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.

The RealReal revealed boosted revenue and increased user numbers for the third quarter of the year as the $200 billion resale economy continues to find fans in fashion-focused consumers. The number of active buyers using the upscale consignment platform grew to 543,000, up from 492,000 for the last quarter, and sales – for products that range from pricey Hermes Birkin bags and Phoebe Philo for Celine-era wares to buzzy streetwear goods from Supreme and Off-White – swelled to $80.5 million for the three months ending September 30, up from $30 million last quarter.

Such growth does not come without costs for The RealReal, which made its NASDAQ debut this summer and has since been valued at $2 billion. While the San Francisco-based company expects to sell nearly $1 billion worth of pre-owned luxury goods in 2019, having already sold upwards of $700 million in merchandise this year, its losses are still growing, topping $25 million for the quarter and $75.3 million for the first nine months of the year, as a result of its cash-intensive business, which includes the “cost of authenticating, merchandising, shipping, and accepting returns for all the items it sells.”

The cost of authentication is proving to be a sticking point for the 8-year old reseller, which has routinely faced criticism about whether or not it is actually making good on the primary tenet of its business: real.

In a recent investigation, CNBC took issue with the veracity of “100 percent real” tagline and the authentication process being used by world’s largest luxury consignment site. Pointing to intel from “nearly three dozen former employees, unsatisfied customers around the country and internal company documentation from 2018 that shows that copywriters … have been tasked with authenticating some of the items that go on The RealReal’s site,” CNBC said it “found real questions” about the resale titan’s methods.

The RealReal confirmed earlier this year that copywriters do, in fact, authenticate products that it identifies as “low-risk,” while more trained professionals are charged with handling “high-risk items.” Nonetheless, “I don’t think anyone had enough training at the end of the day,” former The RealReal employee Chanice Parchment told CNBC. “The fakes are getting really good, [and] it’s so much product. It’s really hard for someone to properly authenticate something when they’re not probably the best qualified to be even doing that in the first place.”

This is not the first time that The RealReal has faced pushback over the authenticity of its products. In November 2018, Chanel filed suit against the company , 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, an assertion that the company says is 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.”

Additional reports have similarly called into question whether The RealReal’s efforts to weed out fakes are enough in light of the growing sophistication of modern counterfeit goods and the increasing scale of the company, itself, and the volume of its offerings.

As the Wall Street Journal stated in June, just ahead of the company’s initial public offering, “Key to [The RealReal’s] success is battling a booming trade in counterfeit goods and getting shoppers to trust it enough to pay $4,700 for a used Chanel jacket or $7,500 for a Rolex watch,” which is not made easier by the fact that “like other sellers of secondhand merchandise, The RealReal gets almost no help from brands in identifying genuine products from copycats.”

“That makes the authentication process time-consuming and filled with educated guesswork,” the paper’s Suzanne Kapner stated. “It is also hard to scale as the company grows. It took 20 hours to measure every diamond in a Graff necklace the company vetted for sale this year, said Julie Wainwright, The RealReal’s founder and chief executive, in an interview in January.”

The company is, of course, adamant that its efforts are above-board. In a statement to CNBC, a rep for the company said that “unlike most resale companies, The RealReal takes possession of all items and physically evaluates every one to authenticate it,” noting that “all items are put through a thorough, brand-specific authentication process by our trained team of luxury experts before they are accepted for consignment.”

That team consists of “more than 100 gemologists, horologists and ‘brand experts,’ as well as hundreds of additional trained authenticators,” which The RealReal says is “armed with tools and technology, as well as authentication guides,” and “receives daily training updates to stay ahead of the latest developments from brands and counterfeiters.”

Yet, despite The RealReal’s efforts and its inherent interest in offering up authentic products since its reputation absolutely depends on it, chatter about the authenticity of its products has not quelled, and in fact, only seems to be getting louder, which is concerning since, as CNBC stated on Tuesday, “The promise [of authenticity] is key to the brand’s identity: the idea that the company takes an extra step to ensure items are authentic,” and citing “several analysts” said that the company’s “valuation could be hurt if consumers stopped trusting this promise.”

The RealReal has since stated that “CNBC’s report does not accurately represent the depth of our team’s expertise and the thoroughness of our authentication process.” A rep for the resale site 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.”

