ThredUp is testing a premium service with a higher processing fee

CEO James Reinhart described this new program as a way to encourage people to send in better products that will sell at a higher price.

“We want to be a place where customers can find great brands at great prices, not a landfill,” he said. “And I think a lot of the work we’ve put in to really improve the sales experience, by definition, improves the shopping experience.”

Consignment Premium is the latest example of ThredUp experimenting with new fee structures. Founded in 2009, the company made a name for itself in the early days of online sales. Customers would ask for their products to be filled in the distinctive polka-dot plastic bags and return them to ThredUp for listing. ThredUp will receive the items, determine the resale value, and then refund sellers in cash or store credit.

However, one of the biggest challenges the company has faced is people shipping items that are not suitable for resale. This may be because these products are discarded, low-value, or damaged fast fashion items. At times, ThredUp has had to shut down its services to catch up on processing items, much to the chagrin of customers. Over the years, the company has experimented with different fees and commissions for services such as returning items, but officially introduced a $14.99 service fee for all Clean-Out transactions in early 2023.

ThredUp went public in 2021 as demand skyrocketed and people cleared out their closets amid lifestyle changes caused by the pandemic. The company debuted at around $18 per share, but its stock has now fallen below $2. Still, ThredUp reported three consecutive quarters of positive adjusted EBITDA. In the first quarter of 2024, revenues reached $79.6 million, up 5% year-over-year, and the number of active buyers reached 1.7 million, up 4% year-over-year. Looking ahead, it expects to generate free cash flow throughout the year.

Part of the company’s work was to initiate small-scale experiments to see what worked for online resale buying and selling. Not all of them end in success. Reinhart confirmed to Modern Retail that it has closed its spin-off store 777Thrift, which sold branded products valued at less than $7 apiece. The earlier luxury goods selling service Consignment Pro was also tested last year with around 5% of users but was also shut down.

However, some changes are permanent. ThredUp no longer provides refunds for low-cost brands like Forever 21 or Old Navy. Added transparency to the seller guide, such as how premium and designer brands like Lululemon and Gucci will receive up to 80% of the sale price. Shoppers can check which brands qualify for payouts before shipping their bags. This is a tool that can dispel the doubts of sellers who believed that the return on their products was low.

These business model experiments reflect the changing nature of the online used clothing world, where companies face the dual challenge of serving sellers and buyers. Poshmark, which facilitates peer-to-peer resale, encourages live shopping and social events to drive sales. For its part, Mercari recently waived seller fees and introduced purchase processing fees, though it quickly changed its policy that allowed returns for any reason. Meanwhile, many brands are also looking to capture some of the second-hand profits by implementing their own resale programs.

While Reinhart didn’t reveal how many people have used it, Consignment Premium has received “positive feedback” so far. The test covers people who signed up to the waiting list announced in the “sell” section of the website, as well as 20% of the traffic going to the Clean Out website. “People really appreciate the cleaning service. But one of the biggest things they don’t understand is, “Why didn’t you take this item?” That’s why this new premium service allows you to pay a little more and be sure that we will accept everything.”

The only caveat, Reinhart said, is that the items must still be in salable condition and meet applicable standards. “If you ship good stuff, it’s a value transaction.”

Matt Semmelhack, co-founder and CEO of reusable packaging company Boox, said it makes sense for ThredUp to charge for its services in hopes that people will ship better products. “They offer a valuable service and people are willing to pay the cost,” he said. He added that people are increasingly willing to leave a parcel if there is an incentive for them.

Boox produces packaging that can be reused if someone returns it, which is a sticking point for many. But a year-long experiment at Boox, which allowed people to send clothing donations with their parcels, yielded about six tons of clothing. Semmelhack believes the program was successful because customers were more likely to return Boox if they knew they were disposing of clothing responsibly.

Boox has partnered with Goop, for example, on a service that includes a free gift if people choose to have Boox delivered. Semmelhack said the introduction tripled the parcel return rate.

Tinkering with the fee structure

When ThredUp launched about 15 years ago, offering a free cleaning kit was a way to get customers to test out a new concept. “We wanted you to fill it, and we wanted it to be as convenient as possible for consumers, and that worked very well.”

But the pandemic-driven e-commerce boom left ThredUp overwhelmed by the number of people shipping things. Additionally, more and more people received boxes delivered to their homes as they changed their retail habits. Reinhart said that’s when the company started rolling out the idea of ​​allowing customers to print shipping labels and place them on their own packages. If you really want to clean out your closet on Saturday, we can help. You print the label, put it on the box and you’re done.” Meanwhile, those who want a bag of the Clean-Out Kit shipped to their homes will pay a $2.99 ​​fee from their earnings. There are also approximately 800 stores that ThredUp partners with through a brand partner resale program where they can hand-deliver cleaning kits to customers free of charge.

ThredUp experimented with user selection before making it permanently available to all sellers. But these tests showed that some people preferred the free option, while others still wanted the “elegance” of the kit. Right now it’s about a 50-50 split on which options consumers choose, Reinhart, and some buyers chose one or the other at different times. “We see that our existing sellers tend to respond to this, and I think that’s a sign of success,” Reinhart said.

Another experiment that has become permanent is the $14.99 processing fee that is levied on someone’s earnings. Knowing that the pay cap will be reduced will reduce the number of unsold items that people send in. “We basically couldn’t accept any more cleaning kits, we were inundated with low-quality kits,” he said. he said. “The fee (created) a moment where the consumer can say, ‘Oh, I’ll send reasonable, cool stuff here, because otherwise it might not make much sense.'”

Although converting a free service into a paid service could be seen as a barrier to participation, it had the opposite effect. The number of requests for cleaning kits increased by 74% from the first quarter of 2022 to the first quarter of 2023. There was also a 19% increase in the number of returns of cleaning kits, which means that people were more willing to return products after applying for the label.

A seller fee also means people send more products – and higher quality brands – in the hope of getting a return. The premium product range increased by 12% from Q1 2022 to Q1 2023.

“It’s a better economy,” Reinhart said. “People aren’t being pushed out by people who just want to donate, and I think that’s where we can really make an impact.”