Understanding the Resale Economy’s Challenges and Opportunities

In just the last few weeks, major brands including Target, Lululemon and Ikea have launched or expanded resale programs. As the secondhand market continues to grow, brands face hard choices: Should they create their own resale platform powered by emerging resale service tech, partner with an existing platform (as Target did with thredUP), or stay out of the game entirely, knowing their customers are reselling on sites like Poshmark and The RealReal? These choices come with vastly varying costs, benefits and degrees of control over how merchandise is represented and authenticated.

Although resale is still largely an offline game, the digital secondhand market is poised for considerable growth. According to Morning Consult research, more people buy secondhand items in stores than online (75% versus 55%), but the reverse is true for sellers: 44% say they sold items online, but just 31% say they sold in stores. Online sales aren’t just for smaller, easy-to-ship products like apparel and books. Sites like Chairish are changing the game for resale in home furnishings as well. While shoppers will always have an appetite for secondhand treasure hunts at brick-and-mortar stores, digital tools and evolving platforms can help would-be sellers overcome the barriers keeping them from participating in the secondhand economy.

Peer-to-peer markets are preferred for now, but there’s room for brands to move the needle

Brands entering the resale market need to determine if they will use a peer-to-peer or consignment model. For the peer-to-peer approach, individual buyers and sellers connect directly to negotiate prices, ask and answer questions, and coordinate shipping. Sellers are also individually responsible for listings. Under the consignment model, the brand or platform typically takes care of everything, and buyers work with one company to facilitate the purchase. The peer-to-peer model is more popular among buyers and sellers, as it has the advantage of greater familiarity thanks to long-standing platforms like eBay and Craigslist.

Secondhand buyers generally prefer peer-to-peer shopping, but they are just as likely to say that they don’t have a preference between buying from individuals and buying from large resale companies. Sellers also have a stronger preference for the peer-to-peer model, but nearly one-third have no preference, suggesting brands have plenty of space to explore new ways of luring sellers into the resale market.

Brands that are considering creating their own resale platforms should note that 53% of secondhand buyers strongly prefer multibrand resale environments, while just 8% prefer single-brand. Still, 35% of buyers have no preference between the two, and given that monobrand platforms are still emerging, brands have ample room to create differentiated resale experiences. To them, a resale environment without competitors’ merchandise and with the look and feel of the on-site experience might be more compelling, and could help alleviate some shoppers’ concerns about authenticity and cleanliness.

Buyers worry about product quality and authenticity

Retailers and brands seeking to differentiate themselves in the resale market can help buyers overcome the most challenging aspects of shopping, like authenticating products and assessing their quality. The difficulty of returning purchases is the main drawback of shopping resale, as many platforms don’t accept returns unless products are damaged or not as described. While authentication challenges may be more commonly associated with high-end items like handbags, all consumers share the same level of concern about product authenticity. Brands pursuing peer-to-peer platforms can use transaction histories to verify sellers’ past purchases, mitigating authenticity risks without having to examine products in person, as they would need to do under a consignment model.

One notable finding is that Gen Z adults report greater challenges communicating with sellers, negotiating prices and receiving products on time. This generation’s higher levels of perceived difficulty may be due to their expectations of faster shipping times and highly responsive digital communications.

For sellers, getting a fair price is the dominant challenge

Sellers are responsible for listing products and managing shipments, but sometimes they don’t feel appropriately compensated for their efforts. They get into the resale game primarily to earn money, but when fees vary from 12% to 97% of the sale price, it can be hard to recoup value. Given that most buyers report spending less than $50 on secondhand purchases (excluding more expensive categories like luxury goods, cars, electronics and fitness equipment), it’s easy to understand why sellers feel frustrated when fees eat up a substantial portion of their sales. Still, about half of sellers are open to paying for a service that offloads the work of selling.

Brands searching for resale inventory can alleviate some of the burden on sellers by taking on the work, but the cost to do so may be prohibitive, even for luxury brands. Moreover, traditional inventory management and marketing practices often don’t apply to resale: Inventory can be inconsistent, items require close inspection, and photography needs to be extremely detailed to reveal any wear and tear.

Retailers and brands catering to items with higher price points might have an easier time netting value from sales, but courting these rare sellers to find inventory presents its own set of challenges, and high-income sellers don’t want to pay for listing help any more than the average seller. Creating the right fee structure will be a test-and-learn process, but given resale’s unique difficulty in scaling operations, the peer-to-peer model is likely to be the more profitable option for most brands and sellers.