The RealReal IPO: Another Unicorn Is Going Public

The RealReal is an online marketplace for consigned luxury goods — think eBay(NASDAQ:EBAY) but only for high-end fashion items such as handbags, watches, jewelry, and art. Founded just eight years ago, the company has already achieved unicorn status in the private markets but is now getting ready to go public. The company filed its S-1 IPO prospectus with the SEC, although it hasn’t yet determined exactly how much money it will raise.

The RealReal is expected to hit the public markets this year under the ticker REAL. Could it be worth adding to a growth-oriented investment portfolio…

The RealReal marketplace

According to The RealReal, the existing market for luxury resale is outdated, fragmented, and full of counterfeit goods, which has made both buyers and sellers hesitant to participate. The RealReal is solving this problem with its trusted online marketplace aimed at helping to “recirculate” luxury goods to people who want them the most. This benefits consigners who sell the luxury items they no longer use as well as buyers who get to own secondhand luxury products at a discount to what they would cost brand new.

Importantly, The RealReal is a marketplace, not a retailer. It doesn’t own the inventory it sells — the company serves to connect buyers and consigners. Consigners — the people who want to sell their items — mail their items to The RealReal, where the luxury goods are inspected and appraised. If the consigner agrees with the appraisal, The RealReal will list the item on its website or in one of its three physical locations. On average, The RealReal keeps a 35% commission on each sale.

The value of trust

One of the biggest problems in secondhand luxury shopping is trust. Customers need to be confident that the items on the platform are genuine. The RealReal employs nearly 200 experts trained to examine luxury goods, authenticate, and appraise them. There is no guarantee the company’s experts will always filter out fake goods and get the appraisals right, but the dedicated focus on the problem provides comfort to buyers and sellers and allows The RealReal to differentiate itself from competitors.

Could another e-commerce player like Amazon compete with The RealReal? Yes, but first they would need to develop the same expert infrastructure to authenticate items. eBay has actually entered the market for luxury goods reselling — it launched eBay Authenticate in 2017, which allows eBay sellers to have luxury items certified by experts. However, eBay has a poor reputation as a result of issues with selling counterfeit goods and other scams. A person willing to spend thousands of dollars on a designer handbag or rare watch may be more inclined to use a service such as The RealReal that specializes in high-end products and has focused on running an authentic marketplace from day one.

The RealReal’s focus on the luxury niche has made it…

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