The market for luxury apparel is booming as the world becomes more and more aware of its importance. Against this backdrop, luxury resale stocks will do very well.
Pre-owned accessories are a hot commodity, with shoppers eager to invest in high-quality goods that their favorite celebrities wear on-screen or off. The industry is expected to grow by 10% to 15% annually over the next decade. This success can be partly due to changes within our consumer behavior, as well as specialized digital trading platforms that allow buyers and sellers to collaborate more effectively.
Management consulting firm McKinsey & Company conducted a study on this topic and came out with findings that confirm the resale trade is doing very well. Luxury resale is an opportunity that brands cannot miss, and those brands who choose not to participate risk missing out on this significant market.
There are many reasons brands invest in the resale market, with high margins and valuable brand identities on their minds. Some remain cautious, though: they know that protecting these assets requires careful planning before diving into any new venture. A brand that can maintain this level of craftsmanship, durability, or sustainability has an attractive aura about them.
Brands that want to stay ahead of the curve and expand their offerings should consider participating in luxury resale markets. By expanding into this space, brands can appeal to more consumers with committed clientele while staying up-to-date on digital innovation; they won’t have any trouble reinforcing sustainability efforts because new opportunities will always be available.
So, without further ado, here are three luxury resale stocks for increased exposure to the fast-growing space:
Luxury Resale Stocks: The RealReal (REAL)
The RealReal is the go-to destination for anyone who wants to sell their unwanted luxury items. With an online marketplace and brick and mortar stores, it has an excellent business model that can cater to a wide variety of customers. Based on the circular economy, it sells authentic vintage clothing (including designer brands), fine jewelry from major designers, and artwork and home decor items.
In the third quarter of this year, revenue skyrocketed to $119 million. The company has seen a 50% increase in the value of goods passing through its platform. This is a whopping 53% increase from last year and 43 percent more than we saw in Q3 2019. The third quarter of 2021 was also roughly 45% higher than the value seen in 2019 before this pandemic. The company handled about 38% more orders versus last year. RealReal hopes that it can maintain these positive trends through the end of this year.
However, the markets are not giving this stock the love it deserves. Shares have been down 8% in the last month. There is a lot of upside at the moment. You can catch this one at a discount before market forces push it up eventually.
Despite not grabbing as many headlines as its heyday, eBay continues to be a force in the tech world. Like other companies in the space, eBay saw a record increase during the second half of 2020 due to the pandemic. However, sales volume is stabilizing now, leading to anxiety for many investors.
The company’s profits have been steadily declining for the past two quarters, and this trend will continue. In the third quarter, eBay posted revenue growth of 11% year on year. However, sales fell 21% versus the year-ago period. eBay’s growing, niche business sectors helped it beat its sales targets again this quarter. The company is now up on organic revenue growth and profits for the second straight time.
However, despite these positive developments, the markets did not react favorably. Investors were quickly shifting their focus to eBay’s holiday quarter outlook that called for another substantial growth deceleration. Company executives predict that organic sales will land between 3% and 5%, compared to 10% sequentially.
The muted outlook is why eBay stock trades at just 3.5x trailing price-earnings. In the world of luxury resale stocks, you cannot get any bigger or better than eBay. Although recent earnings reports show the company is slowing down, few can compete with its brand value.
Luxury Resale Stocks: Etsy (ETSY)
Etsy is a place for people who love handmade goods and vintage items. Users can find anything from jewelry, bags, or clothing to home decorating supplies such as furniture pieces. The rule of thumb is that vintage items must be at least 20 years old.
Etsy’s asset-light business model did very well during the pandemic. Even though Etsy has been experiencing challenging comps from the year-ago period, their organic growth remains robust. Thanks to its highly localized system, the company handled supply chain issues very well. Etsy offers a unique, personalized experience for its shoppers, providing the company with incredible growth and profitability.
The company has grown its gross merchandise sales at a strong rate. It is able to maintain high margins because of its organic growth. However, management has stressed that investors should expect to see significantly lower margins moving forward. Growth metrics skyrocketed during the pandemic but will eventually level off in the coming months.
The markets, though, have priced this one to the moon. There is very little incentive to purchase stock at current price multiples. Although the business model leads to much confidence, it is best to wait for the dip before buying more shares.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.