#142. Every week on the podcast we’ll challenge a recently-announced business strategy to understand the upside and downside of the brand’s approach. We discuss the rise of second hand beauty platforms and the host of complications that could keep this market from taking off.

Check out the full transcript below. 

Richie: [00:00:02] Welcome to the seventh episode of Espresso, a podcast from Loose Threads where we challenge a recently-announced business strategy to understand the upside and downside of the brand’s approach.

Richie: [00:00:11] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights, check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:26] This week, we analyze the emergence of secondhand beauty platforms, which sell both previously-used products and tools, as well as limited-edition products that can be resold for a healthy profit. Unlike secondhand apparel, beauty products come with a host of complications—mostly related to hygiene—that have held the market back. Will secondhand beauty take off in the near future? Here’s what we thought.

Rebekah: [00:00:51] No lies…my initial thought was like, “Eww, gross. Secondhand beauty.” ‘Cause all I can think of is someone who has used a lipstick and then they’re like, gonna go sell it. But, in reading the article, that is not actually, necessarily the case. And it seems like this was made possible because Rent the Runway, and Poshmark for clothing, and thredUP have all become so prevalent that people are now open to even used beauty products, with an asterisk of, “They are sanitized and someone has vetted them,” and all of that.

Richie: [00:01:28] So, a little bit of context is: secondhand means a few things. It definitely does mean used products that are being sanitized, clean and resold. But it also, I think, within this bucket means products that either were never used, but are being resold, a la, someone like, flipping Supreme. As in, someone flipping a Kylie Cosmetics or something. Or tools being resold, such as Dyson hair dryers or so forth. So, it’s a broad, I guess, definition of beauty, versus just makeup and skincare. Which, at least for me, was an important clarification ’cause, again, I thought about the lipstick or whatever right away.

Caroline: [00:01:59] The growth of this category links to the fast beauty that’s taking off in general, and consumers collecting. So maybe, Rebekah, you or I wouldn’t do this, but we also don’t collect the latest Kylie Cosmetics that come out on a weekly basis.

Richie: [00:02:15] What percent of the market do we think actually does do that? ‘Cause the people that like, collect Supreme are pretty tiny.

Caroline: [00:02:21] I mean, I don’t have the numbers, but if I had to guess, like, a sect of the population, it would be girls ages 14 to 16 who collect Fenty Beauty, House Beauty, all of the celebrity beauty brands, the Kardashian clan. And I think that’s helped this market take off. I know for a fact this existed prior, but I think it was more concentrated in perfumes. Like, expensive perfumes that were slightly used, you got as a gift. And, I think, even hair tools.

Rebekah: [00:02:50] Well, and, too, I think what’s driving this, and we’ve kind of alluded to it on earlier podcasts, is the price of beauty items. Makeup and skin care, specifically, can get quite expensive. Like, some of the brands that you’ve mentioned can be cost-prohibitive, but people still want to try them, or be seen using them or whatnot. And so, this is a way to kind of introduce those products, or allow someone to try them who may not be able to try them from buying them firsthand.

Richie: [00:03:20] The age question is interesting because when you, I think, look at the early adopters for other kind of resale or rental markets—Rent the Runway, for example, is used by a lot of young professionals versus people that are pre-college, right? And if we believe that fast beauty is being driven by the youngest group of consumers—the GenZ’s or the whatever—are they actually the group that would buy this stuff secondhand? ‘Cause part of me thinks you still have to be  more of a millennial to do that, or to have the value system and the ability and the so forth to go buy it from a secondary source, while still knowing what you want, seems like an “older” thing to do—and I’m putting older in quotes. But it doesn’t seem like someone who’s 16, necessarily, is gonna go do that. Although I could be totally wrong.

Rebekah: [00:04:04] Where this could tap into that, like, 14 to 16, call it up to 18, market, is the influencer YouTuber—especially in like, tutorials, you don’t want to be using some no-name makeup, you want to be using some kind of name-brand makeup. And so I think that that’s where this can be driven a little bit further, is there’s just a general awareness of, “Where do I get these products when I don’t have the money to buy them directly from Sephora?” or whatnot.

Caroline: [00:04:32] I understand the price points are cheap, relatively cheap, already, but you do save at least 20% when you’re buying it used, or even on the resale market in general.

