Image: The RealReal

How does a luxury resale entity – one that depends on consumers to not only purchase its wares but also to consign them in the first place – fare in light of the Coronavirus? The RealReal, the darling of the $25 billion upscale resale market, provided a snapshot. According to the preliminary financial results that the San Francisco-based company reported this week, the COVID-19 crisis has had a “significant impact” on its operations in recent weeks, although, the company’s executives say they remain confident in their “well positioned” business. 

“We were off to a strong start in Q1, on track to meet or exceed our Q1 guidance,” The RealReal’s founder and CEO Julie Wainwright said in a statement this week. Ahead of the formal release of its first quarter financials in early May, the 9-year old resale company – which has made its name by transforming the traditional consignment model, bringing it online, and putting tens of thousands of designer garments and accessories at consumers’ finger tips – says that it expects a decline in sales for the quarter ending March 31, 2020.

In addition to an anticipated drop in sales and a projected net loss of between $38.9 million and $39.9 million for the quarter, publicly-traded The RealReal, which made its debut on the NASDAQ in June 2019, revealed that for the three-month period, its gross merchandise volume (“GMV”) is expected to be approximately $258 million, up 15 percent on a year-over-year basis. However, the company states that that increase in the value of the garments and accessories it is offering up exclusively by way of its e-commerce site was abruptly off-set in recent weeks. Pointing to the Bay Area’s shelter-in-place order, which went into effect on March 17, The RealReal says that GMV is down by between 40 percent and 45 percent compared to the same period last year. 

The company – which was founded in 2011 by former exec Julie Wainwright and has since garnered itself the title of “the world’s largest online marketplace for authenticated, consigned luxury goods” – points “primarily” to “limited warehouse operations,” as the main culprit for the drop in GMV. It revealed last month that while its two New Jersey-based warehouses are in operations, its e-commerce center in Brisbane, California – and the activities of its fulfillment and operations staff there – were forced to cease operations for the time being. This likely also explains the shipping delays that the company has been alerting customers to in recent weeks.

As of last month, The RealReal had also suspended consignment and shopping appointments, in its four brick-and-mortar outposts in New York, Los Angeles and San Francisco, which have all been closed temporarily, a move that could certainly cut down on the in-bound supply of luxury handbags and high fashion apparel that is the lifeblood of the company’s offerings. 

Beyond closing its stores and at least one of its warehouses, The RealReal said that it is cutting 10 percent of its staff, furloughing 15 percent, and reducing its payroll-related expenses by approximately 15 percent. In doing so, the company says it can reduce its operating expenses by about $70 million.

In a statement this week, Wainwright said, “Given the unknown duration of the pandemic, we’ve focused on reducing operating expenses and preserving liquidity to weather the near-term challenges and ensure we are well positioned to capitalize on the significant opportunity in front of us.” She further asserted that she “confident the strength of our balance sheet, customer satisfaction, healthy traffic trends, and buyer and consignor repeat rates, along with continuing progress in technology initiatives that support efficiently scaling our operations, will position us to bounce back quickly once the economy stabilizes.”

Wainwright’s optimism mirrors that of at least some analysts who expect the havoc that COVID-19 has wreaked (and will continue to wreak) on the traditional retail model and its seasonal stocking calendar will be a potential gain for off-price retailers, such as T.J. Maxx, Marshalls, and similarly situated companies, including digitally-native resale sites, as brands and retailers, alike, will inevitably look to off-load increasingly volumes of unsold products due to nation-sweeping mandates against non-essential retail operations and general malaise among consumers when it comes to discretionary purchases.