Customers who consign Burberry pieces to The RealReal are now being offered “an exclusive personal shopping experience in select Burberry stores across the U.S.” in furtherance of an effort between the two companies to “encourage customers to extend the life of their products through resale.” San Francisco-based The RealReal says that its new tie-up with Burberry comes as resale demand for the stalwart British fashion brand has increased by 64 percent over last year, with searches for Burberry goods rising fastest among The RealReal’s millennial and Gen-Z customers.

“Leading the way in creating a more circular economy for fashion is a key element of our Responsibility agenda,” Pam Batty, VP of Corporate Responsibility at Burberry, said in a statement on Monday. “We know that the enduring quality of Burberry pieces means their appeal and value is long-lasting.” The RealReal CEO Julie Wainwright says that the partnership is a sign of the growing importance of the resale economy: “A brand as storied as Burberry embracing the circular economy demonstrates the power of resale’s impact on both the luxury market and the planet.”

The new union between Burberry and The RealReal – currently in a pilot stage – comes on the heels of an ongoing venture between the popular resale platform, which made its stock market debut in June, with Stella McCartney in connection with which individuals who consign Stella McCartney products with The RealReal receive $100 store credit to shop at McCartney’s retail stores or the brand’s e-commerce site.

As of December, 14 months after the TRR x Stella partnership got its start in October 2017, the number of The RealReal consignors of Stella McCartney items increased by 65 percent and the number of Stella McCartney items consigned increasing by 74 percent, according to data from the resale site.

The RealReal’s growing list of partners certainly does not include at least one brand – Chanel – which has taken issue with the resale practice, filing suits against The RealReal and vintage consignment company What Goes Around Comes Around for allegedly piggybacking on the reputation and appeal of Chanel, what it aptly calls one of the most esteemed fashion houses in the world, for its own financial gain, and selling counterfeit products in the process.

Those lawsuits – which are currently underway in federal court in New York and which join a larger pattern by Chanel of taking on resellers over the years – shed light on the still-largely-unsettled relationship between resale companies and luxury brands, the latter of which are firmly accustomed to enjoying strict control over how and where their products are sold.

In furtherance of the luxury segment’s dedication to control, many of the market’s leaders have proven routinely slow to adapt to various advances in the market, whether it be the adoption of e-commerce to the willingness to meet consumers’ demand for previously-owned high fashion goods. To this day, Chanel, for instance, does not make its garments or handbags available to consumers by way of e-commcerce, while LVMH Moët Hennessy Louis Vuitton-owned Celine introduced its first e-commcerce venture last year. Such moves certainly stem from luxury’s longstanding unwillingness to cede close control their models of distribution as tied to their ever-exacting efforts to maintain their overall brand image in order to continue to lure luxury consumers even if the profile of some of those consumers is changing as millennials continue to grow in terms of spending power.

Nonetheless, the rise in demand for second-hand garments and accessories, which makes up a more than $25 billion market, paired with the growing desire of at least some brands to make inroads into the burgeoning economy – either by way of partnerships or in the form of acquisitions – marks a budding shift in the larger luxury resale environment.

With such growth in mind, analysts are simultaneously questioning the profitability prospects of The RealReal (despite boosting revenues for the 3 months ending June 30 by 51 percent to $71 million compared to the same time last year, the company has not yet achieved profitability), and urging investors to “watch for signs that brands are considering their own resale service,” as the Wall Street Journal’s Carol Ryan stated in June.

Doing so, Ryan wrote, “would give them greater control over prices in the secondary market and boost their sustainability credentials with millennial shoppers,” pointing to “Audemars Piguet, whose Swiss-made watches sell for over $50,000, recently said it plans to launch a secondhand business, and LVMH, the biggest luxury company in the world, [which] is launching its own blockchain platform that creates digital twins to authenticate pre-sold goods.”

Either way, and despite pushback over the strenuousness and efficacy of its authentication practices, luxury brands  cannot simply ignore (or in Chanel’s case, attempt to sue away) The RealReal – and the resale market more generally –as they have done in the past, Forbes’ Pamela Danziger stated this summer, noting that the resale market is becoming a vital part of the greater luxury market infrastructure. The Burberry deal and The RealReal’s continued revenue growth seems to verify that.

