thredup-business-model

How Does ThredUp Make Money? The ThredUp Business Model In A Nutshell

  • ThredUp is an online sustainable fashion company founded by James Reinhart in 2009. Reinhart got the idea for ThredUp after realizing he had a closet full of clothes he did not want to wear and could not sell.
  • ThredUp makes money by charging a commission on every piece of clothing sold on its platform. The exact commission depends on the listing price, which the company determines by analyzing the brand, size, seasonality, quality, and age of the item.
  • ThredUp also charges customers a fee if they want to have their old clothing items processed by the company within a week.

ThredUp origin story

ThredUp is an online sustainable fashion company founded by James Reinhart in 2009.

While Reinhart was a business school student at Harvard University, he realized that he had a closet full of clothes he never wore. At the same time, he was averse to purchasing new clothes out of a desire to save money. To make some extra cash, Reinhart took his used clothes to a thrift shop where he was informed that they didn’t want the brands he was selling. What’s more, they didn’t even accept men’s clothing.

Ultimately, this predicament gave Reinhart the idea for an online platform where men could exchange dress shirts. The pilot peer-to-peer platform was called ThredUp, which he launched in September 2009 after partnering with friends Oliver Lubin and Chris Homer. Less than twelve months after the GFC, the trio believed ThredUp would be an instant success among businessmen looking to save money. However, initial performance was lackluster. The platform initially connected buyers with sellers without handling physical inventory, but customers told the co-founders they wanted the company to do all the work.

Taking this feedback on board, ThredUp changed its strategy in 2010 and began handling warehousing, inspection, shipping, and pricing. The company sent prepaid Clean Out Bags to customers who would then mail their old and unwanted clothes in return. The pivot was extremely successful since consumers could make money with very little effort. Two years later, Reinhart hired Netflix engineering and operations gurus John Voris and Andy Rendich to build software and hardware systems that could process millions of clothing items each day.

Today, the ThredUp platform carries more than 35,000 brands with many used clothing items selling for up to 90% below the estimated retail value. In addition to being the world’s largest fashion resale marketplace, the company promotes sustainable clothing and seeks to educate consumers about the global fashion waste crisis.

ThredUp revenue generation

ThredUp makes money by charging a commission on every piece of clothing sold on its platform.

Commission rates are based on the listing price and are set by a team of company pricing specialists. Pricing is based on seasonality, item age, quality, style, and existing inventory levels in the same size or brand.

In general, ThredUp collects a higher commission on lower-priced items than it does on more premium items.

The commission scale the company currently uses is as follows:

  • For items priced at $5.00-$19.99, Thredup takes a commission of 85-95%.
  • For items priced at $20.00-$49.99, Thredup takes 70-85%.
  • For items priced at $50.00-$99.99, Thredup takes 40-70%.
  • For items priced at $100.00-$199.99, Thredup takes 20-40%.
  • For items above $200.000, the company takes a 20% commission.

Expedited Clean Out Bags

Customers can order Clean Out Bags from ThredUp when they want to sell or donate unloved clothing items.

A standard Clean Out Bag is free, but the company does charge $16 for consumers who want the bag of clothes they send back to be processed within a week.

Connected concepts to the ThredUp business model

slow-fashion
Slow fashion is a movement in contraposition with fast fashion. Where in fast fashion it’s all about speed from design to manufacturing and distribution, in slow fashion instead quality and sustainability of the supply chain are the key elements.
fast-fashion
Fash fashion has been a phenomenon that became popular in the late 1990s, early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics, flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.
ultra-fast-fashion
The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics, warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers toward logistics, warehousing, and a mobile-based digital presence.
shein-business-model
SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved on the ultra-fast fashion model by leveraging real-time retail, which quickly turned fashion trends in clothes’ collections through its strong digital presence and successful branding campaigns.
real-time-retail
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collection in a few days cycle or a maximum of one week.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"