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Why ThredUP Shifted From a Peer-to-Peer Marketplace to an Online Consignment Store

Raz Godelnik
| Tuesday January 15th, 2013 | 7 Comments

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ThredUPThredUP is not just a successful online marketplace of “practically new kids’ clothing,” but also a company on a mission – “becoming an iconic brand in American homes around making smart choices as a consumer,” explains James Reinhart, its co-founder and CEO. On its way there, ThredUP has made few transitions, most notably last March when it shifted from a peer-to-peer marketplace into an online consignment store.

This transition seems to be successful in terms of volume – 7,000 new customers join ThredUP every month with a 46 percent retention rate as Reinhart told AllThingsD.com in October. Yet not all parents were happy of this shift – “This is such a bad move for the company. They have completely forgotten what made them unique and different for their loyal customers. ThredUP was more than just used clothes…it was a community that this new venture totally ignores. I’m sad that they have taken this path,” was one of the comments following the transition last March.

These sorts of business model adjustments and will likely become increasingly common as a growing number of companies in the sharing economy start looking, just like ThredUP, to shift from being a great story to being a good business. This is why the story of ThredUP’s evolution is an important one – should other companies look at it as an example to follow or to avoid?

ThredUP originally started as a peer-to-peer clothing platform that focused on men’s and women’s shirts. The idea, explains Reinhart, was to capitalize on underutilized assets in everybody’s closets – all the stuff we have there and don’t really wear. Reinhart and his team understood that clothing exchange was a good idea but not a good business because they didn’t manage to generate enough traffic.

So then ThredUP decided to move on to kids’ clothing. Kids, as the company reports, use more than 1,360 articles of clothing by age 17. Not only that this is a costly expense, but parents must also constantly look for ways to get rid of old clothes and make room for the new ones. Hence, ThredUP believed that kids’ clothing are a bigger consumer problem and will provide the company with a better opportunity to scale up and generate improved business results.

ThredUP wanted to bring affordability and convenience to the kids’ clothing market, creating an online swapping platform where parents could trade boxes of used clothes directly with each other. This marketplace became quite successful with 300,000 customers who exchanged about 2 million items in total. Yet, impressive as it may sounds, it wasn’t enough.

The problem as ThredUP learned was that to succeed in such a business, where the business model is based on receiving a small fee for every transaction, you need an enormous scale, such as what you find on eBay for example. But no matter how well ThredUP served the hundreds of thousands of parents that used its platform, it wasn’t eBay and even with 500+ new customers per day joining the site, it was nowhere near to becoming large enough to sustain itself financially.

ThredUP had a very clear choice to make – either it continues to act as a great community service with little chance to succeed as a business, or it needed to make a change in its business model, putting business before community. It chose the latter, announcing on March 7, 2012 that “we’ve made the difficult decision to shut down our swapping service, and focus exclusively on our concierge experience and new consignment shop.”

The re-vamped website, the company explained, takes all the legwork out of traditional peer-to-peer swapping, and “makes sharing and accessing used kids clothing easier than ever.” The process works like this – parents send ThredUP a post-ready bag at no charge  filled with their kids’ clothing. The bag is then evaluated by the company and the parents get paid for items that meet ThredUP’s rigorous acceptance criteria – about 20-30 percent of each item’s resale value. These items will then be offered for sale on ThredUP’s online consignment store. Items that ThredUP won’t accept for reselling are entered into its 100% Re-Use Program.

And the results? According to TechCrunch’s report last October, ThredUP has rapidly grown its user base since it started with the new model and is now trending toward 400,000 customers. Reinhart also said in his interview that ThredUP receives 6,000-10,000 pieces of clothing a day.

These figures are pretty impressive, although of course it’s still far from eBay, where millions of items are listed, bought, or sold daily. Reinhart himself said that ThredUP is looking to vertically expand to “anything you can put in our prepaid bag,” which might suggest that the company doesn’t believe it can generate good business solely from kids’ clothing.

So far, investors seem to have faith in this path – last October, a new investor (Highland Capital Partners) led ThredUP’s $14.5 million Series C round, announcing that “ThredUP is disrupting the $30 billion resale industry by moving something families have been doing offline for generations, online,” and bringing the company’s total raise to date, to $23 million.

While it’s too early to predict whether ThredUP will evolve into a good business, the company has already showed that it’s impossible to be both Freecycle and eBay. Companies need to make a clear choice if their mission is focused on the business component or the community component of their operation and act accordingly. The sooner they figure it out, the better their chances are to succeed.

[Image credit: thredUP]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons the New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.


