The Booming Second-Hand Clothing Market: Why Profit Remains Elusive

The second-hand clothing industry is growing in an unprecedented manner. That niche market, which only a few years ago wouldn't have been considered very mainstream, has now transformed into a mainstream market embraced by consumers for its affordability, sustainability, and fashion appeal. Luxury resale sites, thrift stores, and online marketplaces are getting increasingly popular, with celebrities and influencers championing the cause. However, the fact remains that very few of the businesses in the industry are making money.

The Rise of Second-Hand Fashion

Buying second-hand clothing has evolved from a frugal choice to a fashion-forward statement over the last decade. Celebrities are auctioning off their pre-loved designer pieces, and social media influencers curate and sell their thrifted "bundles" for hundreds of dollars. Even Love Island, that staple of fast fashion sponsorships, switched to eBay, touting second-hand chic.

The numbers agree with this cultural shift:

• 67% of the UK millennials buy second-hand clothes.
• For Generation Z, two out of every five pieces in their closet are bought second-hand.
• By 2027, resale value will balloon to $3.5 billion, estimates ThredUp, which is the largest online resale platform.

However, for most retailers selling second-hand, the elusive dream continues to be profitability.

The Economics of Second-Hand Struggles

True, the used clothing market holds a lot of promise. From small local thrift stores to billion-dollar resale platforms, however, profitability has yet to crack open the nut.

Consider these examples:

• ThredUp and The RealReal are still inoperable. Their stock prices are even below the IPO levels.
• Poshmark was valued at $7 billion but was bought for just $1.2 billion and has since exited the UK market.
• Vinted, a European giant, reported a €47 million loss in 2022.
• Even Depop, a well-known UK marketplace, posted a £59 million loss in 2023.

The problem goes to the grassroot level. In Ghana's Kantamanto market, it is the biggest market of second hand clothing, yet sellers tell that their returns are depleting in this state of overwhelming volume as well as degrading quality of import goods.

Over Supply and Quality Issues

One of the significant reasons for the industry's financial problems is sheer oversupply of clothing. Fast fashion has flooded the global market with ultra-cheap, low-quality garments that consumers discard after only a few wears. Those garments then enter the second-hand supply chain, and there is significant waste.

As noted by a 2023 study, it is estimated that 70% of clothing donated in Sweden is so bad quality that it cannot be sold or even exported. A similar scenario occurs in Ghana: 40% of all clothes imported from Europe eventually become rubbish.

Liz Ricketts, who founded the non-profit Or Foundation, says:

"There's an oversupply of clothes. lowering both the perceived and real value of everything."

The Hidden Costs of Second-Hand

While donating or reselling clothes may feel like the green thing to do, reality is that second-hand clothing is a labor-intensive product. Workers have to take a look at, sort out, and evaluate each single piece for resale value. That kind of labor-intensive process significantly drives up the costs.

As Ricketts puts it:

We treat waste as if it's a free resource but it takes tremendous effort, labor, and skill to re-commodify those items.

ThredUp and other similar websites have had to change and start charging consumers and brands alike to process used clothing – something that was once a free service. The cost also means second-hand is pricier than the bargain hunter may be prepared to pay. In some cases, thrift stores are pricing used clothing higher than its equivalent new product. An investigation by the Telegraph discovered a used Primark sweater selling for more than it originally did.

Ironically, while the resale market is portrayed as the antidote to fast fashion's waste, it itself relies on new clothing sales to stay buoyant. Consider these few examples:

• eBay-a site many would call the epitome of resale-finds 80% of its revenue in new sales.
• Swedish resale portal Sellpy owes much of its growth to a deal struck with H&M, behemoth of fast fashion.

Economist Thomas Bauwens argues that in this current growth-driven economy, sustainable practices such as reselling and recycling are beaten by cheaper, non-sustainable options. His studies reveal that a paradigm change is necessary in how an "healthy" economy will be defined to support a circular business model.

Stepping Towards a Sustainable Future

Treat used garments as a climate imperative and not a business, insists Chief Executive Officer of American Circular Textiles Rachel Kibbe on why the investment in infrastructure is desperately needed:

"We need capital to sort, recycle, and process these items just like other climate-focused initiatives are subsidized.".

Technological innovations, for example, scannable tags on garments that sort easier, can help lower labor costs and increase profitability. The most impactful change could be the reduction of new clothing production. The Or Foundation has suggested a 40% reduction in new clothing production to reduce oversupply and increase demand for pre-owned items.

The Road Ahead

The second-hand clothing market stands at a crossroads. It is an emerging opportunity for waste reduction and sustainable consumption on one hand, but it has significant economic challenges that will not permit profitability.

It really is going to be up to innovation, government support, and a more cultural transformation toward valuing quality rather than quantity, as aptly put by Kibbe:

We need infrastructure, we need labor, we need capital. Because how else are we going to solve this thing called the climate crisis?