Walmart has denied “knowingly and intentionally distributing and selling” counterfeit haircare products and similarly called foul on claims that its marketplace is “rife with counterfeits.” The denials by Walmart come on the heels of the American retail giant being hit with a trademark and unfair competition lawsuit this spring by Olaplex. In the formal answer that its counsel filed in a California federal court last month, Walmart claims that Olaplex’s case should be tossed out of court in its entirety and the buzzy haircare brand should walk away with “nothing.”

After shooting down Olaplex’s claims of trademark counterfeiting and dilution, Walmart sets out a handful of affirmative defenses in its filing. Among those defenses, which – if proven – will defeat or mitigate the legal consequences of its otherwise unlawful conduct: Walmart argues that Olaplex’s claims are barred the First Sale Doctrine, a legal tenet that shields the purchaser of a genuine trademark-bearing item from infringement or dilution liability should he/she opt to resell that item. This means that once a trademark holder has released products into the marketplace its ability to control any further distribution of those products is largely diminished.

In asserting the First Sale Doctrine as a defense, Walmart is essentially arguing that the Olaplex products on its marketplace – such as the allegedly fake versions of its popular “Hair Perfector No. 3” – are authentic products that Olaplex released into the market (albeit to a buyer that was not Walmart). As a result, it cannot prevent the subsequent re-sale of those goods by their initial purchasers.

Far from an obscure legal tenet, the First Sale Doctrine is becoming an increasingly common-raised defense in various cases in light of the rise in digital marketplaces and luxury resale sites, and the corresponding attempts by brands to control the distribution of their authentic products and thus, limit sales by unauthorized parties. 

One of most closely-watched cases in the fashion industry that has spoken directly to the First Sale Doctrine is the one that Chanel filed against What Goes Around Comes Around (“WGACA”), alleging that in addition to selling counterfeits (something that WGACA has denied), the luxury reseller is running afoul of trademark law by using Chanel’s name and imagery to promote products made by the iconic Paris-based brand on its e-commerce website.

In response to Chanel’s suit, WGACA pointed to the First Sale Doctrine as a defense. However, its argument did not last long, as Judge Louis L. Stanton of the U.S. District Court for Southern District of New York determined in October that the doctrine does “not give WGACA protection.”

As he stated in response to WGACA’s answer, Judge Stanton stated that the First Sale Doctrine “applies only where a ‘purchaser resells a trademarked article under the producer’s trademark, and nothing more.’” The problem for WGACA, according to Judge Stanton? WGACA is not the immediate purchaser of the Chanel goods but instead, a re-seller of them, making it so that the First Sale protections do not apply.

In accordance with that assessment, Walmart may be in for an uphill battle, since, as Olaplex asserted, the products for sale on Walmart’s site were being offered by third-party sellers and Walmart, alike. While the First Sale Doctrine would easily apply to the individual sellers (assuming the products are authentic and not otherwise “materially different” from their initial-sale state), it will likely be more difficult for Walmart, which does not appear to be the immediate buyer of the products, at least not according to Olaplex’s complaint.

On a broader note, brands’ continued attempts to shut down unauthorized sales of allegedly authentic products have been met with pushback from retailers and re-sellers. For instance, in response to the case that Chanel filed against The RealReal eight months after filing suit against WGACA, The RealReal characterized Chanel’s litigation as “nothing more than a thinly-veiled effort to stop consumers from reselling their authentic used goods, and to prevent customers from buying those goods at discounted prices.”

Yet, as the value of the $25 billion-plus resale economy continues to skyrocket, attempts by brands to control how and where there products can be sold, and how their trademark-protected names and logos can be used are proving to be somewhat common, and in at least cases, have proven to be successful endeavors by brands, making this is an area worth paying close attention to.

The fast fashion concept is backed by two such fundamentally attractive ideas – frequent novelty and sheer affordability – that it has enabled the brands that abide by the model to wreak havoc upon the traditional retail model. It has helped stalwart fast fashion companies like Zara and H&M to build big businesses; Spanish giant Zara brought in more than $18 billion in revenue last year, while its Swedish rival welcomed $21 billion in sales. All the while, newer names, such as Fashion Nova, have been garnering eye-popping digital impressions – the California-based brand was the most Googled brand on 2018 – and revenue figures to go with it.

