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Luxury second-hand site The RealReal sees stock jump 45% after IPO

  • The RealReal, a luxury consignment site, saw its stock jump to more than $29 from $20, when it went public on Friday.
  • The site has made a name for itself matching sellers of luxury goods with buyers who don't want to pay full price.
  • However, it has also been accused of turning a blind eye to knockoffs and ripping off buyers.
  • The retailer lost $76 million last year, and $42 million the year before.

Shares of The RealReal jumped on their first day of trading Friday, as the secondhand-fashion online retailer tests investors' appetite for the staying power of online marketplaces for pre-owned discounted Gucci and other luxury goods.

The San Francisco company, founded in 2011 by CEO Julie Wainwright, debuted on the Nasdaq Stock Market under the ticker "REAL." On Thursday, the initial public offering of 15 million shares was priced at $20 a share, above an expected range of $17 to $19 a share. That would raise $300 million before expenses.

In Friday morning trading, the stock changed hands up more than 45% at $29.35.

The RealReal says it's the world's largest online marketplace for authenticated, consigned luxury goods. Total revenue was $207.4 million last year, up 55% compared with 2017. As of the end of March, it offered more than 620,000 unique, authenticated pre-owned luxury items bearing the brands of more than 5,500 luxury and top designers.

But it hasn't made a dime. Losses widened to nearly $76 million last year, up from $42 million in the previous year, according to its prospectus filed with the Securities and Exchange Commission.

The move to go public comes as online marketplaces that sell used clothing and other items are flourishing as a new generation of younger shoppers don't want to pay full price. They also are more conscious about the environment.

Fashion companies try to curb carbon footprint

While for years shoppers have been buying and selling used discounted designer items at thrift shops and on eBay, this new generation of secondhand online retailers make the shopping experience easier, with new technology and services. Poshmark, an online retailer of secondhand clothing, expanded earlier this month into home decor with items including bedding and bath. Online rival ThredUP is opening physical stores.

Meanwhile, Neiman Marcus in April bought a minority stake in resale site Fashionphile. As part of this deal, at select Neiman Marcus stores, customers are able to not only receive an immediate quote for their items from Fashionphile but also payments they can spend immediately on new luxury items at the store. Neiman Marcus says it will not be selling any preowned merchandise at its stores.

The RealReal Inc. offers a "white glove" service where consignors, those that are selling their used designer goods, make an appointment with one of its luxury managers and receive a complimentary consultation at their home. It also operates 11 luxury consignment offices in key cities like New York and Los Angeles. It also operates three stores — two in New York and one in Los Angeles.

Online consignment opens doors for bargain hunters' paradise

The RealReal says it has been able to build trust among its customers. It says it employs more than 100 gemologists to value jewelry, horologists to price watches, art curators and brand experts and notes that its authenticators are highly trained, experienced experts in their respective fields. The company says that as buyers become consignors and vice versa, it creates a "unique flywheel that further accelerates our momentum." Through March 31, 53% of its consignors are buyers and 13% of its buyers are consignors, according to the prospectus.

The RealReal says that 80% of its consignors were female, primarily with household income of about $50,000.

It says its top-selling luxury designers on its online marketplace include Cartier, Chanel, Christian Louboutin, Gucci, Hermès, Louis Vuitton, Prada, Rolex, Tiffany & Co. and Valentino.

The RealReal, however, has also run into trouble with other luxury brands and consumers. It has been sued by buyers for allegedly inflating the value of gems sold on the site.

Chanel sued RealReal last November, alleging the online retailer misrepresented certain counterfeit Chanel products as authentic. It also alleged that the resale of Chanel products confuses consumers into believing that Chanel is affiliated with The RealReal. 

The RealReal has maintained that the suit is unfounded. The litigation is in its early stages and the final outcome is uncertain, according to the IPO prospectus.

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