One of the defining elements of luxury products is their long-lasting quality, such that a true luxury watch or handbag can offer valuable use for decades. But even the most ardent luxury buyers might get tired of a particular purse or decide that they have enough shoes. In that case, the still valuable products likely enter some sort of resale market. In the past, those markets might have been local, but today of course, resale retailers are global, online, and expanding, and their presence creates something of a dilemma for luxury brands.

For well-known names such as Chanel, Prada, Gucci, or Hermes, the very notion that products would be resold undercuts part of their appeal: They promise such luxury and quality that no one would be crazy enough to part with their scarf or bag or watch. Furthermore, the resale price is lower than the original retail price, threatening to undercut the brands’ price positioning. Proceeds from the sales go to the resale sites, and in some case are shared with the customer who owns the product. But the brands earn no further revenues from this retail channel. Finally, many luxury brands simply reject the notion that their high-end, experiential products can be sold effectively online, without giving customers the chance to see and feel the expensive fabrics and details in person, aided by a well-trained salesperson.

But there are some benefits too. In particular, resale sites such as The RealReal and Vestiaire Collection have developed sophisticated analysis capabilities, which they are willing to share with the luxury brands. The valuable information they gather can indicate, for example, which brands are trending among consumers. When Gucci hired a new creative director, customers on the resale sites started snapping up used Gucci items. With this information, Gucci could plan its transition strategy more effectively, with the knowledge that its sales were likely to increase in response to the new leadership. (And the predictions were accurate: Within the same year, Gucci’s sales rose by 16 percent.)

The resale sites also have the capabilities needed to authenticate the products they sell as actual luxury items, rather than counterfeits. The consignment site Tradesy claims that its authentication software is 99.7 percent accurate. Such abilities benefit the luxury brands, which have long struggled to combat the constant threat of counterfeiting.

Other benefits have less to do with the resale sites’ analysis capabilities and more to do with their appeal to consumers. First-time and younger buyers often cannot afford conventional luxury products, such that the lower prices available on the resale sites give them a sort of entry-level introduction to this market. Such access likely benefits the luxury brands in the long run, because it may initiate a loyal relationship over time, as these shoppers’ incomes and buying power increase with their age.

The resellers themselves highlight another benefit for the luxury brands too. When consumers send one of their bags or watches to be resold in a consignment channel, they receive some proceeds from the sale, which they then can devote to purchasing a new item at full price from the luxury brand. The proceeds from these sales are nothing to scoff at: Classic handbags retain an estimated 70–90 percent of their value. On Prive Porter, the prices for resold Birkin Bags run into the six figures.

The promise of being able to resell also might reduce the perceived purchase risk in the first place. That is, if a buyer knows that she or he can resell the item if it proves not quite right, that buyer is more likely to engage in the luxury purchase in the first place. Thus even eBay has entered the market with its eBay Valet service, designed to help luxury consumers resell their high-end items on their own.

 

Discussion Questions: 

1. List some of the online luxury resale stores.
2. Describe the tension between these stores and luxury goods manufacturers.
3. Whose side would you take, the online stores’ or the manufacturers’? Why?

Source: Hilary Milnes, Glossy, May 20, 2016