The RealReal Business Model | How The RealReal Makes Money?

The RealReal is a virtual and physical marketplace that sells authenticated luxury items such as jewelry, watches, home furnishings, and clothes. Consignment fees are charged by the company to manage the sales of relevant products. 

Consignment fees are charged by the company to manage the sales of relevant products. Buyers can also choose between two premium membership levels.

The Real Real is a high-end consignment store where you can resell your luxury items for a reasonable price. A slew of complaints filed with the Better Business Bureau, on the other hand, portrays a different story.

The RealReal Business Model is based on Consignment fees and membership charges. However, there are some other sources of income for the organization which provide them additional revenue.

Consignors report that the site frequently reduces their goods much more severely than the sellers expected, leaving them with a far lesser return than planned. 

The site’s “terms and conditions” state that Real Real can automatically discount anything listed for sale on the site by 20%. 

The result is that if you sell a $200 product at a profit of $40, you lose $40. The RealReal charges a 50% commission on the remaining $160 purchase price. Your $200 purchase will result in an 80 percent discount.

What is The RealReal?

The RealReal is an online fashion marketplace where authenticated products are sold. The RealReal consigns merchandise with well-qualified experts who check each item.

The RealReal Business Model

The RealReal earns money by charging a consignment charge on each transaction and a monthly membership fee in exchange for exclusive product access.

The RealReal, founded in 2011 and located in San Francisco, has quickly risen to become one of the world’s biggest luxury markets. The sustained growth that The RealReal has been experiencing enabled it to go public in July 2019.

Company NameThe RealReal Inc
Company TypePublic
FoundersJulie Wainwright
ProductThe RealReal Marketplace
Founded Date2011
HeadquarterSan Francisco, CA
Area ServedUnited States
Websitehttp://www.therealreal.com

How Does The RealReal Work?

The RealReal marketplace allows buyers to purchase authentic luxury goods online. Customers can purchase clothing for men and women, jewelry, watches, home furnishings, and more.

The RealReal consigns everything it advertises on its platform. The RealReal allows you to sell in the following ways.

Sellers first send their for-sale items to The RealReal. You can pick up your items in a physical store or deliver them to one of the company’s e-commerce hubs.

An expert from the company verifies the authenticity of the items after receiving them. The objects are inspected by specially skilled gemologists, horologists, and watchmakers at The RealReal.

The company’s copywriting and photography teams then ensure that an accurate description is written and photographs are taken of the objects following the authentication process.

Finally, an expert mathematical and statistical team determines what price is the best. The company analyzes data from over 8 million sold items. The RealReal’s marketplace is then made available for purchase after the procedure is complete.

The RealReal then transacts with the customer, allowing them to transfer money and get the products. 

Sellers will be paid after The RealReal fees are deducted from the selling price of the product after it is sold, but we will talk more about that later.

Aside from private sellers, The RealReal collaborates with well-known luxury brands. The RealReal has announced a new strategic agreement with Gucci, under which the company will purchase items directly from the Italian fashion label.

Every day, more than 5,000 goods are added to The RealReal platform, according to the company. Shoppers can access the platform via its website or its Android and iOS mobile and tablet apps.

How Does The RealReal Make Money?

The RealReal earns money by charging vendor consignment fees and offering membership subscriptions that grant unique access to various products.

Let’s take a closer look at each of these revenue streams below.

Consignment Fee

The RealReal’s main source of revenue is the fees it charges for managing the sale of consigned products.

The organization has a tiered compensation structure based on items types, such as watches or sneakers, sales price, and the number of previous sales the seller has made.

The RealReal divides sellers into three categories: INSIDER, ICON, and VIP. It has the following commission structure:

The tiered commission structure enables the company to recruit more sellers while incentivizing them to sell more through the platform.

The RealReal commands up to 60% commission rates due to its extremely wealthy user base. Many sellers may not have the time or desire to submit a listing and manage client inquiries themselves.

Moreover, there is a very good chance that sellers will earn a higher sales price to compensate for the costs. This is the high level of trust buyers have in The RealReal since the company uses professionals (like gemologists or horologists).

Professionally created photographs, as well as well-thought-out copies, will increase the sale price. 

Over 82 percent of the company’s sales are from repeat consumers, demonstrating its users’ faith in The RealReal.

The RealReal launched a B2B vendor program in 2018 to source supply from businesses, like its collaborations with Burberry and Gucci. 

While not publicly published, it is safe to infer that commercial sellers will receive a bigger commission percentage because the products have already been validated and will not need to go through a verification process.

First Look Membership Fees

The RealReal started life as a membership-only website. Everyone may now visit the site and view its listings 24 hours a day, seven days a week.

The RealReal continues to offer membership through a subscription model, despite the lifting of platform exclusivity. There are two categories of subscriptions offered by the company: FIRST LOOK and PLATINUM.

First Look costs $10 a month and includes premium services, including 24-hour advance sales, waitlist alerts, and first-look promotions. 

The $30/month PLATINUM plan includes all the features of FIRST LOOK and 2-day shipping (within the US).

What is the Funding and Valuation of The RealReal?

Crunchbase reports that The RealReal has raised $358 in venture capital funding over 11 rounds. Early in the company’s development, notable investors included Greycroft, e.ventures, Canaan Partners, GreyLion Capital, and others.

The RealReal Business Model

The RealReal raised an additional $300 million during its IPO in 2019. The RealReal was valued by public investors at $1.7 billion at the time of its IPO. At the time of writing, the valuation of The RealReal has reached $1.65 billion.

What is the Revenue of The RealReal?

The RealReal reported overall revenues of $318 million in the fiscal year 2019, a 53 percent increase over the previous year.

