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Sara Lebow (00:00):

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(00:25):

Hello, listeners. Today is Wednesday, May 21st. Welcome to Behind the Numbers: Reimagining Retail, an e-marketer podcast made possible by GIPHY. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sara Lebow. Today we're talking about tariffs again, but this time we're talking about how they're impacting the circular economy.

(00:52):

Before we get into that, let's meet today's guests. Joining me for today's episode we have two of our analysts. First up, an analyst from our long form desk. It's Sky Canaves. Hey, Sky.

Sky Canaves (01:03):

Hey, Sara. It's great to be back.

Sara Lebow (01:05):

Great to have you. And it's one of our short form writers who writes about tariffs every day now, Rachel Wolff. Hey, Rachel.

Rachel Wolff (01:12):

Hey, Sara. Thanks for having me.

Sara Lebow (01:14):

Thanks for being here. Rachel, are you writing about tariffs today?

Rachel Wolff (01:16):

I am not, surprisingly.

Sara Lebow (01:19):

Wow.

Rachel Wolff (01:19):

I know. It's a rare day.

Sara Lebow (01:19):

Well, you're talking about them. Okay, so as we always do with our tariffs episodes, let's set the stage a little for our time of recording, since this changes so much. Tariffs on Chinese goods have been rolled back to 30% for 90 days, offering a bit of reprieve for US consumers. Though as our colleague Zach Stambor wrote, "It's clear the overton window of tariffs has shifted. A 30% tariff is still a significant hit to retailers margins."

(01:49):

Today we're looking at how tariffs will impact the circular economy, by which we mean resale and rented goods. And I'm particularly curious about apparel, electronics, and toys. Obviously this is also impacting auto, but since that's its own beast, we're going to stay away from that for now.

(02:05):

So let's start with that. How will tariffs impact the circular economy? There's no international supply chain on most secondhand goods, so at first glance, it seems like tariffs would be good for resale and rentals, right?

Sky Canaves (02:19):

Yeah. Early indications are that consumers in at least in certain categories are really interested in resale and we've heard of a lot of growth from some of the big resale platforms, like Thredup, they reported nearly doubling their year-on-year new signups between January and March. And there is some data out of Sensor Tower showing a big uptick in downloads of some of the popular fashion resale platforms. I think Depop was at the top. It's really popular with Gen Z. It's now owned by Etsy. But it has a very social community feel and we've also been hearing that foot traffic at thrift stores and secondhand stores is up for in-person thrift shopping and resale shopping.

Rachel Wolff (03:06):

Yeah, it's interesting. I've seen some contradictory data. I mean, on the one hand, as Sky said, you have all these platforms saying they've seen a huge jump in the number of users on their platform. At the same time, you have some prominent resellers like Buffalo Exchange, which have noted sales are basically flat year-on-year. PWC's consumer markets analysts said that there really isn't a lot of data to show that resale is seeing this huge surge despite what some of these platforms are saying.

Sara Lebow (03:39):

Yeah, I mean, what companies stand to benefit from this behavior? Anecdotally, it feels like everyone in New York City is renting clothes from Nuuly right now.

Rachel Wolff (03:49):

Yeah, I think certainly Nuuly, Rent The Runway I think also is probably one of the companies that would stand to benefit. Thredup, as we've said, Depop, I think those are the usual suspects. On the high end, I would say The RealReal as well. I think once luxury goods start getting even more expensive than they already are, then that just makes platforms like The RealReal or Vestiaire Collective a lot more attractive.

Sara Lebow (04:13):

Yeah, if I were these companies, I would really be leaning into the US aspect of my supply chain and marketing. That said, there are some ways I could see tariffs hurting resale. For example, if people hold onto products longer to dodge higher replacement costs, could that choke out the secondhand supply chain?

Sky Canaves (04:33):

I think that's one of the biggest challenges in resale is getting the right supply at the right time ensuring consistent supply. And there's so much competition now among the different platforms to get the supply. This has been more of an issue I think, in fashion, but I think there's potential for it to spill over into a lot of the other categories as well. And so the platforms are really trying to create better incentives for consumers to sell on them.

(05:00):

I think at the same time, if consumers are feeling strapped for cash, it makes resale more appealing to them as a way to make some easy money from products they already have in their homes. But they're going to look for the platform where they can get the best prices and pay the lowest commissions. And that can put platforms in a bind. As we saw last year, Poshmark tried to cut its seller fees and pass on some of those costs to the buyers, and there was a buyer revolt of sorts and they kind of had to reverse course on that.

Sara Lebow (05:37):

Yeah, for electronics in particular, I could see the supply chain being hurt. For example, if people don't want to spend money on the new iPhone, which Apple is saying it will be more expensive not because of tariffs, but it's sort of hard not to see at least a correlation there. They might be holding onto their older electronics for longer instead of trading up, and that could hurt the resale market.

Rachel Wolff (06:02):

Yeah, but I think it'll take a while for that to happen just because a lot of people are stocking up now in those categories to get ahead of tariffs.

