Amid revenue declines, ThredUp is not anticipating the financial pressure that consumers are feeling let up any time soon.
The online consignment and thrift store shared in its second-quarter 2024 earnings results Monday (Aug. 5) that it saw a 4% decline in total revenue year over year, with U.S. revenue remaining flat and European revenue plummeting by 18%.
“We expect the consumer environment to remain challenging until consumers begin to feel the benefits of … lower interest rates and ongoing job stability and wage gains,” CEO and co-founder James Reinhart said on a call with analysts. “We agree with soft landing commentary for the broader economy, but remember, landings are not the same as takeoff. We think it will take several quarters for consumers, especially our core customers, to feel the benefits of interest rates coming down and for overall sentiment to improve.”
Consumers are cutting back. The February/March installment of the PYMNTS Intelligence “New Reality Check: The Paycheck-to-Paycheck Report” showed that 60% of shoppers have reduced nonessential retail purchases due to rising prices.
Still, when shoppers splurge, they do so on clothing. “The Nonessential Spending Deep Dive Edition” of the series found that for the 70% of retail shoppers who buy “nice-to-have” items at least some of the time, the most common such indulgence is clothing.
The company’s European operations have been particularly problematic, with revenue in the region falling by 18% year over year. Reinhart highlighted on the call that despite investments and efforts to transition to a consignment model, the European business faced persistent challenges. The company will divest its Remix business, acknowledging that a long-term turnaround in Europe may not be feasible under current conditions.
In the U.S., ThredUp experimented with new customer acquisition and promotional strategies aimed at increasing the lifetime value of customers. However, these initiatives did not perform as expected. The company spent less on marketing and adjusted its new customer offer structure, only to find that it acquired 90,000 fewer customers, which impacted potential repeat purchases.
“We estimate this was an approximate $3 million negative net impact to Q2,” Reinhart said on the call.
Additionally, Reinhart noted, ThredUp’s efforts to optimize pricing and promotions since mid-2022 have resulted in mixed outcomes. While the company achieved margin gains, the strategies implemented in the second quarter did not generate the anticipated buyer engagement and sales incrementality.
“The downside is that we did not see sufficient buyer incrementality, given what we believe is just a muted overall demand environment,” he said.
These challenges coupled with aggressive promotional tactics led to a situation where revenue flow-through was reduced, and summer demand was prematurely pulled forward.
ThredUp is turning to artificial intelligence to bring sales back. Monday’s launch of AI-powered search features aims to enhance the shopping experience through improved personalization. These tools, designed to refine search results and offer style recommendations, cater to growing consumer demand for convenience and tailored experiences.
The PYMNTS Intelligence study “The Online Features Driving Consumers to Shop With Brands, Retailers or Marketplaces” found that ease of navigation is a key factor influencing the choice of eCommerce merchant for 40% of online shoppers.
Overall, consumers are buying secondhand apparel more amid ongoing financial challenges. The PYMNTS Intelligence report “Consumer Inflation Sentiment Report: Consumers Shop Secondhand Stores as Often as Other Retail” revealed that 43% of those surveyed had bought a secondhand product in 2023. Among those, clothing and accessories purchases were more common than any other retail category.
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