When Lyala Hendricks, 48, looks for a Hermes Birkin bag, Fendi sweater or Chanel shirt, she doesn't go to a high-end department store to buy a new one. Instead, she joins the latest retail industry trend and turns to digital startup RealReal to buy used fashion — at a fraction of the cost.

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By buying pre-owned apparel on the RealReal app or from its New York City location, Hendricks saves money. But more importantly, she gets a unique item no one else will likely wear at the same party. "I don't want to take a chance of walking into an event or going somewhere important where there's a lot of people and someone else has on the same thing I have on," said Hendricks, who owns a hair salon. And after the party, Hendricks sells the clothes herself.

Welcome to the used economy, one of the latest retail industry trends to put heat on traditional stores.

A fast-growing number of consumers prefer buying — or even renting — used clothing. Getting high-priced luxury goods cheaper is part of the allure. But so is the idea of reusing goods to save natural resources consumed making new ones. Always having something "new" to wear is another attraction. Sometimes, too, shoppers get never-worn goods for a fraction of their price at regular retailers.

Hundreds of new digital apps — ranging from new IPO stock the RealReal, to ThredUp, Poshmark and Depop — instantly match used clothing and accessories with people who want to buy them. These digital startups, many already attracting large venture capital investments, are sewing together a seamless used economy.

A RealReal Threat For The Retail Industry

It's the biggest shift for retail companies since online shopping. Consumers still want brand names, but more variety.

And they want to pay less. A Louis Vuitton Speedy 30 handbag, an iconic purse used as a benchmark of luxury goods prices, bought new could cost $1,020. That's up 19% per year since 2016, says McKinsey & Co. The same purse on the RealReal (REAL) app, or other online sellers like it, can be had for $625.

Retailers that don't adapt will find themselves facing an even harsher environment as consumers change.

"The historic driver is saving money; the more recent addition is behaving in a manner that is more friendly to the environment," said Tom Forte, analyst at D.A. Davidson. "What's changed is consumers have more choices regarding online companies providing them access to used merchandise."

The New (Used) Retail Industry Trend

For investors, the used trend is more of a risk than an opportunity. The used economy creates new competition for old-line retailers already trying to fend off the online threat of Amazon.com (AMZN) and other online retailers.

RealReal, which helps consumers buy and sell luxury goods online and in stores, is already worth $1.3 billion. That's a quarter of the $4.7 billion market value of storied retailer Macy's (M), approaches the $2.4 billion value of Urban Outfitters (URBN) and exceeds the $1.2 billion of Guess (GES). Luxury retailer Barney's filed for Chapter 11 bankruptcy protection in early August.

Discount retailers like Ross Stores (ROST) and TJX (TJX) could also feel the new retail industry competition. So could any other retailers still trying to sell new clothes. And it's new competition for eBay (EBAY), which has been a go-to online used market.

Joseph Bonner, analyst at Argus Research, thinks eBay will manage due to its broad usage. Older retailers with roots in physical retailing still selling new apparel will feel the biggest pinch, he says. After the online shopping risk, "One wonders how much more of a beating they can take," he said.

Used Growth That Retail Industry Would Envy

The growth in used clothing spending would make traditional retailers unravel with envy. The secondhand apparel market hit $24 billion in 2018. That's up 71% from just three years ago, says the 2019 ThredUp Retail report. It's also 21 times the overall retail clothing market's growth rate during that time.

Most of the secondhand market, nearly 80%, last year came from thrift stores and donations. Used sales, called resale, made up only 21%. But with so many new retailers specializing in resale springing up, especially digital startups, resale is rapidly growing.

Sales in the total secondhand apparel market are expected to more than double to $51 billion by 2023. Of that, 45% is seen coming from resale.

Compare the used apparel market growth with Burlington Stores (BURL). Burlington is among the most valuable traditional sellers of new apparel based in the U.S. Revenue in fiscal 2019, which ended in February, hit $6.7 billion, up 30% from three years ago. And that's one of the better growth showings. Over at The Gap (GPS), revenue in the fiscal year ended February hit $16.6 billion, up just 5% from three years ago.

