Can Resale Be Profitable? Easier Selling and AI Scale with ThredUp

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Oliver Chen:
Thank you for listening to this TD Cowen Insights Podcast episode. We're recording live at our 10th annual Future of the Consumer Conference in New York City. My name is Oliver Chen. I'm TD Cowen's retail, new platforms and luxury analyst.
I'm excited to host James Reinhart today. He's a good friend and a co-founder and CEO of ThredUp. James founded ThredUp in 2009 and has led the company through much change and innovation since the inception. ThredUp is a leading managed mass market resale platform in the US. It processes approximately 100,000 unique items per day through a fully managed model that removes friction for sellers. We also see the business at an inflection point where scale, automation is driving resale growth into profitable unit economics.
James, thanks so much for being here.
James Reinhart:
Yeah. Great to be here, Oliver. Thank you.
Oliver Chen:
James, how and why did you start the business? What's the story of the founding here?
James Reinhart:
Yeah. The true founding story is I went to sell my clothes at a local consignment store on Mass Ave. in Cambridge and they wouldn't take them. So I walked in with some cashmere sweaters and a Brooks Brothers coat to try and sell this stuff that I thought had some value and I walked out with those same clothes. The people at the store said, "These clothes aren't worth anything." And so that was the moment that I thought that not only was there a personal problem that I had, but I thought the resale market was just a broken market. So I went home that day and thought, "What would it look like to change the way this worked?" And that began the journey that is ThredUp today.
And I think broadly speaking, just that was also a time, Oliver, if you remember 2009 when Spotify was launching, Uber was launching, there were all these new consumer experiences. The first iPhone was only a year before that. And so I thought there would be a lot of change and we wanted to capitalize on that.
Oliver Chen:
There has been so much change and ThredUp has stood the test of time. It's one of the originals. What separates you apart now? How does your platform look today versus when you started it? And there's many days to do resale.
James Reinhart:
I think the thing that we did in the beginning, really beginning in 2012, is we were focused on doing the hard things. So I think counter to what was happening at the time, everybody wanted to build asset-light businesses. We thought, "Oh, what would it be like to build infrastructure to really reinvent the consumer experience?" And so I think the reason why the business has been able to be resilient over the last 10 years is from the very beginning, we were focused on defensibility, competitive advantage. How do we build barriers to entry and widen the moat?
And so I think every year, not only was the business growing and generating an expanding margin profile, but we were making it harder to compete with. And you got to go back to 2015, there really hasn't been any competitor come into our managed marketplace space since 2015 and I think that speaks to how hard it would be to compete with ThredUp today. We feel like every year, we're just getting further and further ahead.
Oliver Chen:
We toured your infrastructure and it's very unique and you've changed it over time of course. What is your infrastructure, what sets it apart, and what makes it special?
James Reinhart:
Yeah. It's the first purpose-built facility in the world. We're now in our second generation, our seventh facility, although we've shut down facilities as well. So we have four standing facilities. But purpose-built for resale. So we process hundreds of thousands of items every week, they come in various clean-out kit sizes. It's the largest garment-on-hanger facility in the world. If Willy Wonka were to invent resale, it would look like that.
And I think every decision that we make is all about how efficiently we can process goods through our distribution center and make them available online for customers. And so I think the problems that we've had to solve, everything from there's no SKUs, there's no barcodes on clothing, nobody knows what these things are worth. So we had to solve both a supply chain problem, a data problem. How do you take great photography? We're taking a million photos a day to help put high quality photography online.
So I think it's never one thing that builds infrastructure and builds defensibility. It's the combination of 100 different things and I think that's really helped us maintain that competitive advantage over time.
Oliver Chen:
And, James, who is your ThredUp customer? It's been broadly appealing as a category and we've had lots of new entrants, meaning more customer adoption certainly.
James Reinhart:
Sure. The sweet spot is really a woman, late twenties, early thirties. Our average customers makes over $100,000 a year. On the buyer side, she tends to be more coastal. I think it's somebody whose looking for a great deal. I often say that ThredUp is a place where you can find great brands at great prices, in a sustainable way. And so I think it's not just about the deal, it's about making good decisions.
