Say Hello To Poshmark, The Online Thrift Store About To Go Public At $3 Billion

Poshmark, the online secondhand store that is expected to start trading tomorrow, is headed to market with a $3 billion valuation and a sales pitch that puts the ten-year-old startup at the vanguard of retail’s next big thing. The offering documents say it all: 70 million users signed up and $4 billion worth of merchandise sold since inception and a recent rate of 56 million social interactions a day that have pushed $1.3 billion of those sales in the year ended Sept. 30.

Its confidence is backed up by several dozen companies who are also chasing the secondhand dream including ThredUp, which is similarly planning an IPO and last year published a detailed report promoting the thesis that young shoppers motivated by frugality and eco-friendly bona fides are increasingly buying used clothing and gear. The market for secondhand stuff, according to the report, will more than double to $64 billion in three years.

“Vintage is back in vogue,” says Jill Standish, who leads the global retail practice at Accenture.

San Francisco-based Poshmark has risen to the top of the pack with an online exchange that lets users scroll through an Instagram-like feed of stuff yanked from people’s closets and put up for sale. Thursday’s offering plans to sell 6.6 million shares at $35 to $39 each, valuing Poshmark at $3.1 billion at the midpoint of the range on a fully diluted basis, one of the year’s first IPOs along with pet store chain Petco and fintech company Affirm, which allows customers to pay for online purchases over time.

Poshmark has attracted a large, engaged following, with users spending an average of 27 minutes a day on the shopping app in 2019, according to the offering prospectus. Keeping them coming is the hard part. Roughly a third of Poshmark users who bought something between 2012 and 2018 ultimately listed something for sale, with the reverse happening just as often, the documents say, with transactions encouraged by the social nature of the app where users can like each other’s virtual closets, share listings and leave questions and comments. But the documents also warn investors that in order to increase revenue and maintain profitability, Poshmark will need to continue attracting more of those users and turn them into active buyers and sellers in a cost-efficient manner, something analysts say won’t be easy.

“That is their biggest challenge: How do you keep these people in your ecosystem?” says Sucharita Kodali, a retail industry analyst at Forrester Research. “Most of these start-ups, once they cut back on marketing, their sales decline. The customer they paid to acquire is one and done.”

And Poshmark has a history of spending heavily on marketing, with the cost of splashy television commercials and social media ads totaling $221 million during 2018 and 2019, about two-thirds of its revenue in the period. For comparison, competitor The RealReal, which went public in 2019, has kept its marketing expenses to under a third of its revenue. A Poshmark spokesperson declined a request for comment, noting the pre-IPO quiet period.

Poshmark did dial back its spending on marketing during the pandemic, which helped it eke out $6 million in profits on $247 million in revenue in the twelve months ending Sept. 30. However, it said it plans to “substantially increase” the practice in the future to acquire and retain customers, so long as its feels it’s getting a good return on investment.

Another challenge: Poshmark relies on the continued allegiance of the small-scale entrepreneurs who have built businesses around selling on the app. They are the ones who source inventory (not just from their own closets, but from local thrift shops or retailers looking to offload returned or overstocked merchandise), photograph it, list it, promote it and ship it to the customer. And it’s unclear what type of profit sellers earn for all that hard work. Unlike ThredUp and The RealReal, Poshmark doesn’t touch any inventory, earning its keep by charging a 20% fee on sales $15 or more or a flat $2.95 for smaller sales.

The company doesn’t disclose what portion of products are successfully sold, saying only that it has sold 130 million items since inception and that it has another 201 million listed for sale today. And those 70 million users? Fewer than half are active and among the 32 million who are, only 6.2 million of them bought something in the twelve months ending Sept. 30. The rest are just mostly window shopping.

“They bet the continent that they have adopted a customer that will remain loyal,” says Mark Cohen, director of retail studies at Columbia University. “I don’t buy it.”

Source: https://www.forbes.com/sites/laurendebter/2021/01/13/poshmark-online-thrift-store-ipo/