"While traditional players need not yet be alarmed, it will be essential to fully understand the emerging signals of what consumers prefer to own versus rent," or buy used, according to research released earlier this year from industry consultant McKinsey.

RealReal IPO Not Alone: Enter The New Used Competition

Mobile-first companies like Poshmark and Depop are bringing new twists to the market, usually with a social networking or mobile angle. That's making used goods more accessible than before.

Last year, 56 million women bought secondhand products, up 27% from 2017, says ThredUp. All told, 64% of women bought secondhand items in 2018. Only 45% did in 2016.

Shoppers aged 18 to 37 spark much of the growth. These groups, millennials and Gen Z, are buying used goods 2.5 times faster than other age groups. The apps are built to appeal to them.

Take Depop, a British-based company founded in 2011, as an example. The company's app allows anyone to essentially create their own online digital brand by emptying out their closets. Sellers curate apparel selections focusing on a theme or genre, like Western wear or goth. They can then build a cultlike following of people who like their style.

A seller called "dream_queen" specializes in Americana-tinged looks, including Harley Davidson (HOG) wallets and weathered denim skirts. "Mymissy" curates styles for edgy beachgoers.

Depop has raised nearly $100 million in investment funds from venture backers like General Atlantic, S&P Global Market Intelligence says.

Poshmark, also founded in 2011, is based in Redwood City, Calif. It has raised $153 million in venture funding. The site is almost as much about social connections as retail.

Members, called Seller Stylists, connect over social media with people who like their style. Poshmark allows fans on social media, usually Facebook's (FB) Instagram, to comb through the items they're selling. Consumers follow Seller Stylists' latest listings, just as fashionistas might have followed new arrivals at Macy's before.

Except, it's all used.

RealReal: Like A Nordstrom, But Used

Retail investors see the risk. But opportunities for public investors to profit are scarce. Leading the charge is the RealReal stock, which sold shares to the public in late June.

The company buys used luxury-branded women's, men's and kids clothing in addition to watches, home items and art. Looking for a Rolex? You can pick up a Submariner Date Watch, used, for $8,150, or nearly 40% less than retail. A Tiffany (TIF) 18K Amethyst Sugar Stack Ring sells for $795, or nearly half off retail.

Walk into a RealReal store in New York or Los Angeles and you'll see racks of designer goods, including $500 shoes and $1,000 purses. The difference from Nordstrom (JWN)? It's all used.

All the same items are available on RealReal's mobile app and website. And if you're a seller, you get white-glove treatment in the back of the store. There, appraisers will tell you what your Hermes scarf is worth in a setting that feels more like a high-end department store than a Goodwill.

Luxury Goods Inflation Drives Retail Industry Trends, Too

By focusing on high-end luxury goods, RealReal also ties into the rapid price inflation of those items. Fine watch and jewelry prices have doubled since 2005, McKinsey says. Louis Vuitton goods have increased in price by 19% a year since 2016. "So, even consumers with six-figure incomes are looking to discounts and alternative models of acquisition for relief," the report says.

Demand is strong. RealReal revenue jumped 55% in 2018 to $207.4 million. The company loses money, and is expected to lose $1.09 a share this year. But top-line growth expectations are strong. Analysts forecast the company will post 50% higher revenue this year of $307 million.

Analysts are calling for revenue of $1 billion by 2024, says S&P Global Market Intelligence. Losses are expected past 2022. But during the June quarter, the company's loss of 28 cents a share, or $27 million, was slightly better than the 31-cent loss that was expected. The company's biggest costs, accounting for half of its revenue, are technology and operations. See the IBD Stock Checkup for RealReal stock to find out how RealReal stock rates on more than 20 fundamental and technical factors.

Disappointing RealReal IPO But Lasting Retail Industry Trend

Shares of RealReal have been disappointing since its IPO at $20 a share, falling 48% from their first-day closing price. The company's CEO and founder is Julie Wainwright, 62, who's no stranger to online trends. Prior to founding RealReal, Wainwright was CEO of failed online pet food seller Pets.com, which was a victim of the dot-com bust in 2000. Investors are wise to wait for the right time to buy IPOs by looking for a good IPO base.