Richie: [00:04:44] It just seems like a sophisticated proposition to like, go math that out and then know that you have to get it from a secondhand place. I think what’s interesting, when you bring up influencers, are—so, if we understand that the secondhand beauty market is a fraction of a fraction of the overall beauty market, all of the money going into influencer marketing is gonna be spent by the brands that are making new stuff. It would seem that the hurdle—and this gets back to this question of like, will this become mainstream and how long does a massive influencer hurdle to this—because none of these companies can afford influencers. And why, if you’re an influencer, would you use a secondhand product versus the primary new product, right? ‘Cause I would totally want to get paid by Chanel or whatever, then I would buy Glambot or something. They don’t even have money to pay me.

Caroline: [00:05:31] That’s a really good point. However, I think what’s fueling Glambot is just the community itself. So they actually don’t even need the influencer aspect because there’s conversations going on on Twitter or Instagram user reviews that are fueling…

Richie: [00:05:47] Didn’t you say that they only did a million dollars in sales?

Caroline: [00:05:48] Right.

Richie: [00:05:48] Right. So they’re a total drop in the bucket. I think I would say, if our question is, “How do we get to be more mainstream and how long?” Without cracking the influencer thing, I think they’re in really big trouble, in a sense, because that’s what’s driving so much of the purchasing. And, going back to the younger population, I would assume that younger purchases are even more driven by influencers than older ones.

Caroline: [00:06:09] Does The RealReal have influencers? Not that I know of. And they’ve been able to take off in that direction without them.

Richie: [00:06:17] So I think there’s a question of like, “Do they have paid influencers?” Which I don’t know the answer to. But there definitely, I think, are influencers wearing products that they bought from there, and will, I guess, organically promote them. There is, again, a price point thing, right? The RealReal is tens of thousands of dollars, hundreds of dollars worth of stuff, versus 20% on a—I mean, even we talked last week about Goop—$150 skin care. 20 percent of that is $30 bucks. I don’t know, it’s just an interesting equation.

Caroline: [00:06:44] Well, and I think also the marketplace aspect of this plays into it. So, yes, I mentioned the community, but then also you can buy and sell. You can post up to 20 products. So, perhaps, it’s an exchange for some of these users.

Rebekah: [00:06:58] Going back to your point about [how] these companies can’t afford to pay people to be influencers for them, I think that what will drive this is word-of-mouth, this is how I get this product. And less, like, “I got it from Glambot or Poshmark or whatnot.” I think there’s another aspect that plays in here, which is sustainability, which is something that the next generation is really keen on and will seek out opportunities to be more sustainable. And perhaps that’s actually the bigger play into the mainstream is not so much the price point. Because you’re right. I mean, if you’re paying $150, you get 30% off, and you’re 14, you still can’t afford it. But, is the sustainability aspect…?

Richie: [00:07:43] It’s funny, though, to think about, like, how you could take a brand that is not at all sustainable. But yeah, if you put them on one of these platforms, it just feels more sustainable, versus like, no one should’ve ever bought that thing in the first place. I guess what I’m getting at is there’s this really interesting tension between buying new and buying used in this scenario, because it seems better to buy something new that was just made more ethically and sustainably, than to buy something secondhand that was made with less sustainable attributes.

Caroline: [00:08:09] Yeah.

Richie: [00:08:11] I think tools and fragrances will drive this whole category. It makes so much sense. And what’s driving that is just how easy and transferable the application is. ‘Cause I think that’s really the problem, right? The lipstick, the powders, the skincare, whatever, is just really hard to resell because it’s used, and there’s health concerns and so forth. Versus fragrance tools, such as hair dryers and curling irons and whatever, are pretty easy to pick up and give to someone else.

Rebekah: [00:08:37] The Birchboxes of the world, and for those who receive a lot of samples, it’s another opportunity there. The Beauty Box subscription world can also feed into this popularity, I think.

Richie: [00:08:49] The companies here are—Glambot is one, that’s really small. eBay’s probably the biggest, just given their scale. They’ve been doing this for a really long time, I think. Poshmark is doing this a little bit in a sanctioned way now. Part of me thinks there is a huge opportunity, ’cause again, if this whole thing is about the psychology of it, I would rather go launch a site that only resells beauty tools and/or fragrances versus all of beauty, and almost try to drive home that really narrow use case, because you don’t have the icky-ness factor, which you do when you’re selling everything. And it’s interesting that they’re trying to do these all-encompassing things, versus finding, like, a product category or something that they could just kind of own, and then expand from there.