The rise in awareness about the role that apparel manufacturing and consumption plays in light of a sweeping global climate crisis has certainly not put an end to the model that is fast fashion; it is difficult, after all, to get consumers to drastically shift their shopping habits away from prioritizing low prices and inherently trendy garments and accessories. This is particularly true given the larger consumer culture, which values novelty, particularly in the Instagram era, where consumers are photographed on a must more frequent and regular basis than generations prior. The shift away from fast fashion also proves difficult given that more “sustainably” made options tend to come with higher price tags, and as many size inclusive journalists have noted, less expansive sizing options.

Nonetheless, a handful of companies say that they are part of an emerging economy that poses a direct threat to the at-times-explosive growth of fast fashion, a segment of the market that catapulted figures, such Amancio Ortega, the founder of Zara’s parent company Inditex, to the upper echelons of both Forbes and Bloomberg’s “world’s richest” lists. (He current sits in the number 6 position).

The RealReal, for instance, stated in its annual Resale Report that sustainability played a large role in consumers’ motivations while shopping this year. To be exact, the San Francisco-based luxury consignment company revealed that 32 percent of its consumers said that they shop on its site (or in one of its three retail outposts) as a replacement for buying trendy, fast fashion garments and accessories. A whopping 78 percent of customers surveyed said that The RealReal has changed the way that they shop, including being “savvier about how they invest and the impact what they’re buying has on the planet.”  

The 8-year old reseller is not alone. Online resale company thredUP released a report of its own this spring. One of the hardest-hitting takeaways centered on it’s the battle between pre-owned fashion and fast fashion. According to the report from San Francisco-based thredUp, as of 2018, the secondhand market apparel was worth $28 billion, compared to the estimated $35 billion fast fashion market.

More striking: the resale market has grown faster – 21 times faster – than the traditional apparel market over the past three years, and is expected to fully outpace fast fashion within the next ten years. Still yet, by thredUp’s calculations, the secondhand market is projected to grow to nearly 1.5 times the size of fast fashion by 2028. In other words, the value of the secondhand apparel market is expected to nearly triple by then, reaching $64 billion, while fast fashion is expected to only rise to $44 billion.

Analysts have echoed these predictions, with Cowen, for instance, projecting that online resale will grow “as much as 10 to 15 times faster than fast fashion stores such as Zara, department stores such as Macy’s, and traditional off-price chains like T.J. Maxx.” Speaking specifically about pre-owned luxury, Boston Consulting Group claims that used goods will account for 9 percent of the global luxury market by 2021, up from 7 percent last year, with more growth in sight, which explains why companies like Farfetch (which bought Stadium Goods) and Swiss conglomerate Richemont (which acquired second-hand watch-selling platform Watchfinder last year) are making moves in this arena.

The nearly-uniform expectations of sizable growth across the board for resale coincides with a greater level of consumer enthusiasm for pre-owned products, ones that were once relegated to brick-and-mortar consignment stores and dusty giants like Goodwill and the Salvation Army. That is hardly the case now, with the likes of The RealReal, Rebag, Vestiaire, and Fashionphile offering consumers the highly-curated and user-friendly to chance to buy everything from Hermès bags to Rolex Daytona watches all with the click of a button, and StockX and Stadium Goods pushing some of the buzziest and hardest-to-get streetwear finds.

This is all part of a larger cultural movement. Oliver Chen, a retail analyst for the American multinational independent investment bank and financial services company, told the Wall Street Journal that on the heels of the Great Recession, “There was a mind-set shift when it came to acquiring used goods. Now, it’s considered a smart bargain. Being fashionable is about getting value for your dollar.”

The American economy is said to be nearing another financial downturn, and shopping for secondhand apparel and accessories is more convenient that ever — or as the WSJ put it, it’s “as easy as hailing an Uber or renting a room through Airbnb.” Pair that with the fact that millennial and Gen-Z consumers, “kicking against fast fashion’s homogenised style for the masses, want something different and they’re flocking to [secondhand sites like] Depop in search of vintage one-offs and handmade pieces,” according to Dazed Fashion.

But these companies are not just proving particularly compelling for the young generation, one that The Cut described as “one with sustainability and individuality on the brain, hunts out the perfect, must-have, no-one-else-has-got-it piece.” They are of growing interest to investors, as well – with the resale segment being one of the most exciting to one in terms of investments and acquisitions. With all of this in mind, there appears to be no end in sight for the players in this space, save for maybe their largescale inability to achieve profitability.

As a whole, Sarah Willersdorf, a Boston Consulting Group partner, told the WSJ, “This is a trend that is not going away.”