Sky Canaves (06:09):

And in other categories like apparel and toys, I think there's already so much supply sitting in people's homes that the real key or challenge is unlocking it, getting people to sell it, getting people to adopt that circular mindset, which is a very gradual shift, one that's likely to take place more among younger consumers than going completely mainstream.

Sara Lebow (06:34):

Yeah, I mean, how do you unlock that, get people to resell? I think that that economic downturn could potentially help that.

Sky Canaves (06:41):

Yeah. On the luxury side, I've been seeing incentives from some of the resale platforms for new signups, like, "We'll give you an extra $100 if when you sell your first item." And they will give additional bonuses if you sell more on their platforms. So that's one way. It's a lot harder to do in lower price or lower margin categories or areas like toys where the goods are not going to cost that much. And maybe a lot more of that resale will go to channels like Facebook Marketplace, or not even resale channels, but places like buy nothing groups.

Sara Lebow (07:16):

Yeah, I mean, that could be a real benefit to Facebook, which is hurting as Shein and Temu pull back on ads there. Do you guys also have a shameful corner of your home where your potential resale or giveaway items sit or is that just me?

Sky Canaves (07:30):

It's my office right now. I have a closet that's been full of some baby and toddler items that I'm trying to clear out so I can reorganize the home. And I've taken it out of the closet so all of that is now sitting on the floor. And it'll be making its way into the, there's a combination of the buy nothing group, the Marketplace, and then just giving away to friends and people we know.

Rachel Wolff (07:57):

Yeah. I also have a bag of cast-offs just waiting to be sent to Goodwill.

Sara Lebow (08:02):

Yeah, mine is waiting to be put out on the street outside of my apartment.

Sky Canaves (08:05):

And finding the time to do that is challenging. I think one of the reasons we saw a big uptick in resale activity during the pandemic was that people had more time to clean out their homes and to sell stuff and also more time to shop online and more money to spend online. So we did see a bit of a boom in resale in that real pandemic era. Along with there were also the supply chain challenges that made more consumers willing to look to resale channels for the products they were looking for. And then following that, there was a bit of a dip in resale activity, particularly in apparel because the new apparel brands and retailers wound up with too much inventory, which they then had to discount. So that reduced the price gap between resale and new items, particularly in the lower priced fashion segment.

Sara Lebow (08:58):

One thing we also saw during that pandemic era was a lot of brands wanting to own their own resale markets, incentivizing consumers to give or sell their items back to them so that they could control their own resale market. For brands that are doing that now as people sort of flock toward resale, could that potentially hurt their new goods sales, which may become more expensive?

Rachel Wolff (09:24):

I think it depends on how they want to own the experience. If they want to do their own end-to-end resale experience, then it keeps buyers in the fold. You can also incentivize people who trade in their used goods and give them discounts for new goods, and that again, could help drive sales even if it's at a discount.

Sky Canaves (09:45):

I think for a lot of brands, it's a valuable customer acquisition tool as well, for those consumers who can't yet pay full price, just to introduce them to the brand and its products and the quality, and if you have the goods to support your brand, they will be able to convert. In some categories, like children's wear, it might just make more sense to go with resale for the most part, but you can also create kind of a virtuous cycle in resale, selling new items and then taking them back from consumers when they're ready to part with them.

Sara Lebow (10:21):

Yeah, I think Madewell does this with denim. Maybe Levi's also? Pretty common. So does this mean that like amid tariffs, resellers, circular economy companies and brands should just be dusting off the pandemic playbook as we say? Or is it a different strategy they're taking?

Rachel Wolff (10:40):

I think a lot of it is the same. You have a similar sort of supply shock where prices are getting more expensive and inventory could be more limited and people are price conscious. So I think a lot of the tactics that retailers used during the pandemic, especially when it comes to resale, are going to come into play now.

Sky Canaves (10:58):

I think one area to consider is that at the same time the big e-commerce boom that we saw during the pandemic and the extra cash that consumers had to spend are no longer parts of the equation. So they maybe have to take a more measured approach to their expectations of growth. And as we saw, a lot of brands jump onto the resale bandwagon, particularly in 2022 and 2023, there's been a little bit of scaling back, but not very significant. There are still many more brands that are active in resale. But they really have to think about the role of resale within the organization and aligning all the different parts. Resale has a customer acquisition part, there's a marketing component to it, there's an ESG component, there's an e-commerce component, and maybe even a physical component. So tying all those together and making sure it's just stuck in one silo that isn't interacting with other parts of the company.

Sara Lebow (12:00):

You guys know that meme that's like "Blank is a recession indicator." Are you familiar with this one?

Rachel Wolff (12:05):

Yes.

Sara Lebow (12:05):

It's like, "Lorde releasing a new album. That's a recession indicator." Things that happened sort of last time we saw a recession. This is like, "People leaning into resale, people thrifting more and more. That's a recession indicator."

Sky Canaves (12:21):

I think the resale and thrifting trends are really prevalent among younger consumers and Gen Z in particular. It's really mainstream, particularly platforms like Depop because it's not even something that you have to think about really. If you're a young consumer, you just think of fashion and whether you buy something new or secondhand, it can still reflect personal style.

