THE FAKE ISSUE
Authentication
Getting Real About The RealReal A consignment marketplace detects fake merchandise, but is its stock price for real?
he RealReal (REAL) has been pioneering the authentication economy for nearly a decade. The company employs a squadron of experts to ensure fakes don’t enter the product mix of designer labels in its luxury consignment marketplace. Its customers are buying secondhand clothes, jewelry, watches and home furnishings, but they demand lightly used merchandise of high quality. To ensure they get it, The RealReal relies on specialists in disciplines as esoteric-sounding as horology (watches) and gemology (gems). The RealReal operates online and has been building physical stores. In 2018, the company facilitated 1.6 million transactions worth $710 million for more than 400,000
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Authenticating the provenance of merchandise helps The RealReal claim a larger fee than its competitors receive.
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REALREAL LEADS PEERS IN TAKE RATE
different buyers. Customers value the service. Buying and selling secondhand luxury goods online presents a challenge because of the proliferation of knockoffs. If, for instance, someone posts a Gucci handbag for sale on eBay (EBAY), it’s difficult—if not impossible—for potential buyers to verify its authenticity. As a result, buyers don’t want to pay full price. So no one wants to sell authentic goods on the platform. This creates a negative feedback loop that ensures most of the luxury goods offered online are fake. The RealReal addresses this problem by authenticating merchandise and handling all elements of the sales process, including photography, pricing, fulfillment and
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returns. Such extensive services enable the company to retain a significant portion of the money buyers spend. The take rate, the percentage of each order it keeps as a percent of revenue, was 36% in 2018. eBay’s take rate was just 9%, and craft goods marketplace Etsy’s (ETSY) take rate was 15%, as shown in the chart below. The company’s consignment empire has been growing, but its stock price of $17 per share at press time tells a different story. The company had its initial public offering June 28 of last year at $20 per share. The stock reached a high of $28 on its first day of trading before steadily declining during the next two months to a low of $13 per share on Aug. 27. From there, the stock rebounded to $24 per share by the end of October before crashing again to $16 per share on Nov. 21. That wild volatility reflects the key underlying question for The RealReal. Does it have an innovative new business model that has found a profitable niche? Or is the company, whose CEO previously ran Pets.com, destined to crash and burn in the same way? While The RealReal keeps a larger portion of the money spent on its site than its peers, it also spends more to earn that revenue. It pays the cost of authenticating, merchandising,
PHOTOGRAPHS: SHUTTERSTOCK
By David Trainor and Sam McBride
luckbox | january 2020
2001-topics-realreal.indd 24
12/20/19 2:55 PM
