Secondhand store glut continues as 'people are still cleaning out their closets'

Yahoo Finance contributor Vera Gibbons details how the pandemic has changed the secondhand clothing market, the overflow of consigned clothes leading to markdowns, and how that trend continues heading into 2022.

Video transcript

- Supply issues coupled with increased consumer demand has rocked the retail space over the last quarter of 2021. One sector that seems to be experiencing the opposite trend is the secondhand market. Consignment shops across the nation say they've been hit with too much inventory as donations continue to rake in. And without enough customers to get things off their shelves, they have a different problem, now. Here to explain is Vera Gibbons, Yahoo Finance contributor, who joins us once again.

Vera, I mean, we were talking about secondhand stores-- you and I were talking about secondhand stores earlier on in the year seeing a big boom. What are we seeing shift now?

VERA GIBBONS: It's still a big boom, but long story short is when the pandemic first hit, people started cleaning out their closets, getting rid of stuff that they thought they would never going to wear again-- cashmere sweaters, heels, evening gowns, all of this stuff. There was a whole big emphasis on sustainability, renewed interest in health and awareness, and all that stuff, so people said, "you know what, I'm going to get rid of all this stuff."

So they got the big clean out bags, they sent it to the resale platforms or they dropped it off at their local consignment shop if the doors were still open, they got nice little checks, and they were happy. Problem is, people are still now cleaning out their closets, still trying to get rid of stuff, and the consignment shops are saying, "you know, we have enough, we don't want your stuff."

BRIAN CHEUNG: Hey, it's Brian Cheung here. I mean, this is an interesting trend and I imagine some of this is tied to the brick and mortar retail experience, but there are a lot of digital players in this space, as well. When you think about RealReal and many other sites that take consignment digitally and allow people to also shop digitally, are those same trends translating over to those business models as well?

VERA GIBBONS: They are translating over to those business models. I mean, you mentioned some of the big digital platforms and those are the guys who are sort of leading the growth of the secondhand market in general. The secondhand market, if you look at it as a whole, is projected to double over the next five years, becoming a $77 billion market by 2025. And the big resale platforms that you mentioned account for about half of that big, huge number there.

So they're, ironically though, still having the same problems that the local consignment shops are. People are sending their stuff in, the people who are consigning with them are not necessarily happy because the stuff is getting marked down over and over again. For example, you might send in a ZIMMERMANN dress that you've worn once, they may put it on the site for $375, 30 days later it's down to $150. So the people who are selling to these sites are not necessarily happy.

And then when you go to-- to try to alleviate the situation or try to get some sort of resolution, you know, it's-- you're just met with emails that kind of go nowhere because they're just sending them out via AI. So the people who are consigning at these stores are getting a little bit irritated, again, because stuff is being marked down, stuff is being rejected, things are being turned back to them. And when there is a problem, they can't get any resolution. I mean AI is sort of where the industry is actually going, but without the personalized attention and without any kind of customer service, it's sort of fueling the fire.

- There is one, I guess, longer-term story that could have some investors excited. You know, we've talked about the stock performance for some of these names, Poshmark off 82% this year. It's been a rough go for the stocks in some of these secondhand companies, but the silver lining there is that some of their youngest customers are some of their most enthusiastic.

You think about Gen Z really buying secondhand. I don't know whether it's the sustainability reasons or maybe some of the deals that could get there. They do seem pretty enthused by secondhand, so I mean, I guess that's something they could lean on if they're going to project that growing for them later on down the road.

VERA GIBBONS: Yes, the younger generation is very enthusiastic about the secondhand market. They're big into sustainability, they are also on a pretty tight budget, they like the idea of finding fun things on some of these sites or at their local consignment stores, they like the treasure hunt aspect of the whole secondhand market. You never know what you're going to find. And I will say given the excess inventory, the selection has gotten pretty darn good at some of these places. You're finding things that are new with tags, never been worn, never been used. But investors, as you point out, aren't necessarily as-- as excited about the these platforms as the younger shoppers are.

BRIAN CHEUNG: All right, Vera Gibbons, Yahoo Finance contributor. Thanks again for stopping by. Happy New Year.