So yeah, that's really our sweet spot. We don't do men's still, I know you're disappointed in that.
Oliver Chen:
I buy jeans there, I buy stuff. I find reasons to buy stuff at ThredUp.
James Reinhart:
Me, too. I've got kids so I have reasons to buy stuff. But yeah, it's just women's and kids. But yeah, it's women and that's really the sweet spot.
Oliver Chen:
And what about the nature of competition? Sellers could sell in many different places. Why would they choose ThredUp?
James Reinhart:
Yeah. I think the big differentiator is that we really pride ourselves on being the most convenient way for you to sell. So certainly, for luxury goods there are other places you can go. You can go to your local consignment store or you can go to The RealReal. For peer-to-peer, you can sell on eBay, you can sell on Poshmark. But nobody is better than ThredUp in making it effortlessly easy for you to get rid of the stuff that you're no longer wearing. My thesis is that American consumers are getting lazier over time and we're seeing that play out in the growth of sellers today.
Oliver Chen:
Yeah, you said that five years ago, too.
James Reinhart:
Yeah. It turns out, we're getting lazier, and lazier and lazier.
Oliver Chen:
Well, does that mean your margins are going down, and down and down then?
James Reinhart:
No. I think people, they're looking to reduce friction in their life in every way, shape and form, from how we get our coffee, to how we get to work, to how we shop. And so nobody wants to spend their Saturday afternoon selling their stuff, cleaning out their closet. I think people are really looking for ways to do this in the flow of their life and I think that's where ThredUp's going to win.
Oliver Chen:
Yeah. And tell us about what makes you less friction, what drives some of your secret sauce around the customer experience?
James Reinhart:
Yeah. I think for sellers, we just launched in New York City and a couple of other major markets, you can click a button now and get a Uber pick up for your clean-out kit. So if you have a moment on Saturday, you're like, "It's time to clean out my closet." I can put all that stuff in a box, there's a prepaid label that we will send to you, you can print out. And then button and have an Uber driver there in 20 minutes, getting rid of all your stuff. I think that's the type of on demand experience that we're trying to create and I think we live in an on demand world now. I think the more that we can do to make that process effortless, I think that's the way to win.
Oliver Chen:
You've been doing this from the beginning, so what's changed most in the resell and recommerce market now?
James Reinhart:
I think you're no longer trying to convince people, analysts, investors-
Oliver Chen:
No, I know. I knew that. I was all into it.
James Reinhart:
Yeah. But no, I think back in the day, I tried to convince people to care about the category. I think you obviously, you're ahead of the game in this. But I think now, it's more explaining where does this market go from here, how big can it get. How do successive generations of young people engage in the market? So I think you're hitting this really compelling moment where the data suggests the resell market's going to keep growing, it's going to grow significantly faster than traditional retail and so it's all about how this market matures. I think that's an exciting place for us to be.
Oliver Chen:
Well, I spent a couple hours with you on AI this morning. Tell us about the intersection of AI because you're thinking about it every minute I think, James.
James Reinhart:
Yeah. Look, I think it's the greatest technology disruption that we're ever going to live through in our lives and I think it effects everything that an organization does. As we talked about this morning, I think the easy conversations are around how it saves you money, the cost leverage in the P&L. I think the most interesting conversations though are about where are you using this emergent technology to improve the customer experience, new vectors of growth, new ways to delight customers. And so I think my job as CEO is to do both. Figure out how to make the business as efficient as possible, but I think the real magic is how do you unlock the next level of the customer experience. And that's been an exciting journey, I think it's one we're going to be on for a long time.
Oliver Chen:
What are the most exciting parts of customer experience? You definitely cited reinforcement learning.
James Reinhart:
Yeah.
Oliver Chen:
And we're in a new personalization era. We have been talking about personalization for decades.