▼▼▼      7 Comments     ▼▼▼

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  • Jamie

    Hey James what happen to all the clothing your box swapping members sent to your company to make boxes for them? OH YEAH that’s right, you stole them all. Thredup is a rip-off and they took from all of us to get the first start of inventory. I would NOT send them a thing again. There are too many other great options like Flipsize and snazzyswap to risk send TU my kids clothes I worked hard to pay for. Just look fr thredup review and at their BBB rating and it will tell you everything you need to know.

  • Graciousstore

    Making trendUP an on-line consignment store is the best way to make the store accessible to many more parents who want to “trade-in” their kids’ fairly used clothing

    • http://www.twitter.com/rockstarjen Jennifer Wilbur

      They can trade them in, but they lose a large portion of the value once they do that. the minor cut they get isn’t equal to what it costs to replace. With peer-to-peer swapping, and using your used items as collateral for new ones, you hold most of the value when replacing them.

  • Ruth

    StokeBox.com offers the old style swapping service but with photos.

  • http://www.twitter.com/rockstarjen Jennifer Wilbur

    You’re right. You need to decide what marketplace you want to serve and stick with it. Once ThredUP received a huge infusion of VC money, they had to answer to others. My partner and I (also former users of the early ThredUP) created StokeBox because we think there are still moms and dads out there who still want to swap boxes of gently used kids’ items. We are bootstrapping the business and plan to stick with making incremental changes over time that the community is looking for. We aren’t going to be as big as eBay, not do we want to. We want to provide a great service at a low cost that helps other parents like us be less wasteful and economical by re-using gently used items as collateral for stuff you need. If you don’t have a friend that can use your stuff, someone in the StokeBox community can.

  • Natalie Gossett

    Dont do it!! they should offer free return shipping…if I had known I would have paid $22 to try on some pants and sweaters, I never would have ordered!

  • Deb04

    I had a positive
    experience purchasing a few items from Thredup. This encouraged me
    to try selling, and this has been quite a different matter. I sent
    in two bags, one contained Cole Haan and Rangoni shoes and a pair of
    brand new Report Signature rhinestone covered boots still in their
    box (featured item on many fashion sites). I emailed Thredup about
    their acceptance of these items and was told to use their “Return
    Assurance” feature. For a $12.99 fee, what ever it is they don’t
    accept, these items will be returned to you. I did so and guess
    what? I received an email informing me that they had not accepted
    anything from this bag and since there was no “credit” to deduct
    the fee from, my items would not be returned to me! I was stunned.
    I believed that I would be notified to “go to checkout” and pay
    the fee. I have written several follow-up emails, no response. How
    legitimate can this be? Thredup does the “evaluation” of items,
    deems the items “unsuitable,” then disposes of the items as they
    see fit, even though the contents of the bags were identified for
    return?! Another person has stated she recognized her unique items
    posted on Ebay, it wouldn’t surprise me to see the boots show up
    there too. My second bag (sent in at the same time) is still being
    processed. Three weeks have passed and since the horrible experience
    with the shoes, I have grave concerns. This bag contained 25 items.
    (I included an inventory of the items in the return bag.) Christian
    Dior, Eileen Fisher, Lafayette 148, Ann Taylor, Nordstrom, etc. many
    are silk, cashmere items. All in such excellent condition that when
    I sent them I was confident that most would be accepted and did not
    identify the bag for Return Assurance. Obviously, have learned since
    then that this doesn’t make any difference. But, still feel pretty
    dumb for not doing so. You are required to opt in for “Return
    Assurance” prior to the bag being processed. This, no doubt,
    allows the processing person to find justification, (one way or the
    other) for not making a fair payout. But I have learned that either
    way, a seller receives about…nothing! In theory it sounds like a
    great idea to be able to clean out your closet with the convenient,
    cute “no cost” bag, but in reality that is the hook. We are all
    busy, the bag makes it convenient and the idea of making a little
    money from little used items seems like a win-win. In reality,
    Thredup ends up with sellable items for pennies, (if that) on the
    dollar. Their buying practices are suspect. I feel like my items
    were stolen from me by what is a rigged “return assurance”
    policy. I will take the advice of another Thredup user and contact
    the San Francisco District Attorney’s Office. Wouldn’t it be a good
    thing if one of the local news shows’ consumer advocates did a story
    to expose all this? Lesson learned…if I am going to consign, I’ll
    make the effort with a bricks and mortar store. At least you know
    immediately what they are taking, you take home or donate the rest.
    With Thredup, you might as well have just given away your items.
    Unfortunately, you are left feeling totally ripped off and
    victimized. Google reviews…you will find multiple complaints have
    been filed with the BBB, other reporting sites, blogs. I wish I had
    done my homework!