Caroline: [00:09:30] So, of course, I understand the icky-ness factor, but how do you feel about the technology that they’ve created to alleviate that? Do you trust in that? Do you think consumers trust in that? I don’t know the science behind it, but they have different sanitization techniques, which is the application of heat and the use of various alcohol solutions to remove the top layer of the blush or the lipstick. Maybe I’m just a millennial but, for me, I actually would trust it. Whereas like, you know, my mother would never even understand what we’re talking about right now. But for me, I trust this technology, until it like, did me wrong.

Rebekah: [00:10:10] Well, you also probably go into a beauty store and use their testers and don’t even think twice about it. The methods that are listed in here are the exact same methods that they use to sanitize their testers. So if you can get over the icky-ness, let’s call it, hurdle, it is likely that this could take off, I think, in a much slower way than something that’s very easy to say, “Oh, yes, a hair dryer. Well, what could someone possibly have done to that? I’ll buy that perfume.” There’s very low risk in terms of like, health, with those things.

Richie: [00:10:43] I guess I just wonder broadly where the waste is. In terms of like, is beauty actually that wasteful compared to apparel or insert-other-product-category? Like, if you were gonna solve all of the secondhand problems, is this really what you solve now? Or do you solve a different one?

Rebekah: [00:11:01] When direct-to-consumer brands first launched, like Bonobos, and then people were like, “Oh my gosh, I can sell clothes online? Oh, now I can sell glasses online. Oh, I can sell a mattress online! Let’s try beauty. Let’s try something like that.”

Richie: [00:11:14] But, at the same time, like—I think you saw this especially in the plus-size market of like, three plus-size brands launch and then it’s like, “Oh, it’s saturated.” And the reality is, until there are as many plus-size brands as there are “regular” strict-size brands or whatever, it can’t be saturated. I almost wanted the same thing of like, given how big the apparel problem is, can we even have enough resale apparel platforms or whatever, until the sustainability thing is solved? Which will take forever. 

Rebekah: [00:11:43] Yeah. But if each of them has to also sustain itself as a business, that’s where it becomes problematic, because if the customer base is small, then it is saturated, even though it’s not saturated in kind of the more global customer base sense, for the customer base that’s willing to purchase that thing used. It is quite small and can become saturated more quickly.

Richie: [00:12:05] Yeah.

Caroline: [00:12:07] You’re speaking of apparel? It’s still quite small?

Rebekah: [00:12:08] I mean, just anything. Any resale is still, I think…I don’t know that it’s the norm to go look and see if I can buy that used before I buy it new. Like, that is not the default of the average consumer.

Richie: [00:12:23] Oh yeah. And it has to be, at most, a few percentage points of all spend. I think it’s probably less than 1%.

Rebekah: [00:12:27] Probably.

Richie: [00:12:28] We would have heard about it, I assume, if it was more than 1%. I don’t think the combined revenues of Poshmark, thredUP, RealReal are more than maybe $2 billion, and that’s probably incredibly generous. It might not even be more than a billion. I guess as we talk about this more, I just keep going back to, there is a really strong use-case around reselling hype-driven collaborations, a la Kylie Cosmetics. That seems like a great use-case to build the whole thing around tools, beauty, tools, hair dryers, seems like a great use-case. And then fragrance seems like a great one. Everything in the middle seems really—not confusing, but just seems like a distraction. If you want to find, like, the core thing that will get someone to transform their own behavior or perception of the market, you have three examples right there that would get someone to go like, “Oh, I don’t care if someone else used this or bought it.” It’s the same as almost like, sneakers, handbags, and find one other thing, that those seem like the things that could transform the common perception about what secondhand beauty means. But to focus on other stuff in the middle feels, to me, like a distraction.

Caroline: [00:13:32] I know for Glambot, at least, why the founder started it was because she was on a trip and she just bought three eye shadows that happened to be very similar and can’t return them. And I found myself in that scenario. I don’t know if you’ve ever bought a foundation or something that you can’t return and you have it. So it actually serves a need. Forget the sustainability piece. It’s just, sometimes we make a mistake, and if you’re buying beauty on, like, a monthly basis, it’s actually helpful. So, I have in the past used eBay personally to sell some of my old things.

Rebekah: [00:14:05] I feel like it serves—in your scenario—it serves more of a need for the seller than it does for the buyer. And I think, to encourage widespread adoption, it needs to speak more to the buyer, at least initially. There needs to be more demand than supply. And right now it seems like there’s more supply than demand, because unused make up that I have, will never use, and it’s just sitting in my cabinet. So I could use this as a seller, but I don’t know that I would use it as a buyer, and I think that I’m probably in the majority.

