By: Esha Deokar

How will the expanding resale market affect luxury brand consumption and sale?

What does high fashion look like in the resale market?

If you keep up with fashion trends, chances are you’ve seen a couple of pieces you want, but they might be slightly out of your price range. You may decide to trade in a last season Gucci purse, and use the money for an Hermés. The advent of the resale market allows you act as both the consumer and the supplier. For most customers, if you can get a near-pristine handbag or pair of sneakers for cheaper, the “secondhand quality” won’t matter to you. Many consumers are opting for gently used designer items instead of purchasing them for full price at the stores. The resale market has expanded to luxury brands due to the consumer demand for faster, more convenient, and cheaper service, i.e. Uber or Postmates. 

The Economics of the Resale Market

It may seem odd that the newest trend in luxury clothing is the fact that it is secondhand. However, this trend actively decreases demand for the new goods market. The high fashion industry operates in a monopoly; haute couture brands –– official members of high fashion houses and their invited guests –– control trends and set expectations for the next season of fashion. Consumers see each season as relatively fluid, since the style is so similar, and thus the products are interchangeable by high fashion brand. If we assume that, over a period of time, the value does not depreciate — they remain luxury goods — and the demand remains the same, a problem rises. The high fashion pieces are seen as “good for one period,” which leads to resales. There are more than 25,000 resale shops in the United States. The resale industry has an annual revenues of $17.5 billion, projected to increase to $64 billion by 2028. For example, in 2018, The RealReal –– a fashion company solely founded on resale –– went public in the stock market, claiming nearly $1 billion of consignment payouts since its start.

Economics of the Fashion Industry

Luxury consumption can be explained using two main effects. The Veblen effect looks at consumers’ perceived value of the object as their impetus for purchasing it. In luxury goods, the Snob effect deals with the unique value of the product and its perceived exclusionary value from the public. While some argue that the two effects are one and the same, the value of the resale market is more dependent on the Veblen effect and its rule over luxury brands.

In the figure, the value of the good is described through two factors: price perception as prestigious and public awareness. The Veblen consumer places high value on the price perception and the public’s awareness of the product. The Snob consumer, on the other hand, places more importance on solely the price. Thus, for the Snob consumer, when the price points decrease, their demand does as well. This is because more consumers will be able to buy it and the product would no longer be “private.” The resale market veers away from the Snob customer due to the fact that it makes these products more accessible and attainable. Veblen customers, conversely, would choose the resale market over the new goods market due to a discounted price that disproportionately affects secondhand products’ depreciation.

The Resale Market and Consumers

When a new product is released by a high fashion company, they control the price and quantity available. For most goods on the resale market, consumers have complete control over both of these facets. This creates a market known as perfect competition, where a theoretically infinite range of suppliers sell “identical” product. For this reason, a secondary market price manifests independent to individual demand: a designer jacket sold for $15 more than the commonly-sold price would attract no buyers. This is the case for most secondary market hubs. For example, a pair of Balenciaga shoes on a secondary market such as StockX are sold with a set equilibrium price displayed.

Resale hubs accurately display fluctuations in the price of a good: at any given time, nothing would sell above the maximum price, and anything sold below the price demonstrates inefficiency.

New Goods Market vs The Resale Market

The idea that consumers would go from one market with no price control to another may confuse some. However, the perfection competition price control ultimately benefits consumers attempting to experience high fashion since these price points more accurately affect consumers’ wants and needs. The consumers believe that the price more accurately affects the products’ merits: if the product in question looks damaged, the price will go down. Similarly, if the product is highly coveted, the price will rise. In a new goods market, however, the producers set the price independent of consumer beliefs. As a result, the resale market proves to be a growing way for many Veblen consumers to engage in high fashion.

Works Cited:

Image Source: On the Resale Market, Gucci is Now Out-Selling Even Chanel, Amanda Mull, 2018, Photograph https://www.purseblog.com/gucci/gucci-resale-chanel-the-realreal/

Burrell, Ian. (2014). How The Internet Has Helped Break the Big Name Monopoly. The Independent. Retrieved from https://www.independent.co.uk/life-style/fashion/news/london-fashion-week-how-the-internet-has-helped-break-the-big-name-monopoly-9729905.html

Cayseele, P. Van. (1993). Lemons, Peaches, and Creampuffs: the Economics of a Second-Hand Market. Journal of Economics and Management 38(1). Retrieved from https://core.ac.uk/download/pdf/34323779.pdf

Verdon, Joan. (2019). The Rise of the Resale Market. U.S. Chamber of Commerce. Retrieved from https://www.uschamber.com/co/good-company/launch-pad/retailers-fuel-resale-trend

Friedman, Vanessa. (2018). Why We Cover High Fashion. New York Times. Retrieved from https://www.nytimes.com/2018/06/30/insider/covering-high-fashion-haute-couture.html

Narts. (n.d.) Industry Statistics and Trends. Retrieved from https://www.narts.org/i4a/pages/index.cfm?pageid=3285

Reinhart, James. (2019). ThredUp 2019 Resale Report. ThredUp. Retrieved from thredup.com/resale.