The relentless rise of second-hand
When Lego started testing a service to receive and re-use second-hand bricks, the Danish toymaker soon ran into a problem: people would send in other things as well. Soda cans, shoes, lots of hair — all came mingled in with the iconic plastic bricks, according to a senior executive.
Worst of all: workers once opened a Lego treasure chest to find an entire set of children’s teeth in it.
Brands from Shein and Zara to H&M and Lego are throwing themselves into a booming second-hand economy. They are joining a growing number of start-ups such as Vinted, Depop, ThredUp, and Vestiaire Collective in attempting to make money from a rush to embrace used and “preloved” items, whether due to cost or environmental concerns. Celebrities such as Bella Hadid, Rihanna and Sarah Jessica Parker have all embraced thrift as has even cult TV show Love Island.
“Second-hand is very buzzy,” says Adam Minter, author of Junkyard Planet and Secondhand. “But the cost of doing this business is huge. It isn’t easy.”
This week, Ikea joined in on the trend, launching a peer-to-peer marketplace for customers to sell used furniture directly to others. Designed to take on the likes of eBay, Craigslist, and Gumtree, Ikea Preowned is being tested first in Madrid and Oslo, before a decision is taken on whether to roll it out globally at the end of the year.
Jesper Brodin, chief executive of Ingka, the main operator of Ikea stores, says that the group has an even higher market share in the second-hand sector than for new products. “So we think it will be a good learning — what type of products sell?” he says.
It is not hard to understand why big brands are tempted by second-hand — it is growing much faster than new sales, albeit normally off a far lower base. ThredUp, a resale platform in the US, estimates that the global second-hand clothing market has grown from $141bn in 2021 to $230bn this year, and should reach $350bn by 2028 at a growth rate it estimates at three times that of new apparel. Consultants Bain & Company estimate that second-hand luxury sales increased by 125 per cent from 2017-23 against just 43 per cent for new.
Second-hand is also increasingly popular among the youngest consumers. More than 40 per cent of Generation Z and millennials buy a second-hand product at least every few months against just above 20 per cent of baby boomers, according to a survey by analysts Euromonitor.
“There used to be a stigma to used clothes. But younger generations, the last thing they care about is if something is new. They care about waste, about value. It is a great investment opportunity,” says one European private equity executive.
But for all the hype, there are plenty of concerns. The second-hand economy has been dominated in the west by not-for-profit charity and thrift stores. Will established brands and start-ups be able to make money from it? There are questions about the difficulties in sourcing the right items as well as fraud. And there are also concerns about some companies’ motivations given their role in producing ever larger amounts of new products — is this being done to help save the planet or for marketing reasons?
“There’s a component of this that might be PR. These big brands such as H&M and Zara — there’s a lot of pressure on them, a lot of concern at how unsustainable fast fashion could be,” says Jennifer Hinton, a research fellow at Lund University who has written about the second-hand clothing market.
Second-hand shopping is nothing new. Thrift or charity shops such as Goodwill and the Salvation Army in the US or Oxfam in the UK have offered second-hand clothing, books and more for decades.
“People in the west think there’s an emerging second-hand economy. But it’s always been there. As long as there’s been new stuff, there’s been used stuff,” says Minter. “In emerging markets, things like apparel and furniture, the second-hand economy is the dominant economy, and it’s dependent on exports from the developed world.”
There are already complex supply chains that support the charity sector. The vintage Led Zeppelin T-shirt that might sell for more than $100 in a shop in New York will probably have come from a bale of clothes from the US that is first shipped to Pakistan or Guatemala to be sorted, with only the very best items then sent back, says Minter. “It’s the less than 1 per cent that celebrities are interested in,” he adds.
The thrift stores have developed deep expertise, working out what they can sell, and what they can export to emerging markets to sell either as clothes or to be transformed into other products such as pillow filling or insulation. “If somebody on Depop can’t sell it, it might end up on Oxfam. If Oxfam can’t sell it, they have all sorts of options,” says Minter.
There are signs that the arrival of the big brands has changed the dynamics of the charity sector, with people selling their best used clothes and donating the rest. Erikshjälpen, which runs charitable second-hand shops in Sweden, is getting lower quality donations and now has to pay to incinerate about 70 per cent of the clothes it receives, according to a worker cited in an academic paper by Hinton and Ola Persson.
Many of the big brands have sought to get around these problems by offering a mere marketplace, where private consumers meet to buy and sell with the companies merely an intermediary.
For instance, a seller on Ikea Preowned types in their product name, gets help from the company’s artificial intelligence to generate photos and measurements, adds a comment on the product’s state, and then lists it for sale. Any buyer has to organise pick-up of the furniture and check its quality themselves. An incentive for sellers is that they can be paid in cash, or get a bonus of 15 per cent extra if they choose Ikea vouchers instead. “It’s a good way to reconnect with customers,” says Brodin.
The Ikea marketplace is currently free to use, and if a fee would be charged in the future it would be “a very humble” one, adds Brodin. That aims to undercut the seller fees on a platform such as eBay that can be considerable for large pieces of furniture.
But it also underscores how hard it is for such platforms to make money. Vinted, which charges no seller fees, became the first second-hand fashion platform to turn a profit earlier this year as it eked out a net profit of €18mn on sales of €596mn.
“Second-hand is still a drop in the ocean. What we see as the challenge is to convert people to a mindset to first look at second-hand before looking at new,” says Thomas Plantenga, chief executive of the Lithuanian start-up. Zara, Shein, and Cos all offer their own marketplaces.
Minter says it is difficult for a Depop or ThredUp to compete with Goodwill, the world’s largest second-hand organisation, which is run as a non-profit. “It’s an organisation that gets its inventory for free, it has highly trained staff who know how to sort through it, operations managers who know where to sell it. P2P doesn’t have that knowledge,” he adds.
There are other issues as well. Fraud is a problem, particularly for high-end clothing. Vestiaire Collective and Monogram both use authentication services to check a bag really is Gucci. Vinted also does this for certain items with the buyer paying a fee.
Certain services could have loopholes, such as the possibility on Ikea Preowned that sellers could sell to themselves and friends to receive vouchers for free. “This is where we are still learning every day, and we need to understand how, if, and where the problem exists to be able to mitigate it,” the company says.
Then there are the companies that are handling the products themselves. Most Lego products are passed on to friends, family or given away, but the toymaker is keen to ensure that the remainder is reused or recycled rather than thrown away.
Tim Brooks, Lego’s former head of sustainability, said in an interview last year that the toymaker was taking several years to learn how to deal with “reverse logistics” — the idea of taking back bricks rather than selling them — as well as how to sort them, discarding everything that is not Lego and cleaning them.
The company is doing that through trials of its Replay service in the US, Canada and the UK where people donate used Lego, and the company then passes them on to charities or schools with almost 500 tonnes of bricks received so far. A separate buyback offering in Germany pays customers in gift cards at €8 per kilogramme of bricks or minifigures sent in. “It’s a long journey for a company used to linear manufacturing. It’s quite a shift in thinking,” says Brooks.
What is clear is that the second-hand boom is unlikely to let up any time soon. Companies are searching for answers to cut their emissions and to make their business circular, with as much as possible reused or recycled.
Brodin himself says his eyes were opened after he sold his children’s cot on a second-hand platform, only to then have a new baby. “I bought back the cot I sold,” he adds. “From a sustainability perspective this is the smart thing to do, to make sure you used materials in the right way.”