Highend reseller gets genuine results
The RealReal’s IPO closes 44% over opening
Things got downright authentic for the RealReal on Wall Street as the online luxury consignment store marked its debut on the Nasdaq Friday.
The company’s shares closed at $28.90, up more than 44% over the offering price. The previous night, it sold 15 million shares at $20 to investors, raising $300 million. With the firstday stock bump, the RealReal ended up worth $2.4 billion.
The San Francisco company sells secondhand luxury apparel and goods online; sellers mail in luxury items or drop off goods at its stores. The company has 1,700 employees, 100 of whom are dedicated to authenticating secondhand goods with luxury brands like Gucci and Cartier. It then resells them on its website, taking a 35% commission on average for each sale, according to a filing with the Securities and Exchange Commission.
The company was founded in 2011 by Julie Wainwright, an ecommerce executive best known for running Pets.com during the dotcom boom. The RealReal raised a total of almost $350 million from private investors including Great Hill Partners and Greycroft. It has two stores in New York and one in
Los Angeles. It also operates 11 consignment offices in San Francisco, Los Angeles, New York, Dallas, Miami, Chicago and Washington.
The RealReal’s success marks a vindication for Wainwright, whose first venture on the public market was unsuccessful. After spending heavily on marketing campaigns, including a Macy’s Thanksgiving Day Parade appearance and a Super Bowl ad, Pets.com finished its first day of trading at its offering price of $11 — a disappointing performance — and closed months later.
The online resale market has taken off in the last few years as younger shoppers seek cheaper goods and try to avoid waste. Rivals include San Francisco’s ThredUp and Redwood City’s Poshmark, as well as the more established eBay of San Jose.
“Our biggest group of customers and now consignors are now Millennials,” Wainwright said in an interview Friday on CNBC. “They’re hyperconscious about ... the impact on the environment of (buying) new.”
Matt Kennedy, a senior IPO market strategist at Renaissance Capital, a provider of institutional IPO research, said this month that investors are looking for companies with strong revenue growth and high profit margins.
The RealReal’s revenue rose 55% to $207.4 million in 2018 from 2017 but it has yet to make a profit. It posted a net loss of $75.8 million in 2018, compared with $52.3 million in 2017. In a filing, it said it had paid out $987 million to its consignors as of March.
At least two major challenges stand in Wainwright’s way. Some brands claim the site does not do a good job of authenticating the goods it sells. In November, Chanel filed a lawsuit alleging that the site sold “at least seven counterfeit Chanel bags.” The RealReal countered by saying Chanel was stifling competition and seeking to undermine consumer confidence.
The other challenge is the rising number of services from apparel companies that now offer to buy back their own used goods and resell them online. They include Patagonia’s Worn Wear, Eileen Fisher Renew and REI Used Gear. Other companies, including luxury brands, could take this direction too.