McKinsey’s report says that exploring the rapidly expanding resale marketplace not only provides luxury brands with a new revenue source, but it could also have a positive impact on brand loyalty and buyer desire. It says that the estimated global luxury resale industry, valued at $25-30 billion, is expected to grow by 10-15% per year over the next decade.
The study states that it is not surprising to see some luxury brands enter the market. Gucci has, for instance, partnered with the online resale marketplace The RealReal in order to recycle and upcycle their products. Meanwhile, Switzerland’s Richemont acquired UK-based Watchfinder and French luxury giant Kering invested in Vestiaire Collective.
Many brands are unsure of how to best deal with this phenomenon. They worry about the impact it could have on their margins and jealously guarded identities. McKinsey says that these companies are more worried about losing out on a great growth opportunity.
The report states that “our findings confirm the appeal” of the resale market: “Done prudently, the entry of a brand should not erode the margins and result in limited cannibalization.” The report states that “it is clear that luxury resale will be around for a long time. Brands that do not participate in this market risk losing out on an important opportunity.”
McKinsey points out that luxury brands entering the resale sector can have a positive effect on the perception of businesses by consumers, even if the latter only purchase new clothing.
54 percent of the new-product purchasers surveyed by this firm were in agreement that as long as the customer experience was consistent, they would continue to have a positive perception of the desirableness of a luxury product that has expanded into resale. Only 5% disagreed.
Fourty-six percent of new-product purchasers surveyed agreed with this statement: “Brands directly selling or promoting shops/platforms who sell pre-owned goods will not change my impression of the brand.” Another 46 percent said they would buy new products from luxury labels offering pre-owned items in the future.
The report highlights that companies must be aware of the fact that every national market is unique. While consumers in France and the United States responded positively to the questions above, Japanese consumers had a negative reaction.
The two biggest markets for used luxury cars are currently the United States and the European Union, with China accounting for about 10% of the global market.
McKinsey research revealed that 41% of luxury pre-owned buyers purchase second-hand items because they can access hard-to find products or pieces which are no longer in production.
For 40%, the choice to buy pre-owned is also driven by sustainability. And for 36% it’s a matter of financial affordability.
Three-quarters (75%) of luxury pre-owned buyers are also resellers. It’s therefore important that brands who are considering resale take into account the needs and motives of this segment of the market. The study shows that 41% of resellers sell pre-owned items to make room in their closets, and 36% do so because they have changed their style.
McKinsey suggests luxury brands that wish to enter the resale market “might find a way to appeal to certain client segments”, organising the marketplace more efficiently for collectors or streamlining trade-in processes for consumers who want to sell products from last season to purchase pieces from the latest collections.
