The inflation riddle: How one online retailer is managing to cut prices
Americans have discovered this year for the first time in decades what inflation feels like, with prices rising on everything from appliances to Oreos, hotel rooms to pasta sauce. There’s one area, however, where prices are falling: the resale apparel market.
ThredUp, the online clothing reseller, has been cutting prices, CEO James Reinhart told Yahoo Finance Live.
“Our prices in Q3 and now heading into Q4 are 15% lower than they were this time last year,” he said. “That’s by design, to really attract buyers to the platform, and give them a great deal in a holiday season where I think they’re going to be feeling some pain.”
Reinhart attributed the ability to lower prices to ThredUp’s business model and data capabilities. But he noted that not all items were seeing price cuts; the decreases have been strategic.
“Because every one of our items is unique, we really use our data to figure out what are the price sensitivity curves that we need to achieve to sell more items in aggregate,” he said. “When prices go down, we’ve been seeing the demand curve go up. So we’re selling more items — at modestly lower prices — but ultimately, that creates a lot of leverage in our business.”
Because of that uptick in volume, ThredUp managed to grow margins even while cutting prices. Third-quarter gross margins rose to 73% from 70% a year earlier, as orders rose 28% to 1.3 million. That said, while revenue jumped 35% to $63.3 million, ThredUp is still posting losses.
ThredUp shares surged as much as 23% Tuesday, then subsided into a volatile session, bouncing between gains and losses. The stock closed up about 4% at $20.01.
Reinhart echoed a sentiment expressed by other retail executives: as the economy continues to reopen even as the coronavirus pandemic drags on, people are itching to dress up and get out.
“The data shows us that women are ready to go out and party," he said. "We’re selling lots of heels.”
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshyman, and read her other stories.
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