ThredUp enters women’s fashion consignment with more inventory than all competitors combined

Watch out ThreadFlip, Poshmark, and Tradesy there’s a new kid on the women’s clothing consignment block and she’s no wallflower. While ThredUp may be new to the women’s category, the company has already moved hundreds of thousands of gently used children’s clothing items from buyer to seller.

ThredUp lists more than 150,000 items in its kids store, and opened the door to its more mature clientele with nearly 40,000 women’s items from 4,000 brands already gracing its digital shelves – a number it hopes to increase to 100,000 in a matter of weeks. The fast start is thanks to a two month beta period beginning in February, under which the company invited women to send in their used clothing, but did not offer any items for purchase.

The ThredUp model is a bit different than the peer-to-peer model put forth by ThreadFlip, Poshmark, Tradesy, and others. Rather than simply providing a forum to connect buyers and sellers, ThredUp does all the leg work itself. The company buys the clothing outright from its sellers and then resells it to its buyers. The rub is that it is well compensated for this risk and effort.

While on the other sites, sellers typically keep a commission of 75 percent to 85 percent, on Thredup women only get a maximum of 40 percent (depending on the price and condition of the item). However, that amount is paid immediately upon ThredUp receiving and accepting the item (as opposed to declining it and offering to donate it free of charge or return it for a fee). The payout is made first in ThredUp credit which can be spent on the site. If the woman wants to cash out, she must wait 14 days. This model both incentivizes shopping on the site, but also reduces the risk of paying for clothing upfront, given that many items will sell in less than 14 days.

Given this payout structure, ThredUp is likely not the best option for women looking to monetize their closet above all else. But for the woman who knows that there’s value in her closet but who doesn’t have the time or desire to capture it herself, a quick 40 percent is likely a more desirable option than the tax write off from Salvation Army.

The ThredUp logistics work as follows. A woman requests a “clean out bag” from the company, which is delivered free of charge. She then fills the bag(s) with all the clothes that she wants to get rid of. The company then buys everything that is in good enough condition (returning or donating the rest, at the user’s option). From this point forward, it is no longer the original owner’s problem whether the items sell, how quickly, or for how much. Therein lies the beauty of the model.

The decision to move away from pure peer-to-peer was driven by its customers. When ThredUp first entered the children’s space four years ago, it was indistinguishable from offline consignment. But the company consistently heard from its consumers variations of, “Why can’t I just send you all of my stuff and have you get rid of it?” Making the transition was a big risk, and required far more capital and infrastructure, but the results have more than justified the risk, according to the company.

“The reaction has very positive across the board,” co-founder and CEO James Reinhart says. “Our repeat rates have skyrocketed and our net promoter score is extremely high.”

Moms are already shopping on ThredUp for their kids, so the company has their attention. Now it must prove that it knows their style and can offer it at compelling price. The offline world has proven that moms and kids can both shop in the same store: Gap, Nordstrom, and Target being just a few examples. But ThredUp is hoping to capture more than the mommy audience. The site already carries teens’ fashions and the plan is to expand into men’s in approximately six months.

“We hope to build a site that moms feel comfortable frequenting, as well as 20-somethings,” Reinhart says. “Offline retail consignment is 85 percent women’s clothing and dominated by moms.”

Consumers will find a modern and sophisticated site that compares favorably (if not borrows heavily from) the Gap’s website. Shoppers can browse by category and sort using a variety of filters, including size, style, and brand – currently Gap, Ann Taylor, Banana Republic, J Crew, NY&Co, Talbots, etc. And because shopping for clothing is hard enough when you’re familiar with the brand, let alone when you’ve never tried on any of their items, each listing offers actual measurements (such as waist and inseam) to minimize sizing issues.

By virtue of its time in the children’s vertical, ThredUp has the infrastructure needed to manage a business a this scale – it sold 500,000 kids items in the last 12 months. The company’s end goal is to become the world’s largest consignment store. In fact, its founders believe that at launch, with just 40,000 items, its selection is already larger than all of its digital competitors combined. The company is processing 8,000 and 10,000 items daily and adding 5,000 to the site, the equivalent of two brick-and-mortar consignment stores worth of inventory.

ThredUp runs all of its own logistics and fulfillment internally and has recruited a significant number of employees away from Netflix to enhance this part of its business. (Netflix CEO Reed Hastings is on the company’s board of directors.)

One of the many advantages of scale, beyond shipping and fulfillment savings, is the data that the company can gather about the clothing market. Unlike on competing sites, where prices are set based on the seller’s (often inflated) opinion of what an item is worth, ThredUp will use its mountains of historical transaction data to determine the optimum price which both drives sell-through and optimizes profit.

“There’s no Kelly Blue Book for apparel consignment,” Reinhart says. “Most sellers default to ‘has this been sold on ebay, ever?’ We’re creating the most comprehensive second hand pricing engine on the market. People used to buy ‘used cars’ and ‘used electronics.’ Now they buy ‘Certified Pre-Owned’ and ‘Refurbished’ items. We think we can build a certified resale industry for fashion.”

ThredUp has raised $23 million, including a $14.5 million Series C round in October led by Highland Capital Partners with participation from existing investors Trinity Ventures and Redpoint Ventures.

Ebay was generation one of this concept and proved ill-fitted to the specific needs of clothing consignors – it’s just too hard to be everything to everyone (see Ebay Autos). The next generation of purpose-built platforms have found rapid adoption among women who show no signs of slowing down their buying new clothes and thus constantly need to clear out the old.

ThredUp is betting that the hassle of managing the consignment process will outweigh the added benefit of making double the commission when an item sells, and that it can poach a significant market share from these established marketplaces. It’s a significant risk. The verdict will likely come down to how easy they can make the process and how good their merchandising is.

By virtue of its inventory scale, it’s likely that the company can attract buyers. It’s the sellers that it will need to continually cultivate. The biggest thing ThredUp has going for it is platform loyalty. It’s likely that many women will prefer to handle both their consignment buying and selling at the same place. If the company can win their purchase business, it might just get them to send in a few bags of clothing from time to time as well.

Michael Carney

Michael Carney has spent his career exploring the world of early stage technology as an investor and entrepreneur and has participated in building companies in multiple countries within North and South America and Asia. Ultimately, he is an enthusiast of all things shiny and electronic and is inspired by those who build businesses and regularly tackle difficult problems. You can follow Michael on Twitter @mcarney.