Luxury and Resale: Frenemies or Friends with Benefits?

Recent data has shown that Americans are increasingly considering resale value when making luxury purchases. This growing mindset has fostered the success of authenticated luxury consignment marketplaces like Vestiaire Collective, TheRealReal and Portero. Estimated to be worth about $34 billion, the luxury apparel resale market is one of the fastest growing segments in the retail industry. Offering customers guaranteed authenticity and luxury quality at a fraction of retail prices, buying pre-owned has also never been more appealing.

Once considered taboo just a decade ago, consignment shopping is now considered smart- particularly for designer merchandise whose prices have continued to rise. In recent years, luxury fashion prices have increased at more than twice the rate of general inflation. Take for instance, Chanel’s Classic handbag, which has increased from $2,250 to $4,900 since 2007.

But it’s not just the ultra-high luxury brands hiking their prices. Entry-level luxury brands like Coach have even begun to implement premium pricing. But in doing so, luxury brands have alienated the majority middle-class so that the average customer can no longer afford to buy new.

Luxury consignment marketplaces have seen the effects –and directly benefitted from– luxury’s pricing surges. When prices rise, “consumers turn to the resale market in search of an affordable alternative to purchasing a new [piece] at a higher price” says Evelyn Fox, CEO of Baghunter.

While next-generation consignment may have won favor among its customers, it’s certainly not a welcome addition in the eyes of fashion houses. To brands, the secondhand market undercuts their price positioning and stands a threat to new product sales. However, resale companies maintain that their services are beneficial to luxury brands.

For one, authenticated consignment provides a safe and legal alternative to purchasing counterfeits. Genuine pre-owned merchandise offers an alternative to buyers who intentionally buy fakes simply to save money. Typically, low cost replicas are low quality. For anyone who’s wasted money on a low quality fake, a like-new genuine article is a welcome replacement. In this situation, resale purchases have the potential to foster brand loyalty.

Pre-owned merchandise can also foster brand loyalty among entry-level, aspirational buyers. Take for instance a customer who purchases a pre-owned item because they can’t afford full-price luxury. The appreciation that grows from owning a genuine, high-quality luxury item can lead to the customer saving for a full-priced retail purchase.

In addition to brand loyalty, the resale market has even purported to indirectly encourage luxury retail purchases. Their logic is that when a customer knows they can easily fetch a high price at resale, they are more likely to purchase at full price. In an ideal situation, once they consign their item, they will put the money towards a new handbag or pair of shoes.

The promise of this luxury buyer cycle may have facilitated the recent partnership between Neiman Marcus and TheRealReal. Through their in-store cooperative, consignors can receive a Neiman Marcus gift card worth 10% more than the cash value of the items sold. The overwhelming demand for the pilot program quickly expanded from 6 to 34 stores. And just like that, Neiman-Marcus has attracted new customers.

There has been an undeniable shift by high-end consumers toward value. Regardless of their sentiment, luxury fashion houses would surely benefit from strategic partnerships in the resale market. Programs that encourage consignors to put their money back into the luxury retail market may be the antidote for brands concerned about resale affecting their bottom line.

The question remains whether additional luxury brands and retailers will follow suit to engage with the value-conscious customer.

Will the relationship between luxury brands and resellers evolve from frenemies to friends with benefits? Let us know your thoughts in the comments below.