The RealReal’s stock fell this week after an investigation from CNBC “found real questions” about the resale titan’s methods for authenticating the pre-owned luxury goods available for sale on its platform and in its small network of brick-and-mortar stores. Citing negative customer feedback and intel from two dozen former employees, CNBC pointed to issues of damaged items, poor customer service and counterfeit merchandise, prompting the San Francisco-based company stock to drop more than 7 percent on Wednesday.
In response to CNBC’s article on Tuesday, the blowback from which has “outweighed the [company’s] strong third-quarter results,” according to Barron’s, The RealReal said that CNBC “does not accurately represent the depth of our team’s expertise and the thoroughness of our authentication process.” A rep for the resale site – which made its NASDAQ debut this summer and has since been valued at $2 billion – told TFL on Tuesday that The RealReal “has a rigorous authentication process, [which] is core to what we do and central to our brand.” In furtherance of that, “We make every effort to accurately authenticate the items we receive,” and “stand behind both our process and authenticity guarantee, and will continue to provide a safe and reliable platform for buying and consigning luxury items.”
The RealReal’s founder and CEO Julie Wainwright has since taken to the brand’s heavily-followed social media accounts to issue a statement in response to what she calls “recent media stories attempting to discredit the business we have built so proudly.”
Wainwright – the early dot-com entrepreneur, who previously held the CEO role for video retailer Reel.com and pet-supply company Pets.com – states that “counterfeiting is a global issue and those engaged in its practice are egregious and relentless,” which is why, she says, “the entire team at The RealReal works diligently seven days a week to ensure the highest standards in our authentication practices,” noting that The RealReal employs “certified experts … who have worked at companies like Sotheby’s and Christie’s, and brand experts who have worked directly for luxury brands.”
With its practice of “constantly training [its] teams and evolving [its] technologies” in mind, Wainwright asserts that “no other resale company [is] doing more to remove fakes, and put counterfeiters out of business,” and “pledges” to provide consumers with “the best, safest, and most secure place to purchased authenticated luxury consignment.”
CNBC’s report is not the first time that 8-year old reseller – which is on track to sell nearly $1 billion worth of pre-owned luxury goods this year from buzzy streetwear goods to pricey Hermès bags and luxury watches – has come under fire for its authentication practices. Last month, Capitol Forum, a Washington, D.C.-based news publication, released an investigation into The RealReal’s authentication process, alleging that the company enlists its “copywriters,” as opposed to highly-trained authenticators, to authenticate the bulk of its consigned items.
While The RealReal confirmed that copywriters do authenticate some “low risk items,” a rep for the company called Capitol Forum’s report unfounded, saying that its “actions and misrepresentations are clearly calculated to sell their subscriptions and improperly manipulate the market for the benefit of short-sellers on behalf of their subscribers. These people are not journalists, and they are not credible. The RealReal stands 100% behind our state-of-the-art authentication process.”
The RealReal similarly hit back strongly against the lawsuit that Chanel filed against it in November 2018, alleging that it has built a business by making claims about the authenticity of its products that it cannot back up. The Paris-based brand claimed in the still pending suit that in addition to engaging in trademark infringement and unfair competition as a result of its use of Chanel’s name to promote its site and its products, The RealReal is on the hook for selling fake bags. The company has since said that Chanel’s allegations are nothing more than “a thinly-veiled effort by Chanel to stop consumers from reselling their authentic used goods, and to prevent customers from buying those goods at discounted prices.”
Despite The RealReal’s consistent, strong messaging around the legitimacy of its offerings and its method for ensuring that everything it sells is “100% real,” the recent market movement suggests that the chatter might be starting to catch up. At the heart of The RealReal’s model, after all, is trust, given the company’s purported position as “the world’s largest and most trusted marketplace for authenticated luxury.” Losing consumer trust would be the death knell for this company.
It is worth noting that while the market may be spooked by CNBC’s report, particularly when paired with the Chanel suit, customers are not necessarily shunning the site. As The RealReal stated in its third quarter report, the number of active buyers is up from 492,000 for the last quarter to 543,000 for the three months ending September 31, as are sales, which swelled to $80.5 million for the quarter, up from $30 million last quarter.
If these numbers are any indication, consumers in the market for pre-owned luxury goods have not lost faith, and the company’s recently-revealed tie-up with Burberry, which follows from a longstanding partnership with Stella McCartney, means that at least some brands are not deterred either.