Consignment Stores Proliferate

4/16/2014 - Crain's New York

On a recent Saturday afternoon, Ali King was having trouble finding the right spring look. As her mother hovered outside a dressing room at Michael's, a clothing consignment shop on the Upper East Side, the grad student tried on a variety of looks: a black-and-white Chanel top, a silk top with gauzy hemlines and a soft free-moving jacket that still had its original tags. "I go whenever I'm in town," said Ms. King, who is studying at Yale. "Consignment shopping is huge now."

Ms. King, 24, is among the wave of shoppers driving a surge in New York's luxury consignment business. With people embracing the pragmatic, environmental and fiscal benefits of preworn clothing, an industry once confined to second-floor storefronts and mothball-filled boutiques is taking off.

Second Time Around, the largest clothing consignment retailer in the U.S., has opened 10 locations in Manhattan alone since 2010. Annual profits at Michael's, a New York consignment institution that's celebrating its 60th anniversary this year, have been growing by double digits since 2009, store management said.

TheRealReal, a Web-based consignment shop that's on pace to do more than $100 million in sales this year, acquires more clothes from New York than anywhere else in the world.

"It's just like all of a sudden consignment became really, really cool," said Jeanne Stafford, a director of marketing at Second Time Around.

Unlike pawnshops, consignment stores do not actually purchase the goods they sell to consumers, and the items are not donated as they are to thrift shops. The original owner of the garments, the consignor, technically retains ownership of her items until the store sells them. Once the garment is sold, money is normally split 50-50, and many shops will allow customers to set a floor price for their items. That typically attracts people with more expensive items, which makes customer-relationship management crucial.

Personal connection

"It's all about the relationship for me," said Elisabeth Hughes, a fashion stylist who's been consigning at Michael's for more than 15 years. "It's possible I might be able to get more at a different store, but I just trust them so much, and they take such good care of me. That makes a difference."

And in New York, there's plenty of preowned stuff to go around. According to a recent report by Bain and Co., New Yorkers don't just buy more luxury goods than any other city in the world; they buy more luxury goods than people of any country in the world. Total spending on luxury goods in the city in 2013 came to $21 billion, a 9% jump from 2012.

For consumers, the fundamental draw is luxury items at prices far lower than they'd ever get at a department store: Chanel jackets for $500 rather than $2,000, or Louboutins going for about $400, instead of their normal retail price of $1,400.

"I can tell you the price of almost everything in my closet," said Kate Holmes, a member of the National Association of Resale Professionals, or NARTs, and the author of Too Good to Be Threw, a consignment-store operations manual that's in its 20th edition.

It wasn't always cool to shop for used clothing. Even though consignment is more upscale than a pawnshop or a thrift store, all three business models were lumped together in the popular imagination. All three were thought of as, well, cheap.

"Ten years ago," Ms. Stafford recalled, "people would hide their bags from Second Time Around."

"It was not considered a classy thing to do," agreed Laura Fluhr, who took over Michael's from her father in 1986.

In the past decade, however, retailers noticed a change, as the economy tanked and environmental consciousness rose. According to census data, the consignment industry grew 3.7% in 2010, a year when two-thirds of all American industries lost jobs.

"I think that the mentality has been more to maximizing the use and the value of things," Ms. Fluhr explained. "I don't think it's specific to consignment. I think it's more of a mood and mentality change."

Today, the thing that was once most taboo about consigned luxury clothes-the fact that they are not new-is actually a selling point.

"I like the fact that this stuff is preowned," said Carol Silverman, a longtime Upper East Side resident. She sees buying consigned items as more responsible than buying something new that's been manufactured in a sweatshop.

There's so much merchandise to go around that Web-based businesses are picking through New Yorkers' closets as well. Julie Wainwright, the founder and chief executive of TheRealReal, says her company has been able to find success in several major U.S. cities. But New York is in a world of its own.

"In New York," Ms. Wainwright said, "we have a model that may not work anywhere else."

In most cities, small teams of RealReal concierges fan out to the homes of wealthy consignors, carefully picking through closets and often coming away with a handful of items. In New York City, there is so much to pick up that a RealReal-owned van rolls through town all week, grabbing garment bags from doormen or personal assistants.

Between New York and San Francisco, Wainwright says, her site consigns more than 1,500 items a day. "And honestly," she continued, "we'll be able to handle 10 times that volume in about three months."

According to thredUP, a Web-based resale and consignment store, the expected annual growth rate of the online resale industry is 16.4% through 2016.

That operational scale is key. The consignment business is, by nature, all about high turnover. "Everything is one of a kind," said Ms. Holmes of NARTs. "If you want a Chanel bag, you have to get there before the other ladies do."

Ms. Wainwright said TheRealReal has more than 2 million members, and that 10% to 15% of them visit the site every day. "On average, our members come every other week," she continued. "There isn't another retail store in the world that has that kind of turnover."

But Web-based consignment operations aren't the only ones benefiting from connectivity. Brick-and-mortar shops like Michael's are pouring a ton of energy and investment into their online sales, and it's paying off.

"We're still a brick-and-mortar store," said Tammy Fluhr-Gates, Ms. Fluhr's daughter and the head of business development at Michael's, "but our online store is growing very quickly."

Digital sales

Michael's Web storefront sells to people from Miami to Milan, and Ms. Fluhr-Gates said sales revenue is expected to double this year.

Second Time Around does not do e-commerce on its website, but Ms. Stafford said its individual stores are encouraged to sell items via social-media platforms like Facebook and Instagram.

Ms. Stafford declined to disclose dollar amounts, saying instead that sales from social media are growing week over week.

As consignment continues to bloom and competition heats up, the deals might get even better. But consignment is driven, more than anything, by an impulse to find something that stands out, customers say.

"I don't think it's the money-New Yorkers have plenty of money," said Tien Bui, a banker who's been a longtime consignment shopper. "It's more the chance to find something unique."

"When you go into work, everybody's wearing the same things," she continued. "Every time you go [consignment shopping], there's a chance you'll see something that's been sitting in a closet for years." Plus, she added, "I don't mind wearing last year's look."


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