how-does-the-realreal-make-money

How Does The RealReal Make Money?

The RealReal is an online and offline marketplace selling authenticated luxury goods including jewelry, watches, home accessories, and clothing. The company charges consignment fees for managing the sales of applicable products. The company charges consignment fees for managing the sales of applicable products. The company also offers two premium membership options for buyers.

Original Story

The RealReal is an online and offline marketplace selling authenticated luxury goods including jewelry, watches, home accessories, and clothing.

Founder and entrepreneur Julie Wainwright established the company in 2011 after a shopping trip with a friend to a wealthy part of Silicon Valley. Wainwright noted that her friend made several purchases of second-hand designer items from a boutique fashion store.

Curious, she began researching the second-hand luxury industry that same evening. Her new idea was also validated after experiencing difficulty in selling her designer pieces via eBay and pawnbrokers.

The RealReal commenced operations with Wainwright working from her kitchen table and visiting consignors at their homes with a U-Haul. Soon after, she moved into a proper office and secured a large warehouse to store clothing. 

By 2012, the start-up had amassed 750,000 members. But the platform had trouble maintaining supply in its marketplace.

As a result, it employed over 100 consignors to source more items. Some would even stop people on the street to ask them if the clothes they were wearing were for sale.

In 2017, the first physical store opened in New York City, allowing the company to interact with buyers and sellers. Fifteen more stores followed.

Today, the company sells used and new items. It has also formed partnerships with Gucci and Burberry to sell exclusive items not available elsewhere.

Recent figures show The RealReal now has over 17 million members.

The RealReal revenue generation

The RealReal makes money in two primary ways: consignment fees and membership subscription fees.

Following is a look at each.

Consignment fees

The company charges consignment fees for managing the sales of applicable products.

The exact fee depends on:

  • Total net sales for the seller over one year.
  • Total item price – higher-priced items attract lower consignment fees.
  • Total item demand – again, higher demand items attract lower consignment fees.

With that in mind, the RealReal Rewards program offers three tiers based on sales volume:

  1. VIP – for sellers with more than $10,000 in annual net sales. Here, the company takes 30%.
  2. Icon – for sellers with between $1,501 and $9,999 in annual net sales. Icon sellers are subject to a 40% consignment fee.
  3. Insider – for sellers under $1,500 in annual net sales. The consignment fee for Insider sellers is 45%.

For those selling single items outside of the rewards program, fees vary by item category:

15%  

  • watches with a resale price exceeding $2,500.

20%

  • Handbags and sneakers with a resale price of $5,000 and $500 respectively.

30%

  • Handbags sold for $1,000 to $4,999.
  • Watches sold for $1,000 to $2,499.
  • Jewelry sold for more than $1,000.
  • Single art items sold for more than $196.
  • Home items with a resale list price exceeding $1,000 (excluding furniture).

50%

  • Any items with a resale price of between $146-195.
  • Home items with a resale price of $146 or more.

60%

  • Any item with a resale price under $145.

Memberships

The company also offers two premium membership options for buyers:

  1. First Look ($10/month) – giving members 24-hour advanced access to sales and exclusive invites to monthly promotions via email.
  2. First Look Platinum ($30/month) – offering the additional feature of unlimited free upgrades to 48-hour shipping. Note that this service is only available in the continental United States for fashion, jewelry, and watches. For deliveries to Alaska and Hawaii, there is a subsequent charge of $5.

Key takeaways

  • The RealReal is an online and offline marketplace selling authentic luxury new and used goods. It was founded by Julie Wainwright after she witnessed her friend purchase a large amount of second-hand designer fashion.
  • The RealReal makes money by charging consignment fees to those who wish to sell on its platform. Fees vary by item sale price, historical sales volume, item demand, and whether the sale is part of the RealReal Rewards program.
  • The RealReal also makes a less significant amount of money from two premium membership options for buyers. They can receive exclusive access to promotions and receive two-day shipping to the continental United States for certain items.

Read Also: How Does Farfetch Make Money, How Does eBay Make Money, How Does Tiffany Make Money, Bernard Arnault Empire: LVMH Group Business Model, The Kering Group Multi-Brand Business Model.

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