Department stores, which have lost customers and sales to mass merchants and off-price retailers for decades, are now increasingly challenged by apparel resale as well, according to a report Thursday from Bank of America Securities analysts led by Lorraine Hutchinson.
But the off-price segment has little to fear because the inflationary economy is pushing consumers toward off price and secondhand to find value, they found.
“Rather than cannibalizing sales from each other, data points to off-price and secondhand apparel retailers both gaining share from department stores, with off-price emerging as the real winner,” Hutchinson said.
Last year, the U.S. secondhand market grew nearly four times faster than the apparel market more broadly, according to research this year from GlobalData and resale site ThredUp. The annual pace of growth is above 7%, and U.S. resale could reach nearly $79 billion by 2030, per that report.
Secondhand sales appear to be beefing up the “miscellaneous store retailers” segment of retail sales as defined by the U.S. Commerce Department, Wells Fargo economists said last year. (Those are retailers with “unique characteristics like florists, used merchandise stores, and pet and pet supply stores.”)
In April, sales in that segment grew over 11% year on year to $15.7 billion, according to government numbers released this week. Bank of America found that tax refunds seem to have boosted resale since February, and that higher-income households drove much of the spending on secondhand goods in April.
But used apparel underperformed discount apparel in eight of the past 12 months, according to Bank of America. At discounters and off-price stores, volume and average unit pricing are both driving comp strength, and their pricing power has grown.
That has been true even in the tariff era, as major off-price chains take steps to ensure they are beating department stores and other mainstream retailers on price.
By contrast, while resale transactions are on the rise, spending per transaction has declined in the last four years. Last month, spending per household on used apparel rose 8% year over year, with transactions up nearly 40%, but spend per transaction dropped 22%.
“We think this is due to the fragmented model of most reselling platforms, which typically rely on many independent sellers,” Hutchinson said. “This makes it difficult to sell at higher prices given the high degree of competition, which has only built in recent years as reselling has become more popular.”
Resale is also difficult operationally, especially online, because items have to be processed individually and checked for quality.
“We're frequently asked whether rising secondhand apparel sales pose a threat to the off-price channel,” Hutchinson said. “Using a new proprietary dataset, we show that while secondhand is growing, it is not at the expense of off-price.”
