The resale market is ripe for mergers and acquisitions

The resale market, fueled by environmentally conscious shoppers and retail appetite, will likely see some M&A moves next year, industry watchers tell Axios.

Why it matters: The global clothing resale market could reach $300 billion by 2031 and account for more than 10% of global retail sales, according to Morningstar data.

What they are saying: With the outlook for consumer spending and a worsening economy, the resale market and discount retailers are likely to be resilient, says Alex Taussig, a partner at Lightspeed Venture Partners.

  • “The consumer, who would be spending money on new products, will switch to second-hand or discounted items, as they will be looking for more discounts,” says Taussig.

Whats Next: “Especially if the IPO markets are not conducive to some of the larger companies going public, then I absolutely think there will be some consolidation,” says Amy Francetic, managing partner at climate-focused Buoyant Ventures.

  • “We’re moving from sort of a cyclical slowdown decline, which could see some companies shake up or be phased out. You could see reduced competition,” says Morningstar stock analyst Jelena Sokolova.
  • Those that are well positioned will be the big players, Sokolova says, who are in a good financial position and cash reserves that can “basically continue to invest to the extent necessary to support this growth.”
  • The added bonus is that they can “gain more market share in the toughest times and even engage in M&A activity.”

💭 Kimberly’s thought bubble: Sokolova did not name names, but success stories like Farfetch, who is moving towards beautyand The RealReal could be market consolidators.

Context: A growing crop of reselling platforms is driving competition as well as innovation to win customers.

  • “We anticipate a lot of innovation around additional tools that people can use and the ecosystem is really evolving,” says Francetic.
  • Francetic, whose firm has also invested in Beni, a secondhand shopping navigation tool, says he sees incumbents and upstarts alike working on creative ways to break down barriers to attracting and retaining customers.

Between lines: Privacy policies, such as the GDPR in Europe, and Apple’s own protocol have made online platforms less effective in reaching users.

  • “So you have to have more revenue spread across the same users to be profitable, essentially,” says Taussig. “You can’t allow all these companies to acquire the same users.”

Yes, but: “There is less investor appetite to invest in something that is less proven, that generates less cash,” Sokolova says, as capital becomes scarcer and more expensive.

Status of the situation: Circle fashion is all the rage as some of the luxury giants and established clothing brands jump on the bandwagon.

  • One of the biggest resale deals of the year was with the South Korean tech giant. Naver acquisition from the US second-hand clothing platform Poshmark for around $1.6 billion.
  • The merger is intended to help Poshmark expand geographically while introducing live streaming and image recognition technologies that could help fuel sluggish revenue growth. Dan Primack of Axios wrote.

There was also a lot of VC activity:

  • benia thrift shopping browser extension, raised $4 million in seed funding led by Buoyant Ventures. Better Ventures participated.
  • File, Archivethat builds reselling software platforms for brands, raised $15 million in a Series A round led by Lightspeed Venture Partners and Bain Capital Ventures participating.
  • Goodwill, the non-profit group known colloquially as the Savings OG, launched his own second hand market.

The bottom line: With sustainability being a top priority for most retailers and fashion players, brands will continue to seek resale, whether through partnerships or mergers.

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