shipping, and free shipping on orders over $70 – a far cry from most eBay sellers, which look at shipping as a hidden profit center.
The statistics in support of resale are compelling. In addition to the unworn items taking up space in our closets, 20 percent of US citizens visit an offline thrift or consignment store each year, more than visit a department or branded-apparel store, according to Reinhart. The average American parent will recycle 1,800 clothing items by the time their child turns 18, while the average adult woman recycles 60 pounds (or three large trash bags) of clothing per year. In total, secondhand clothing is a $30 billion market in the US alone and continues to grow at 7 percent per year.
ThredUp isn’t the only company making headlines for offering a dramatically better experience to buyers and sellers of second-hand clothing. While dozens of companies like Kindermint may have failed to find scale, challengers like Poshmark, Tradesy, and Threadflip are backed by their own tens of millions in venture capital from the likes of Menlo Park Ventures, Kleiner Perkins, and Norwest Venture Partners, respectively. But ThredUp is the most well-funded of the bunch and claims to be the largest in terms of transaction volume, a fact that is difficult to prove given that most companies in the space keep their sales data private.
There are two primary ways that companies in this space can create value for their users and differentiate themselves among the competition. The first is to make the buying and selling process as simple and painless as possible, an area where ThredUp has proven itself to be at the head of the class. The second is by delivering scale, something that is at the heart of this acquisition. By connecting the largest number buyers and sellers possible, a company can increase the likelihood that listed items sell at their fair market value and that buyers discover the items that they’re looking for, as well as those they didn’t even know they wanted. The acquisition of Kindermint delivers ThredUp a stockpile of premium kids apparel inventory and connects the company with a new community of online buyers that are likely to crossover into the women’s apparel side of its business.
Smart people have been predicting the death traditional brick-and-mortar retail for years. Amazon took the first big bite out of big-box retail when it aggregated seemingly everything with a SKU and made it available at the lowest possible price for next-day delivery. First it was books and then consumer electronics. But quietly, the ecommerce behemoth has build a meaningful apparel, fashion accessories, and beauty business. Now, as traditional brands like Nordstrom and JCrew enhance their online offerings, specialty etailers like JustFab, NastyGal, Gilt, Zulily, Bonobos, and Trunk Club are further transforming the way consumers of all types find and purchase fashions items.
But one category that is typically overlooked amid this major shift in consumer buying behavior is fashion consignment. Demand for closet liquidation solutions is clear and consumers are more willing than ever to look to online services to solve to their everyday problems. In other words, the timing couldn't be better for this to go from an under-the-radar to a mainstream activity. As ThredUp begins to gobble up its competition, it’s getting harder and harder to ignore the company and the category it appears to be leading. According to Reinhart, they're just getting started.