Authenticity doubles the value of secondhand luxury goods

 
  Buyers of secondhand luxury will always be willing to pay more if they are confident their purchase is authentic. We found they are willing to pay about twice as much, actually. // Image: Arylla & Tobias van Schneider / Unsplash

Buyers of secondhand luxury will always be willing to pay more if they are confident their purchase is authentic. We found they are willing to pay about twice as much, actually. // Image: Arylla & Tobias van Schneider / Unsplash

One of the greatest challenges for consignors is figuring out the right selling price. Condition, age, brand, style, and colour are all considerations when deciding the final price tag. It’s also influenced by what is happening in the retail market. The RealReal has been particularly vocal about the trends they witness and how they foreshadow a brand’s future success/decline. Back in 2015, they correctly predicted the renaissance of Gucci after noticing a surge in demand on their platform when Alessandro Michele was appointed the new creative director.

A lesser known factor affecting resale prices is risk. When consumers buy secondhand through websites like ebay, they take on a certain level of risk associated with being sold something fake. There are ways for consumers to get a refund on fraudulent purchases, but a quick Google search would reveal those processes are time consuming and don’t always work. 

Since curated platforms like The RealReal spend millions authenticating products before they’re sold, there is a much smaller risk of being deceived. We conducted a study to get some insight into the effect of risk on pricing in the secondhand market. It was based on a selection of data mined from listings on ebay, The RealReal, Tradesy, and Vestiaire Collective. To get an accurate snapshot of the market, we focused on a set of 50 luxury brands and looked at three product categories – ready to wear, handbags, and footwear.

Overall, the average price of products across all categories was 85% higher on curated platforms than on ebay. The findings become even more interesting when they are broken down by category and age (summarized below).

 

Difference in price for products listed as “used”: 167%

Percentage of products listed as “new” on ebay: 53%

Products listed as “new” on curated platforms (average): 22.3%

We carefully considered potential sources of error. To make sure we weren’t haphazardly grouping curated platforms together, we evaluated differences in pricing. The average prices were within 10% of each other, indicating curated platforms are similar with regards to how much they charge. We also evaluated age to confirm higher prices weren’t the result of newer products being sold. Surprisingly, the percentage of products listed as new on ebay is 2x higher than on curated platforms, so we can rule out age bias. The variable that couldn’t be completely controlled for was the difference in the types of products being sold. There is a possibility that some products are more likely to be sold on curated platforms because of the added convenience, desire to join the community etc. To address this concern, we devised a quality ratio which is equal to the number of high price point items (defined as +$2K for handbags and +$1K for footwear/ready to wear) divided by the number of total items. All the ratios were within 12% of each other, suggesting consumers don’t prefer to sell higher value items on curated platforms. This error analysis doesn’t make these results irrefutable, but it does affirm there is a strong positive trend between consumer confidence and resale value.

Authenticity is the main weapon used against traditional marketplaces in the battle for secondhand shoppers. This approach has worked so well that ebay is now rolling out their own competitive authentication service. Aside from brand equity, which is still weak among these nascent platforms, the only explanation for the heightened pricing power is their ability to reassure buyers about authenticity. These assurances drive down the risk of purchasing a fake and needing to go through painstaking amounts of red tape for a shot at a refund. This leads to another question – if individual sellers on ebay provided the same authenticity guarantee, would they also enjoy the benefits of higher pricing? Absolutely.

Curated platforms have created an entirely new market segment by offering online buyers a safe way to shop secondhand. Data compiled from ebay, The RealReal, Vestiaire Collective, and Tradesy shows how investing in authentication can boost pricing power. While it’s uncertain whether this trend is the result of market forces or if higher prices are needed to offset the cost of authentication, buyers have made it clear they are willing to pay more to avoid the risk of being sold a fake. So now you know where we got that 90% number from on our website.

Note: all prices gathered for ebay were the prices at which products were sold and not the prices at which they were listed for auction. All the data from ebay can accessed for free at https://explore.ebay.com/.

References

  1. Bloomberg, 2017. https://www.bloomberg.com/news/articles/2017-09-27/prada-ferragamo-unfashionably-late-to-luxury-industry-s-rebound
  2. WWD, 2016. http://wwd.com/business-news/media/a-study-by-the-realreal-reveals-luxury-resale-trends-10503311/

Arylla