RealReal stock is still falling and trading around $15 a share, but retail industry observers say the used trend is no sock puppet. Demand for used goods "is both driven by the availability of this merchandise online and consumer trends toward thrift and not purchasing too much new, wasteful product," said Sucharita Mulpuru Kodali, a retail analyst at Forrester, who worked in various positions at Saks Fifth Avenue and Toys R Us.

"Sustainability is a lasting trend," she said.

Reducing surplus clothing manufacturing is a top reason consumers shop with the company's app, RealReal Chief Operating Officer Rati Sahi Levesque said in an emailed response. "It's one of the primary reasons Julie started the company," Levesque said. "There was an opportunity to create an elevated shopping experience in the resale market, one where a previously worn Prada dress wasn't collecting dust in the back of a shop or found poorly merchandised on a peer-to-peer site.

"By taking possession of all items, we're able to put them through our rigorous authentication process led by our team of luxury experts, then curate a trusted, elevated shopping experience that is on par with how they're presented in the primary market."

Digital Tech, A New Experience For Used Clothes

Used, consignment and thrift stores are nothing new. Thrift stores have been around forever. EBay opened its virtual doors in 1995. EBay annual revenue has soared to $10.9 billion, from just $400,000 in 1996.

New interest in used clothing isn't surprising to Buffalo Exchange. The privately held buyer and seller of used apparel practically established the category. Founder Kerstin Block opened the first location in Tucson, Ariz., in 1974 as a way to buy and sell used and unique apparel in a trendier environment than the local Goodwill. Now, the chain has 50 locations in 19 states and has spawned many copycats.

The nearly 50-year-old company notices new interest in used clothing. "Now that the stigma around secondhand clothing is disappearing and people are seeing all the benefits, the resale industry will only continue to grow," said spokeswoman Jessica Pruitt. "When Kerstin Block started Buffalo Exchange in 1974, she knew that people would appreciate all the secondhand gems if you just curated them and organized them. Today, that idea is becoming widespread."

Buffalo hopes to stay ahead of digital competition with its human touch. Employees are trained to spot hot items — customers bring in items to sell — based on trends and location. "We see buying as an art form more so than a science or an algorithm," Pruitt said.

Retail Outlook: Industry Tries To Respond

Retail companies seem to recognize the importance of the retail industry trend and are already making moves. Perhaps they've learned from similar shifts that already hit other industries?

"Think of Spotify supplanting compact-disc sales and downloads, Netflix replacing video stores and Zipcar standing in for car ownership among many young urbanites," said the McKinsey study. "This is a fundamental evolution in consumer behavior, and we expect it will have an impact in the fashion business in the years ahead."

Seeing the used trend has life to it, some mainstream retailers are moving fast with competing programs. High-end outdoor goods seller Patagonia is buying back old goods from consumers as part of its Worn Wear program. It repairs the items and sells them used on a separate part of its site.

Youth oriented retailer Express (EXPR) is taking a Netflix-like approach with its "Express Style Trial" program. Consumers pay a monthly fee of $70 a month and can rent three items a month.

Urban Outfitters launched a new program called Nuuly. For $88 a month, you get six items to rent, wear and return. And J.C. Penney (JCP), following a quarterly report showing a 9% drop in revenue, said in August that it would start selling used clothing.

Retail Forecast: Used Economy Not Going Away

Some retailers might hope the retail industry trend fades away. But Blockbuster Video probably hoped video streaming was a fad, too.

Used retail is here to stay, Davidson's Forte says. It's a "secular" shift, he says. Retailers will suffer, he says, "unless they choose to lean into the trend."

Debra Benjamin has been buying used clothing from local thrift stores for decades. And she's noticed the stores are more crowded now.

"I'm kind of trying to do my thing for the environment and save money," said Benjamin, 60, who lives in Saginaw, Mich. "People throw a lot of things away." Her husband, Jeff, said: "I'd call it an addiction if it didn't make her so happy."

Follow Matt Krantz on Twitter @mattkrantz

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