(12:46):

We saw big shout out for resale or secondhand fashion at the Met Gala earlier this month when eBay got a few shout outs from Chappell Roan, her costume was made from repurposed styles on eBay, and the couple of celebrities, big influencers, Emma Chamberlain and the stylist Law Roach, they both accessorized with their eBay finds. And so it was kind of a big moment for eBay and resale more broadly to be on the red carpet, so to speak.

Sara Lebow (13:17):

Law Roach had a weird eBay find. What was his?

Sky Canaves (13:19):

He had some of his accessories, like whatever his outfit had. I think he had some pins? I want to say they were silver pins.

Sara Lebow (13:29):

It was pins. We don't need it. We don't need to keep all this.

Sky Canaves (13:30):

And Emma Chamberlain, maybe her glasses came from eBay.

Sara Lebow (13:34):

They were good glasses too. So resale is once again, having a moment. Obviously very popular with Gen Z. Do we see this trend toward resale, toward the circular economy, sticking around if or when the tariffs subside?

Sky Canaves (13:54):

I think we might see another dip in the more mainstream broader consumer activity. As consumers feel that they're able to afford more new items they may turn away from resale, particularly in categories like toys. But I think the longer term generational shift is here to stay, particularly as Gen Z ages up and become parents and then they start thinking about what to do with their baby items. They buy things on Facebook Marketplace, they'll sell them there. They'll look at toys. Nobody wants a house cluttered with lots of plastic things they're no longer using, so they will turn to platforms or ways to reintegrate them into the circular economy because I think we all feel bad about just throwing things away and putting them in a landfill when someone else could find use of it, whether they're actually making money from it or just being reused through something like a buy nothing group.

Rachel Wolff (14:48):

Yeah, I guess I'm a little more skeptical about whether there will be a sort of long-term uptick in adoption, just because we talk a lot about Gen Zs and Millennials being bigger users of resale, but they're also bigger buyers of fast fashion. So I think if you look at it from a sustainability perspective, maybe it's not going to stick around for that reason. So if you take the price component out of it, is there a reason for people to stick with resale? I'm not as sure.

Sara Lebow (15:15):

And the idea being that if the tariffs subside, that's taking that price component out of it?

Rachel Wolff (15:20):

Exactly.

Sky Canaves (15:21):

But it also doesn't look like tariffs will entirely subside. At least we have a little built-in increase in the prices, as you mentioned earlier, even lower tariffs are still tariffs that will have an impact. And we could see something happen like what's happened in the UK where the cost of living crisis there has really allowed new players to thrive like Vinted, which has started out in Lithuania and really took off in the UK and other parts of Europe as well in over the last couple of years and may well be on its way to making a push in the US next.

Rachel Wolff (15:57):

Yeah, I mean, even Bill Gates daughter is getting in on the resale action. She just launched an app that's supposed to help price comparison shop across resale platforms. So I think there is definitely interest there. I'm just not sure whether the behaviors that pop up now during this time of economic uncertainty are sticky enough to last past tariffs.

Sara Lebow (16:17):

That's how I feel for electronics in particular. I think that people are willing to trade down and buy refurbished electronics. You see ads for refurbished electronics marketplaces on the subway all the time. But when, if, they have more money, I think that's one of the first places that people trade back up.

Sky Canaves (16:38):

Yeah.

Rachel Wolff (16:39):

Yeah.

Sky Canaves (16:39):

But I think in the longer term trend, the other part that could help spur more adoption or just overall usage is in those tech tools, like you mentioned, price comparison tools and also AI powered tools that can just help consumers find exactly what they're looking for in the heaps of digital listings for resale across platforms. So that's the next big challenge, I think.

Sara Lebow (17:06):

Yeah, I mean that's the biggest challenge with resale consistently is how hard it is to scale both from a sku level, like taking pictures of products and listing, which is one of the reasons why peer-to-peer Depop type platforms are so popular. And from a search perspective, I am currently trying to find a bridesmaids dress in a specific color on resale platforms and I am finding that you can't really make that search and get the results that you want.

Sky Canaves (17:35):

Yeah, there's still a much bigger investment from the shopper required into trying to figure out what the right keywords are, what filters to use to narrow down to what you're looking for, and I think this is where AI tools can gradually help improve, just like things like even visual search or image search where you can take a picture of what you're looking for, maybe you'll be able to draw an image of what you're looking for or have generative AI create an image of what you want and refine that, and then send that out to kind of scour all of the resale sites to find a match.

Sara Lebow (18:12):

We did it again. We started with the topic of tariffs in circular economy, and we ended on generative AI. Congratulations.

(18:21):

Well, that is all we have time for today. If anyone has a purple bridesmaids dress they're trying to get rid of, let me know. Thank you for being here, Rachel.

Rachel Wolff (18:30):

Thanks Sara.

Sara Lebow (18:31):

Thank you, Sky.

Sky Canaves (18:32):

Thanks for having me again.

Sara Lebow (18:33):

Thank you to our listeners and our team that edits the podcast. We'll be back next Wednesday with another episode of Reimagining Retail, an eMarketer podcast. And on Friday, join Marcus for another episode of The Behind the Numbers Show, an eMarketer podcast made possible by GIPHY.