Luxury and resale – it’s complicated

Luxury has some very real criticisms of resale, but we think those can be addressed. // Image: Jezar / Unsplash

Luxury has some very real criticisms of resale, but we think those can be addressed. // Image: Jezar / Unsplash

It’s no surprise that luxury brands are uneasy about the existence of a secondhand market. There is a lot of uncertainty around the potential negative effects of reselling luxury. This post aims to spotlight the major criticisms of resale and how they can be addressed.

Resale cannibalizes the sale of new products

The circular economy is a “green” initiative because it promotes re-use instead of increased consumption. What impact does that have on the primary market? Luxury brands generally believe the resale market cannibalizes sales. On the other hand, resellers believe they are doing a service to luxury brands by allowing their customers to liquidate their closets and buy more of their products. The reality lies somewhere in the middle. We conducted a survey that showed 65% of those who shop pre-owned luxury are not seeking to replace new luxury purchases. Therefore, the majority of consumers do not pose a cannibalization risk. Even in special circumstances where cannibalization of sales is high, there are many ways a luxury brand can position itself to generate revenue from the resale of its products and offset those losses.

Interestingly, 15% of survey respondents were millennials and first time luxury buyers. This supports the narrative that resellers are providing luxury brands a service – they provide a first touchpoint to consumers who are price sensitive. As anyone who enjoys luxury will know, all it takes is one great experience to convert skeptics into lifelong customers.

Resellers cannot verify the authenticity of their inventory

Luxury brands are often concerned that resellers don’t have the requisite knowledge to authenticate their products. These doubts are well founded for P2P platforms who never handle the product. Curated consignors like Vestiaire Collective have qualified personnel on site to verify authenticity and are properly trained. However, not everything is inspected to the same extent due to the high cost of manual authentication. Resellers are therefore responsible for finding the proper balance between cost and authenticity. Brands will understandably feel uneasy about resellers having complete autonomy in deciding what products should and should not be authenticated. That concern illustrates why brands and resellers need to start working together to protect the secondhand market. This can be as easy as sharing data and educating each other about best practices for authentication.

The widespread availability of secondhand products may damage the brand

The resale market represents a sales channel that brands have no control over. A major part of building a luxury business is being very careful about how many products are made and where those products are sold. Overproduction can flood the market and lead to a Michael Kors or Coach type situation. Poor product placement can damage a brand’s reputation and pricing power. Resellers don’t necessarily consider these factors when deciding whether to sell something – if the product is authentic and in good condition, it is likely to be sold. The negative effects of this non-luxury approach can’t be eliminated but they can be mitigated. If brands work with resellers to verify authenticity, they can leverage that relationship to get data about how many products are being sold and what products are at risk of being over supplied.

There is plenty of friction between brands and resellers. Nonetheless, we are confident there is an opportunity for both parties to profit from the growing demand for secondhand luxury. If you combine the business acumen and creative genius of luxury brands with the technology and grit of resale marketplaces, the sky is the limit!