James Reinhart:
For a long time. Yeah, yeah.
Oliver Chen:
But this might move the needle in a new paradigm with some neural network-
James Reinhart:
Yeah. I think we have been talking about personalization for a long time. There's been a lot of companies that have been built around this. I think it's the first time you're getting to a point where the technology can truly do one-to-one personalization. I think we used to ... You were doing more cluster analysis. You, Oliver, look like these other people and those other people have bought this, and therefore you're likely to buy this. I think now you're moving into I can really identify everything about you from your click stream behavior, your add to cart, your buying patterns, on ThredUp, your selling patterns, and really identify something that is bespoke to you. And I think what AI and agentic commerce can do in particular is develop signals of stuff that I think it's going to be hard to do when you're part of just a cluster.
And so I'll give you a specific example. So now, in a first few clicks of you engaging on ThredUp, we can start to determine are you here to shop for a wedding?
Oliver Chen:
Yeah, intent.
James Reinhart:
Are you here to, yeah, look for denim? And I think those are things that you-
Oliver Chen:
The problem-solution.
James Reinhart:
The problem-solution.
Oliver Chen:
The humanization of search.
James Reinhart:
Yeah, is a big deal. And so anyway, I think it's an exciting time and I think we've really rebuilt the foundation for ThredUp, new search backend, new attribution models and I think we're able to innovate on top of that.
Oliver Chen:
How are you balancing the internal development of this versus using outside? Because even in the world of apparel, you got to stay fresh and there's some flexibility you need.
James Reinhart:
Yeah. I think that's one of the great challenges I think for organizations is how do you maintain that flexibility. And our point of view is that we don't want to get beholden to any one technology stack at this moment and so we are building probably more than I thought. We're using a lot of the open source models and our engineers are building on top of them just to stay flexible.
And I said earlier today, I think some of the best technology companies in the world are being built today, but I also think that some of the best technology companies probably haven't even been built yet. And I think that's a wild way to think about where AI's going.
Oliver Chen:
It'd be interesting for you to tell us about your business-to-business and resale as a service model as well?
James Reinhart:
Yeah. I think resale as a service is something, it's a few years old for us, but it's really helping bring our infrastructure, our data and our insights about the consumer in supporting brands in their resale journey. So we work with about 50 brands right now. We launched just a few months ago Cotopaxi as a new flagship brand. And we know brands believe in resale because we know they obviously need to sell lots of new goods and be fashion forward, but we also know that they acknowledge their customer wants to make sure there's an end of life for those garments and that there's some circularity.
So we want to support retailers in helping tell that story to their customers. I think young customers in particular are a little bit more savvy around, "Hey, I get it, but what happens to all the stuff that you're making that I'm buying?" And we want to help brands and retailers figure that part out.
Oliver Chen:
Yeah, that's interesting. What about the reality of consumers looking for bargains now and a shopper under pressure? What's happening with the resale market? Is it a temporary boost, or is it sustainable?
James Reinhart:
I think the broader resale market, if you look at the data on how many people are coming into this market every year, I don't think there's any stopping where resale is going from here. So I do think you have an industry in a structural growth phase. I think right now, the consumer, I think depending on who you talk to, I think the consumer is a little bit stretched. I think this K-shaped economy narrative is real. I think gas prices have offset some of the gains I think we saw from the tax refunds. So I think we have to be smart around where the consumer's going, but I think resale can flourish in any economic reality because I think consumers are always looking for value.
Oliver Chen:
We're also looking forward to the continued profitability inflection. This year is a reinvestment year for the company.
James Reinhart:
Yeah.
Oliver Chen:
What are the key drivers of margin expansion and the path to more meaningful profitability? You're guiding to around 6% EBITDA margin.
James Reinhart:
Yeah. So last year, we grew 20% with about 4.5% flow through to the bottom line. I think we've been public about continuing to drive teens, high teens' growth as well as the margin expansion. So we expect about 150 bps of margin expansion, so I think this year we're guiding to about 6% at the bottom line. And I think that mid-teens plus 150 bps of expansion is I think a nice, steady state way to go for the next few years. I think those are healthy growth rates and healthy flow through and we feel good about that progress.
