Poshmark: reining in costs is key to turning rags to riches

Old is the new new when it comes to fashion. Whether driven by environmental concerns or an aversion to paying full retail price, the market for second-hand clothes is booming. The pandemic has further powered the trend. Wardrobe clear-outs — Marie Kondo-style — have fuelled sales, while extended periods of shop closures have spurred demand.

Poshmark, an online marketplace for people to buy and sell pre-owned clothes and accessories, moved $1.8bn worth of goods on its platform last year. This was 27 per cent more than in 2020 and two-thirds higher than its pre-pandemic level. Revenue rose by a quarter to $326mn.

But Poshmark has not quite mastered the art of turning rags to riches yet. Not making a profit is deeply unfashionable among investors these days. The company made a loss of $98mn last year. That helps explain why Poshmark shares are down more than 80 per cent from their 2021 peak.

It is not alone. Rival reseller ThredUp has shed 72 per cent of its value since touching a high last July. The RealReal, which focuses on used luxury goods, has suffered a similar drop over the past 13 months.

It is not for lack of demand. A recent report for ThredUp by GlobalData reckons that the total resale market for second-hand clothes could hit $77bn by 2025, more than double the figure for 2021.

Stiff competition means Poshmark needs to spend heavily to attract customers. Changes in Apple’s privacy policy have not helped. Marketing expenditure rose 54 per cent last year to $143mn, or 42 per cent of annual revenue, as the company spent more on TV ads and social media partnerships to counter the effect of Apple’s changes.

Poshmark shares are priced at just three times forward revenue, compared with a one-year average of over 7 times. This means it will not take much to give the stock a lift. Inflation is likely to drive more people to selling and buying second-hand. To sew up some new investors, it just needs to show it can rein in costs.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.


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