Fashion Marketplaces: Diverging Paths and Profitability Prospects for Poshmark, Vinted, and Depop

Fashion Marketplaces: Diverging Paths and #Profitability Prospects for Poshmark, Vinted, and Depop

Today, we follow the journeys of three second-hand fashion #marketplaces: #Poshmark, #Vinted and #Depop. All three have grown to serve tens of millions of customers since their founding: 2008 for Vinted, and 2011 for Depop and Poshmark. Collectively, these marketplaces facilitate billions of euro’s in GMV every year in major markets such as the US, UK, and France.?

Poshmark, Vinted, and Depop together have generated more than €0.5 billion in revenues in 2021. They also have reported a total of €0.25 billion operating losses in 2021, a sharp reversal from 2020 when two out of the three companies have shown positive operating results. Vinted is the only of the three that continues its high-growth revenue trajectory, estimated to have overtaken Poshmark in 2022.

What are the key things these companies have in common, and where do they differ from each other?

Customer Base: #Millennials vs. #GenZ?

The second-hand fashion marketplaces have emerged as Millennials and Gen Z entered the world of online commerce and sharpened its focus on sustainability and reuse of the existing resources. Commonly, all three companies have women as a vast majority of their customers. For example, Poshmark reported in their IPO prospectus that 83% of their 2019 active users identified as female.?

At the same time, there are notable differences in the age and generational composition across the customers of these three businesses. Poshmark’s active user base in 2019 has been?53% Millennial and 27% Gen Z, both generations similarly overrepresented (a factor of 1.7) relatively to their share of the overall US population.

In contrast,?90% of Depop’s active users are Gen Z, and are younger than 26. It has been estimated that one in three UK 15-24-year-olds registered on Depop.

Vinted did not publish the exact numbers, but a high-level overview of their coverage and tone of voice suggests Millennials as the key target group. The messaging is less focused on big statements like “Gen Z entrepreneurs challenging the status quo” and more on the pragmatic and relatable “don’t we all end up with too many clothes.”??An excellent recent writeup looks at the tone of voice differences:??https://www.ics-digital.com/blog/vinted-depop-tone-of-voice.

Business Model: Transaction Fees

Poshmark, Vinted, and Depop all operate as transactional marketplaces. They make money when a seller and a buyer agree on a deal and charge a cut from the transaction value. All three marketplaces facilitate payments and shipments through their network of external vendors and charge through the costs of shipping and handling. There are differences in how these fees are described – an “all-included commission”, a “buyer protection”, a “transaction fee” – but in general, the business model is the same:

• a fee is charged when a transaction happens (no insertion fees)
• a transaction fee is proportional to the transaction value (usually a %)
• shipping charges reflect the actual costs, but subsidies are used as user incentives
• ?the process for returns is cumbersome and is not available for all items
• the costs of lost packages and refunds are deducted from the net revenues reported
• additional promotional features are available to the sellers (but are not generating significant revenues)

Poshmark has a transparent and simple model: for all sales under $15, Poshmark takes a flat commission of $2.95. For sales of $15 or more, Poshmark's commission is 20%. This includes the costs of shipping, which are charged separately by the other two marketplaces.

Vinted has a model that is different from other transactional marketplaces: it is not the seller, but the buyer who is charged the fee on top of the purchase price.??The buyer is paying the shipping as well as the obligatory Buyer Protection fee (in the Netherlands, it is €0.70 plus 5% of the purchase price).?

Depop charges its sellers a 10% fee, a?￡0.30 + 2.9% transaction fee in the UK (it varies per country), and the cost of the shipping label.?

Seller Focus: C2C vs. B2C

All three marketplaces have C2C second-hand trade at the core of their proposition. What does distinguish their paths and the outlook is how they see the role of B2C and brands – and the implications of these changes for the business model and for the Product and Technology investments.

Vinted has made strong statements about their continued C2C focus. This focus on the consumer sellers, who are not professionals and do not depend on Vinted for their life income, potentially allows lighter Product and Tech investments compared to taking the B2C path, with higher seller functionality expectations.