The company’s Gross Merchandise Volume (GMV) has also topped $1 billion. However, during the First Quarter of FY 2021, The RealReal saw an increase of 27% Y/Y revenue with total revenue of $98.8 million. 

Success Story of The RealReal

The RealReal, based in San Francisco, California, was created in 2011 by Julie Wainwright, who is still the company’s CEO to this day.

Wainwright began her career in brand management in the 1980s while working for Clorox. Someone from Clorox’s financial department brought in an Apple II computer with VisiCalc, one of the earliest spreadsheet programs, installed on it one day.

Wainwright saw the impact that computing and software could have on the world right away. She subsequently became a product manager at Software Publishing. She was later tasked with establishing a Power Up! spin-off in London.

She returned to Californiaornica after a brief period in the United Kingdom, where she served as Vice President of Worldwide Sales and Marketing at Berkeley Systems. She was elevated to CEO at the age of 30.

One of her most notable accomplishments was the release of You Don’t Know Jack, which quickly became the best-selling game in the United States. Berkeley Systems was subsequently sold, and Wainwright was enticed to join Reel.com as CEO.

Reel was an online video store where users could rent and buy movies (mostly on DVD). Reel competed with Blockbuster and Netflix, which started as a DVD rental business in 1997.

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Under Wainwright’s direction, Reel.com grew from $400,000 to $25 million in annual sales. In 1998, Hollywood Entertainment paid $100 million for the company. Hollywood Entertainment shut down Reel two years later to reduce competition in the space.

Wainwright had already gone on to what could have been her biggest (public) failure of her career by that point. After leaving Reel, she went to work at Pets.com.

Pets.com’s annual sales increased from nearly nothing to more than $45 million. Less than two years after its inception, the company went public in February 2000. 

Its IPO raised an additional $82.5 million, in addition to the $15 million it had previously collected in private markets.

Pets.com became famous for its extravagant spending, including a $1.2 million investment in an ad that aired during the 2000 Super Bowl. The company had to declare bankruptcy a year later, in January 2001.

In exchange for monitoring the firm’s liquidation, Wainwright earned $235,000 in severance and a $225,000 retention payment. However, her reputation among Silicon Valley investors and the wider public was seriously harmed.

She spent the next few years mostly hidden from public view. During that period, I had a few public speaking engagements, tried my hand at health blogging, and worked in venture capital.

Wainwright got the idea for The RealReal while shopping in Atherton, a rich Silicon Valley neighborhood, in 2010. She and a buddy went over to shop at a boutique that sold secondhand designer stuff.

That day, her companion purchased many pieces, which confused Wainwright. She just didn’t think anyone would buy secondhand apparel – even if it were Gucci or Prada. She began exploring the secondhand-luxury sector the same night.

She listed several of her designer goods for sale on eBay, which turned out to be a total “horror.” Even my experience at a local secondhand shop and pawnbroker was mediocre at best. Wainwright quickly understood she had landed on something significant.

She paid $100,000 out of her cash to register and launch the company. By the end of June 2011, the company had a fully operational office and a 1500 ft2 warehouse to store its clothes. Its website went live the same month.

The RealReal began as a membership-only service that provided shoppers with unique access to newly released designer merchandise. As a result, the company sold both used and brand-new apparel.

The RealReal struggled to raise funds from investors in its first year. There were concerns about Wainwright’s public failure at Pets.com, as well as her age; she was already in her mid-50s at the time. Others simply did not comprehend the business model of the company.

Despite all odds, The RealReal emerged victoriously. The company raised its initial round of funding (Series A) in July 2012, followed by a second round (Series B) approximately 9 months later. By that point, the startup had amassed over 750,000 subscribers and 1.5 million monthly visitors to its website.

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The RealReal continued to grow its internet presence over the next few years. Surprisingly, attracting buyers to the site was never an issue. Instead, the key issue for the corporation was to expand the supply side of its marketplace.

To that end, it hired over 100 consigners and style experts who were entrusted with locating additional goods. When they see someone wearing luxury products in public, some of them approach them and ask if they’d be interested in selling their garments online.

The RealReal finally entered the physical world in 2017, when it opened its first brick-and-mortar store in New York. Its actual branches, of which the company now has three, enabling it to deal with both sellers and buyers directly.

Sellers, for example, can have their products consigned immediately at the store — and sales can be completed in minutes. Buyers, on the other hand, can test out some of the things before making a purchase.

The RealReal was able to go public in July 2019 due to ongoing online and real worlds expansions. Wainwright was among the first female founders (just after Katrina Lake of Stitch Fix).

Nonetheless, the road to the top has not always been easy. For the first time, The RealReal was accused of selling counterfeit goods on its site. Chanel even sued the company in 2019 for allegedly and intentionally selling counterfeit Chanel products.

Other premium brands, meanwhile, have embraced The RealReal. Previously, the corporation declared exclusive relationships with brands such as Burberry and Gucci, which highlighted products that were not sold on their site.

The RealReal now has over 17 million users. The corporation employs over 2,000 individuals, which has 15 global offices in the United States and Australia.

Key Takeaways From The RealReal Business Model

The RealReal is a marketplace that sells authentic luxury new and used goods both online and in person. Julie Wainwright created it after witnessing a friend purchase a big number of second-hand designer fashion.

The RealReal generates revenue by collecting consignment fees to individuals who seek to sell on their site. Fees vary depending on the item sale price, previous sales volume, item demand, and whether or not the sale is part of the RealReal Rewards program.

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The RealReal also generates a small profit from two premium membership options for buyers. They can get first access to special specials and two-day shipping to the continental United States on some items.

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