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With New Funding Round, ThredUP Plans To Double Down On Overstuffed Closets Everywhere

Used-clothing retailer ThredUP, which just raised $81 million, has perfected a sort, photograph, and post process that allowed it to scale.

When James Reinhart started ThredUP six years ago, it was a site parents used to swap boxes of used children’s clothing. Then, in 2012, he tried an experiment: He sent a handful of his customers large bags and told them to put whatever clothes they didn’t want anymore into them. If they sent the bags back, he would buy what he wanted to resell on the site. When about 70 of 100 people sent the bags back–a far better rate than at which users were swapping boxes–Reinhart knew he was on to something.

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James Reinhart

He moved ThredUP into a 9,000-square-foot warehouse the next week. It was enough room until about 90 days later, when the company moved into a bigger facility. After that, the company story becomes a series of ever-expanding warehouses busting at the seams with used men’s, women’s, and children’s clothing.

Online consignment has had a big couple of years in terms of venture capital: Twice, a company that raised $23 million in venture capital, for instance, sold to eBay after failing to build a big enough consumer base. Threadflip, another competitor, has raised $21 million in funding; Tradesy has raised $44.5 million, and The RealReal has raised $83 million. On Thursday, ThredUP announced that it had raised an $81 million round of funding led by Goldman Sachs, bringing its total funding to $125 million.

As some question whether this business is actually tenable, ThredUP is well on its way to proving that it’s at least scaleable.

About 500 workers in its two warehouses–110,000 square feet and 150,000 square feet large—together process almost 1 million items of clothing every month. The company, which has processed 11 million pieces of clothing, plans to open two new warehouses, hire 1,000 more workers, and process twice as much clothing by the end of 2016.

“Macy’s has designed its business to spend $10,000 to take a photograph so they can sell that item 1,000 times,” Reinhart says. ”We’ve designed our system to do one picture knowing that it’s only going to be online for a day.”

Sorting, photographing, and cataloging the 11 million items that ThredUP has processed in its six years of business hasn’t been easy, but it’s getting easier. The company created, for instance, an automatic photograph finishing process that doesn’t even require a worker to touch the camera. It is also developing technology that will automatically recognize details like style, color, and brand. Algorithms currently pick out whether a shirt is, say, long-sleeved or short-sleeved, polka-dotted or plaid, and a human confirms the choices.

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Then, the item gets racked according to how likely it is to be sold quickly. When it’s sold, a warehouse employee finds it using instructions doled out by an app.

Other used-clothing retailers, like Poshmark, take the role of a marketplace like eBay. Customers send each other clothes directly, and the company skips the retailer role entirely. But Reinhart argues that won’t work for clothes. “The only time when it actually becomes valuable is in aggregate,” he says. “The reason that a company like ThredUP can be successful is that we solve the whole closet problem instead of asking [users to sell] one thing at a time.

“It’s all operations.”

About the author

Sarah Kessler is a senior writer at Fast Company, where she writes about the on-demand/gig/sharing "economies" and the future of work.

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