Oliver Chen:
What do you think the most challenging problems are that you think about ahead?
James Reinhart:
I still think the most challenging thing is just gaining, adding new customers, staying relevant, customer retention. I think customers these days-
Oliver Chen:
Yeah. Where are they going?
James Reinhart:
I think customers are bombarded by advertising.
Oliver Chen:
Got it.
James Reinhart:
It's a nonstop advertising bonanza. And so I think staying relevant for customers, creating value, good customer service, I think the nuts and bolts of customer management and engagement I think are critical. In a world where every day, there are new brands launching on Instagram, every day people are scrolling through their TikTok feed and being bombarded with ads, so I think you got to stay relevant, you got to stay fresh with the customer.
Oliver Chen:
Does ThredUp play a role in other marketplaces? And also, what do you think about digital advertising in your future?
James Reinhart:
We've been committed to spending about 18% of our revenue on marketing. A vast majority of that is bottom of funnel digital ads. I think we use a portfolio, Google, Meta, Pinterest. I think we're having a lot of success now expanding spend on Meta, expanding spend on Pinterest. But I think we have to continue to do more mid and upper funnel. I think storytelling in real life type moments I think is important. We just did a popup down in Soho this past weekend all around wedding season. We had a line out the door two blocks long of people wanting to experience a secondhand popup.
Oliver Chen:
Do you make money on digital advertising too from brands?
James Reinhart:
Oh, from us? Look, I think there are multiple ways to monetize ThredUp over time. I think we want to stay focused on building a core engine and I think if we do that right, there's lots of things we can do in the future.
Oliver Chen:
Yeah, and agentic search optimization, what are some of the key principles you're looking at?
James Reinhart:
The most important thing is just understanding what these big platforms are doing from a technology perspective. So as fast as OpenAI launched their ability for people to shop in ChatGPT, I think they also deprioritized it.
Oliver Chen:
Yeah, yeah. That was pretty fast, wasn't it?
James Reinhart:
It was pretty fast. It was like, "Oh, nevermind."
Oliver Chen:
It's hard, it's hard.
James Reinhart:
It is hard. It's hard. So I think you got to have, for us, let's have great product, great customer experience, and then we'll go where the eyeballs go and we're prepared for that.
Oliver Chen:
Okay, last question. If you had to bet on one consumer behavior shift that will define the next five years, what have you spotted?
James Reinhart:
I think the behavior shift I'm seeing among young people is a little bit of this return to in-person experiential shopping. So I think online is going to continue to grow, but I think brands that are figuring out how to craft really compelling out-of-home experiences I think can find a way to break through.
Oliver Chen:
Yeah, back to future. It's kind of nostalgia.
James Reinhart:
It's kind of nostalgia.
Oliver Chen:
Yeah.
James Reinhart:
I don't know if I believe this or not, the mall is back. When you and I were growing up-
Oliver Chen:
Yeah, the malls were always fun.
James Reinhart:
... we went to the mall. And so I think in a world where I think I have a 16-year-old daughter being bombarded with digital, she loves to go and shop at the thrift store.
Oliver Chen:
I think it's a bit about trust, too. Okay, it's physical, I can touch it, I can trust it.
James Reinhart:
And connection.
Oliver Chen:
Yeah.
James Reinhart:
You do it with your friends in real life. And so it'll be interesting to watch how much of that interest in connection, human connection, becomes part of how this next generation behaves.
Oliver Chen:
Yeah, humanity meets commerce meets community meets purpose.
James Reinhart:
Yeah. Especially if you're worried about where AI's going to take you and what jobs are going to look like in the future, I think it's a natural thing to try and find companionship and safe spaces with other humans and I think there could be a there there.
Oliver Chen:
Well, it was really great spending time with you again. Thanks a lot.
James Reinhart:
Thanks, Oliver. Appreciate it.
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