With the secondhand retail market well on its way to becoming a $51 billion business, The RealReal Inc., an online marketplace for consigned luxury items, soared 45% after its stock began trading on Friday.
The company set an initial public offering price of $20 a share, above its range of $17 to $19 a share, expecting to raise up to $300 million for a valuation above $1.6 billion.
Underwriters for the deal are led by Credit Suisse, BofA Merrill Lynch and UBS Investment Bank. If the underwriters exercise all of their options to buy up to 2.25 million additional shares of stock, The RealReal could raise as much as $345 million.
It is trading on the Nasdaq under the ticker “REAL” REAL, +44.50% . Post-IPO, the company will have 82.7 million shares outstanding.
The RealReal REAL, +44.50% uses proprietary technology and trained experts to sell consigned luxury goods across categories ranging from women’s, men’s, kids, home and art.
Read: Neiman Marcus, H&M join growing list of brands that are tapping the secondhand market
“Luxury goods retain value over time as a result of their enduring desirability and durability, making them particularly well-suited for resale,” the prospectus says, with The RealReal quoting data that shows the total addressable market in the U.S. for luxury goods at $198 billion.
Key to the company’s success is growing its network of consignors, which feeds the pipeline of quality goods and attracts shoppers, and leads to increased commissions for the consignors themselves. The RealReal says it paid a cumulative total of $987.7 million in commissions through March 31, 2019.
The company, which was incorporated in Delaware in March 2011 and has its headquarters in San Francisco, generates revenue from digital orders and three retail store locations in New York and Los Angeles. Total revenue in 2018 was $207.4 million, up from $133.9 million the previous year. The company had a net loss of $75.8 million in 2018, and expects to incur losses into the future.
The RealReal processed 1.6 million orders in 2018, up 42% year-over-year, with an average order value of $446, up 2% from 2017. The company had 416,000 active buyers in about 60 countries in 2018.
“Investors are interested in the RealReal deal because of its strong sales growth of 50% and large addressable market for authenticated luxury consignment in the online format,” Kathleen Smith, principal at Renaissance Capital, said in an email ahead of the company’s pricing Thursday. “While losses will continue for the next several years related to high sales & marketing and added personnel for authentication, RealReal has been valued at a discount to its high growth e-commerce peers.”
ThredUp, another player in the secondhand business, forecasts that the resale sector will reach $51 billion by 2023, and will be larger than fast fashion in a decade.
And with closets now twice the size of 30 years ago, according to Yerdle, a tech company for resale businesses, there’s plenty of supply.
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“Our success depends on our ability to cost-effectively attract retain and grow relationships with consignors, and in turn, our supply of luxury goods sold through our online marketplace,” The RealReal wrote. Sales professionals are key to sourcing these items.
“The process of identifying and hiring sales professionals with the combination of skills and attributes required in these roles can be difficult and can require significant time,” the prospectus said.
Here are five more things to know about The RealReal ahead of its IPO:
It plans to use part of the proceeds from its IPO for charity
The RealReal plans to use most of the proceeds from its IPO for working capital and expenses. But 1%, or more than $3 million if the deal prices at the top if the indicated range and the extra shares are sold, will go to The RealReal Foundation, which was formed to “engage in charitable activities.”
The RealReal will also use $300,000 to pay a lender under a term loan facility. Some of the proceeds may also go toward investments in technologies, products or services.
There are no plans to pay a dividend for the foreseeable future.
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Its business has a sustainability message
In addition to touting its authenticated luxury goods, The RealReal talks up the sustainable attributes of being in the secondhand business.
“We have built a vibrant marketplace that promotes the recirculation of luxury goods and contributes to a more sustainable world,” the prospectus said.
In a letter to current and future stockholders, Chief Executive Julie Wainwright reiterated the company’s eco-conscious attributes.
“Our buyers and consignors are motivated by the awareness that recirculating luxury products (and recouping some of their original investment) is not just good for them personally, but good for the planet,” the letter said. “Since The RealReal’s inception, the fast-fashion market has exploded making fashion disposable and is a key contributor to the estimated dump-truck-per-second of apparel added to landfills, according to a report by the Ellen MacArthur Foundation.”