Richie: [00:14:37] Which, I guess, brings me back then to, if there were super-clear use-cases to kind of generate the flywheel. Like, for example, a limited edition, like, fragrance marketplace would be fascinating, and you could get all these old fragrances that maybe aren’t in production anymore, or so forth. And if you could buy those, like, that seems really great. Same around celebrity-driven beauty collaborations, whether they’re YouTube bloggers or part of the Kardashians or so forth, limited supply, again, seems like a great place to have both supply and demand. And then, the hair tools thing is a little different, but like, I think about sneakers and some of the other things driving the non-beauty resale market, and they are these hype-driven things. You have, like, the Poshmarks and the thredUPs of where you can go sell a J. Crew shirt here or there. But I think, by and large, people change their perception of a given thing when there’s a really clear use-case that is just interesting, like sneakers, like Supreme, like streetwear, and I think the beauty space needs that. Versus just a place that’s like a 1-800-JUNK for beauty—which is great for the seller, as you said, but is not enticing for a buyer.

Caroline: [00:15:43] And also, as a seller, Rebekah, do you really want to take the time to take the photo of the item or send in the item and to post it?

Rebekah: [00:15:50] No. I sure don’t.

Caroline: [00:15:52] You have very little incentive to even post these old items to potentially get 10% of what you paid for it.

Rebekah: [00:15:57] Yeah. How much money would I realistically make off of it? I mean, I don’t have like, super-expensive makeup or anything!

Richie: [00:16:02] Right. But if you, for example, had the first Kylie Lip Kit that was highly desired, you would go through that effort, and people would go through it on the buying side as well.

Rebekah: [00:16:12] You just need some sort of scarcity.

Caroline: [00:16:14] But it’s interesting, ’cause I really feel that way about clothing, too. I know you mentioned it with the sneakers and the purses and whatnot, but that’s why I think of The RealReal over thredUP. And, when I’m looking on thredUP, I feel like it’s a sea of old J.Crew shirts that were on sale, and they just sit there. I feel like that customer is someone who is really purusing that site to buy sustainably, whereas The RealReal is just trying to get a cheaper deal on a luxury item.

Richie: [00:16:40] So I think if we go back to the initial question of, “Will this become mainstream and how long will it take?” My perspective is, it can, if they find these core use- cases that have both supply and demand. But, I would say, this, I think, will be the slowest adoption, and could be minimum five years to start “taking off,” in quotes. But, probably at least a decade away. It feels like we’re in the dabbling phase of this. Did any of these companies raise money? Do we know that?

Caroline: [00:17:07] Not that I know of. But one company I’m curious of is in Japan. It’s called Mercari, and it’s valued at $1.2 billion. It went public in 2018. I just wonder, what’s the differentiation there? It’s just projected to grow the secondhand beauty market.

Richie: [00:17:21] Well, it’s a huge cultural piece.

Caroline: [00:17:22] But will Americans come to adopt it at some point?

Rebekah: [00:17:26] I also wonder what’s on that market? Is it all luxury beauty items? Because, knowing the culture there, I’d imagine that they’re not buying L’Oreal on there. They’re buying, like, very high-end beauty items.

Caroline: [00:17:40] And then the high-end beauty consumers, in the U.S. anyway, I can’t see them partaking in this. Women who buy La Mer, I doubt that they’re going to sell. They treat that like gold. They want to keep it.

Richie: [00:17:52] Your point is, the fact that this company went public on this premise means there is something there. But I would think that, like Japan, South Korea, et cetera, they’re gonna be so far ahead of this, versus, if we go back to where we started of like, younger people trying to find stuff cheaper is just going to take longer for it to pick up than there are cultural reasons where people care more about beauty to a higher degree there than they do here, If that’s fair to say.

Caroline: [00:18:16] And I’m also not sure if the fast beauty trend has gained traction there. If people are collecting beauty products, the way people are in the US.

Richie: [00:18:26] I mean, I think the scale of it there is just vastly increased to what happens here, of double-cleanse and ten-step in 12-step routines, and there’s way more of the ritual, versus it feels like people dabble here more.

Richie: [00:18:44] Thanks for listening to Espresso, a Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave a review on iTunes, we always appreciate it, and thanks to George Drake, Jr. for editing this episode. We’ll be back with more.