This is RealReal’s value proposition

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The True True (NASDAQ: REAL) takes a unique approach to the luxury and resale markets, investing in authentication software and other tools so that buyers know they are getting a real product, not a fake.

In this episode of “Upgrade or Topgrade” recorded on 12 november, Deidre Woollard, Editor-in-Chief of Millionacres, and Nicholas Rossolillo and Jeremy Bowman, Fool contributors, analyze the company’s business model and discuss its strengths and weaknesses.

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Deidre Woollard: Let’s start with this business that I wanted to cover as an upgrade or topgrade. This is RealReal. I first heard about The RealReal a few years ago. I was this a conference on real estate. A friend of mine had these really cool handbags that she was showing off, but she’s like oh, my god you wouldn’t believe what I paid for that. I got it from The RealReal site, it was so much cheaper than if I had bought it in store. It’s part of the overall handbag culture. You guys probably not in the purse [laughs] culture, I guess, but that’s what maybe lasted in the beginning, when you had that kind of Paris Hilton era, was when you started to see a lot of interest in handbags. hand. Collecting handbags, like Sex in the city with the Fendi wand was really trendy. These handbags now have this incredible resale value. What fascinated me was looking at auction houses. So Heritage Auctions, Christies, Sotheby’s, they’ve all auctioned off some of these ultra high-end bags. Last year, a Birkin bag sold for $ 300,000 at an auction in Hong Kong. It’s just amazing to me. But it’s the ultra high-end, and with the RealReal, what we’re really talking about are these mid-range collectibles in handbags, shoes, watches, things like that. But their stock, I don’t know if any of you are following this stock, but it hasn’t worked out well since the IPO.

Nicolas Rossolillo: No, this is not the case. I started following this group of actions that you are going to talk about today, Deidre and we will talk about why I am thinking of the very end because of Etsy, but I’m curious. You talk about these trends with RealReal. It’s like an American company only. All of these companies are mostly in the United States at this point, right?

Woollard: They are starting to expand. We will talk about Poshmark later. They are trying to expand. I know Depop is international. The RealReal, I think, is mostly the United States, although they get a lot of luxury tourism because a lot of people come specifically from China, but other countries to shop here. It used to be huge for luxury, not so much in recent years, but it was really part of an ongoing trend where a lot of these luxury brands are now operating more in China. RealReal is mainly in the United States

The model is that it has the RealReal and the name because part of the model is that the items are authenticated. Counterfeiting in handbags and other luxury items is this massive billion dollar problem. Amazon had issues with that. Almost all of the companies that sell things have had issues with this. Part of RealReal’s valuable accessory was that it authenticates, and we’ll talk about that a bit more later, because there was a lawsuit they just settled. They are really looking for the high end of the market. It’s online, of course, they have a solid website background, but they also have retail stores because they have 18 stores and 15 of them are purchasable, the rest are on consignment. Traditional consignment stores, which are generally independent. It’s different from a thrift store. Thrift stores, people give away stuff. It’s all over the map. Consignment stores, someone brings in items that they think are valuable, and then they get a certain percentage of the sale price when they sell. This is the model of RealReal. They have these retail stores where you can walk in and check things out. They also have in-home janitorial appointments for someone with bigger booty. It sounds like a not-so-great business model, but when you think about some of the closets that some of these people have, they’re pretty extraordinary. They are expensive items. This is really what they do. They have these authenticated items, they sell from central locations. In this way, RealReal is a little different from some of the other brands that we will be talking about because clothing is less of their total purchases. One of the things we’ll be talking about with all of these companies is this idea that consignees are buyers and buyers are consignees. Very different, unlike Etsy or other places where there is a buyer on one side, a seller on the other. With savings, it’s a real lifestyle. It really is this total circular cycle.

Rossolillo: Law. The idea that if you log something you get a small payment for what you traded and then maybe you turn around and go and spend that on a new item with RealReal.

Woollard: Exactly. They have also just published their third quarter results.

Jérémy Bowman: I think here the point you get to is that it’s a way of life or a hobby for a lot of people who go into it. It is a form of entertainment as much as it is a means of making money or spending money. I think that’s why we see some overlap. Some of those businesses in a way you wouldn’t have with Etsy where you have your artisans on one side and your buyers on the other?

Woollard: Yes. Exactly. One of the things The RealReal does is that when you ship if you want to get paid now it can give you the value of the merchandise or even a gift certificate so you can start buying something else immediately. It’s part of what they’re trying to do, is really get you involved in this cycle because it’s all about supply and demand. They must continue to source. It’s interesting, one of the reasons I wanted to talk about reselling today was to think about supply chain issues and the fact that these companies don’t necessarily have to be concerned with the same. manner. This is actually one of the things that I think is a tailwind for these companies right now. One of the things RealReal talked about on the earnings call is that they’re pretty prepared for a strong holiday season because they think a lot of people who might have tried to buy stuff in the stores and maybe found there were better options on their website.

Rossolillo: This is an interesting point. I think that’s a valid point, especially as Gen Z is getting older and they’re starting to find jobs and have money. In addition, there is nothing in the stores that they wish to purchase. Well, maybe I can get something authenticated and unique that no one else will have in a place like The RealReal. This is an interesting point to keep in mind during this holiday shopping season.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Deidre Woollard has no position in any of the stocks mentioned. Jeremy bowman owns shares of Amazon and Etsy. Nicolas rossolillo owns shares of Etsy. The Motley Fool owns stock and recommends Amazon, Etsy and Poshmark, Inc. The Motley Fool recommends the following options: $ 1,920 long calls in January 2022 on Amazon and $ 1,940 short calls in January 2022 on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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