Poshmark and Depop have been quite explicit about taking a different approach and focusing on empowering B2C sellers, collaborating with brands, and otherwise professionalizing their base. This requires a different mindset and degree of investment into seller functionality and creates a risk of “Shein-ing” the offering if B2C growth is not curated well, as well as the scope and budget creep for Tech investments and potentially negative unit economics. On the other hand, the cost of customer acquisition and retention for the business sellers is below that of the consumer sellers, and on balance the economics might still work in the long term.

Business Fundamentals: a Comparable Financial Architecture

Vinted and Poshmark (who report more detailed financials than Depop) show comparable business fundamentals. For both companies, the total payment, shipping, and incentives costs hover around 20-22% of the revenues.??Marketing costs have been fluctuating between 40% and 60% of the revenues, reflecting the high-growth phase. Poshmark dramatically reduced their marketing during Covid lockdowns, from 65% of the revenues in 2019 to 35% in 2020. These efforts to preserve cash resulted in showing a rare profitable year.?

In 2021 and 2022, Poshmark marketing returned to around 45-49% of the revenues. Vinted increased its marketing spend from 65% to 79% of the revenues (do remember that the revenues also grew in high double-digits), focusing on expansion and market share. This is not a long-term sustainable level; profitable marketplaces like Etsy and eBay are spending around 28% and 22% of revenues on marketing, respectively.

It's important to remember that if user cohorts are sticky and continue using the marketplace, generating high LTV, such extravagant marketing spend might still pay itself back in additional revenues and long-term profitability from loyal customers.?

Where are these companies on their Value and Profitability Journeys?

The rollercoaster rides of performance and valuations for Poshmark and Depop reflect the larger story of the rise and the crash of the Covid online economy.

Poshmark went public in January 2021, amid the resale boom, and has been valued at $7.5 billion (€6.2 billion) at its peak. The company continued to show a steady (but declining) revenue growth, and demonstrated inconsistent operating results performance, swinging from operating profits of $22 million in 2020 to an operating loss of $36 million a year later.

Its share price fell 82% since the IPO, and in October 2022 Poshmark has announced that it will be acquired by Naver, a Korean ecommerce player, for an enterprise value of $1.2 billion. The transaction closed in January 2023. Naver plans to use Poshmark to enter the global peer-to-peer resale market, while Poshmark stands to benefit from the depth of Naver’s technology, particularly live shopping and AI possibilities. The post-acquisition plans mentioned $30 million annual savings.?

Depop has established itself as the go-to fashion marketplace for Gen Z and exploded during the pandemic. It was acquired by Etsy for a whopping 23X revenues multiple and $1.5 billion (€1.2 billion) in June 2021. However, post-pandemic performance of Depop has been a struggle – showing both a drop and flat recovery after the 2020 highs. In its 2022 annual report, Etsy has taken a goodwill impairment of?$0.9 billion on the acquisition of Depop, writing off 80% of its value. It is to be seen how the user base and the financials of Depop develop going further.

Vinted has continued its growth across Europe, with the focus on key large markets like the UK and France and significant increase of overall brand marketing investments in 2021. Its revenues are growing strongly and have overtaken Poshmark according to preliminary 2022 full year estimates. In 2022, Vinted also announced creation of a separate business line: Vinted Go – a shipment facilitation business, leveraging 57,000+ pickup points and 9 carrier networks that Vinted works with, to serve customers beyond those trading on Vinted.?

This is an interesting path to take from the business sustainability and profitability perspective. With significantly higher shipment volumes than those of Vinted marketplace alone, and without the buyer protection responsibilities, the shipping rates with the carriers would be reduced. This increases profitability of core Vinted operations, while expanding the brand awareness and potential user base through successful facilitated shipments rather than TV advertising. Vinted has been valued at €3.5 billion during their last fundraising round in 2021, and with a clear growth delivery and a path towards overall profitability they might just be the exception in the valuation story of the fashion marketplaces…