The circular economy around fashion is seemingly caught the fancy of US investors in the United States as there was a 40 per cent rise in the stock price of The RealReal, the US secondhand luxury fashion website, soon after its debut at the stock exchange.

According to the claims by the San Francisco-based tech firm, its business plan and model is helping to add sustainability to the £1tn global luxury industry by extending the life cycle of luxury goods beyond a season such as expensive handbags and shoes beyond a season. The company was founded by its chief executive Julie Wainwright.

More than $300m (£235m) was raised by The RealReal from investors through the sale of new shares in a public flotation. The company was initially valued at  $1.6bn. It closed the day up 46.8% at $29.36 per share.

Wainwright had previously headed that Pets.com which is considered to be one of the biggest flops of the early 2000s internet bubble with its initial public offering managing to raise $82.5m in 2000. The company however closed down just eight months after the IPO. It the company is also known for its short shelf life a harbinger of the end of the dotcom boom.

The entrepreneur launched The RealReal in 2011 with an initial investment of $100,000.

She was on a mission to found an e-commerce business that “Amazon couldn’t replicate”, Wainwright said last year. The idea of setting up the company was based on her observation that one of her wealthy friends used to purchase consignment stock which are secondhand items that are sold on behalf of the original owner. Those were stacked away at the back of a designer boutique.

“That’s when the lightbulb went off,” she said. “I went home and looked at my closet, and I had 60 designer pieces that I had never worn or had stopped wearing. I thought, ‘How big is this market? Can eBay do this?’ The truth is, if you’re selling luxury goods, you need trust, and eBay’s not set up for that trust.”

The RealReal connects buyers hunting for cut-price Chanel and Rolex watches with sellers who want to clear out their bulging wardrobes.

The company makes use of more than 100 hired product authenticators and hence the marketplace also enables buyers to avoid fakes. The product authenticators include experts handbag pricing experts, gemologists and horologists, to vet products. An algorithm is used by the site that considers a number of issues to set a price such as the designer, item type, age and its condition. The company earns revenue by charging a cut from the sale.

The company however has not yet made a profit despite its lofty valuation. It made a loss of $76m against a turnover of $207m last year.

Wainwright bills The RealReal, which has a partnership with the fashion designer Stella McCartney, as a force for good: “You’re keeping things out of landfills and preventing items being melted down and energy applied. When you buy things of value, they have an afterlife, and they should recirculate in the economy. You’re helping the planet as you do that.”

(Adapted from TheGuardian.com)

Categories: Economy & Finance, Entrepreneurship, Strategy, Sustainability, Uncategorized