When James Reinhart founded thredUP six years ago, it was a very different company. It was supposed to let adults swap their used shirts over the web. But he soon realized it was a good idea, but a bad business.
The startup then pivoted to swapping kid’s clothing – after all, they outgrow it faster – and that got the attention of a few investors.
“When we launched in 2009, we were really the first company to try to tackle second hand. It was a crazy idea. Airbnb and all of these companies were using the term sharing company,” said thredUP’s CEO and cofounder James Reinhart in an interview with Business Insider.
It wasn’t until thredUP switched entirely to a secondhand, thrift store-style business that the startup took off. It now sees more than 1.8 million visitors to its site and by the end of the year it expects to process more than a million items each month.
The business model that attracted a few investors has now ballooned to an $81 million round led by Goldman Sachs, bringing its total funding to more than $125 million.
“We got the business model wrong back then,” Reinhart said. “It wasn’t until 2012 that we had the aha moment behind the thredUP clean out bag.”
Selling your clothes or buying used ones isn’t a new idea – it’s just hard to figure out how to do it efficiently. Many people currently rely on going to local consignment shops and hand over their clothes to get credit, or sometimes cash back. Those shops, though, are constrained by the local supply of goods and by people being willing to come to the store and sell them.
Reinhart wanted to make it as easy as stuffing a laundry bag full of clothes and never having to deal with them again.
The startup realized that it was better to do the selling for the consumer and not have them worry about it. ThredUP sends sellers a “clean out kit,” and customers fill up the hamper-sized bag with the clothes they want to sell. The bag is pre-addressed and includes postage. All customers have to do is drop it off at the post office or FedEx, or schedule a USPS pickup.
ThredUP then processes the items, prices them, and photographs them before posting online for sale. For any items worth less than $60, the seller is instantly paid. Any items they don’t accept are sold in bulk for scraps and the money goes to charity. Any money that goes to a seller can be used instantly for store credit or be cashed out to PayPal two weeks later.
Other startups competing with thredUP treat the second-hand market differently. Poshmark lets users sell their clothes piece-by-piece and feels more like an Instagram of fashion items. TheRealReal operates similarly to thredUP, but only for high-end luxury goods. ThredUP, on the other hand, accepts brands from Old Navy to J. Crew to Free People as long as the items past its quality test.
Another startup, Twice, was previously its main competition, but it got bought by the incumbent: eBay.
“Frankly, they got sold because we beat them,” Reinhart said.
The key to keeping its costs low is by using warehouses to centralize operations and quality control. Consumers are only shown items that are in the closest warehouse so they’re more likely to be on style for the area you live in and have a shorter shipping time as a result.
While the only two are in California and Pennsylvania right now, thredUP is going to spend its new cash infusion on building one in the Atlanta area and one in the Chicago area, Reinhart said.