Second-hand luxury brand retailer, The RealReal (NASDAQ:REAL), had a very positive public debut. REAL stock soared to $28 on the first day of trading, well above the IPO price of $20.
Shares have since gone through a digestion period this week and trade closer to the $25 mark. The hype has faded, providing investors an attractive entry point into a company that plays in a massively growing secondhand clothing market. According to a GlobalData Retail research report, this industry is expected to double from $28 billion today to $51 billion by 2023.
From a different angle, the personal luxury goods market, that total market value looks even more mouthwatering. It is expected to reach $294 billion in 2018 and is expected to grow to between $362 and $412 billion in 2025.
Amidst a crowd of players using technology as the engine to drive their fashion empires including thredup and Poshmark, REAL stands out with its focus on luxury brands, its team of consultants, and brick and mortar stores. It holds appeal for all demographics across age and income level. After all, everyone likes a great deal on a brand name product.
As it turns out, supporting the search for value in the retail world is proving more profitable than in the stock market.
The Lowdown on RealReal
Founded eight years ago by Julie Wainwright, the former CEO of Pets.com, REAL generated $207 million in sales last year, processing a total GMV of $711 million. About 80% of that GMV comes from repeat buyers, which is significant since new customer acquisition costs can be an Achilles heel for retailers as they sink precious resources in winning customers that don’t end up sticking.
REAL has won customers’ loyalty.
Its value proposition is simple and effective. Buyers aspire to own luxury goods but may not be able to afford the full retail price. At the same time there are people willing to part with their branded items for a lower than retail price. REAL comes in to do the authentication so buyers know they’re getting the real thing and for a lower price.
The existing luxury resale market is fragmented and filled with counterfeit goods. REAL contends that they “are transforming the luxury resale experience by addressing these challenges.”
Based on the numbers, they seem to be well on their way to doing just that.
REAL Stock Delivers Growth
Retail growth seems to almost be an oxymoron these days. REAL stock might be an oasis glimmering in the desert of low to mid-single digit growth.
REAL generates revenue through both online and in-store channels. Last year, order volume increased 42 percent over 2017 with an average order value of $446. They increased GMV 44 percent over the prior year.
These elements drove a 55 percent increase in total revenue and a 56 percent increase in gross profit. The ship is sailing very smoothly.
The Bottom Line on Real Stock
Finally and perhaps most importantly, REAL has a model that inherently targets a wide spectrum consumers. It’s not just millennials who are eco-conscious and looking to buy used products without sacrificing quality. It’s everyone who wants a deal on those Gucci loafers.
While there is certainly a growing awareness of the environmental impact of recirculating luxury goods, there is also affluent customers just looking for value.
With these tailwinds of increasing acceptance of resale, focus on sustainability, and desire of uniqueness all at play in the modern consumer, REAL stock is set to go skyward as they continue to deliver double-digit growth in a single digit world.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.