Are secondhand sales the right branding move for Neiman Marcus?

Source: Fashionphile/Facebook
Apr 23, 2019
Tom Ryan

Neiman Marcus last week announced it had acquired a minority stake in Fashionphile, becoming the first luxury retailer to invest in the fast-growing reseller market.

Founded in 1999, with sales projected to reach $200 million this year, Fashionphile resells luxury handbags, jewelry and other accessories with an online inventory of 15,000 items. It operates showrooms in Beverly Hills, San Francisco, Carlsbad and New York City. Competitors include The RealReal, Vestiaire Collective and Rebag.

For sellers using Fashionphile, the retailer stands out for its direct buyout model. Most resellers are either consignment or peer-to-peer platforms, whereby sellers wait until their item is purchased by a consumer before receiving payment.

As part of the partnership, Neiman will designate five to seven Neiman locations as drop-off spots this fall. Sellers will receive an immediate quote for their items from Fashionphile as well as immediate payment they can use to make purchases at Neiman Marcus.

An annual report from ThredUP in March showed the resale market has grown 21 times faster than the retail apparel market over the past three years. Annual revenues are projected to reach $51 billion by 2023, up from $24 billion currently, driven by Millennials and Gen Z who prioritize sustainability and clean fashion.

Neiman Marcus noted that over half of its customers already engage in pre-owned luxury and “limited overlap” between Neiman’s core customer and those who buy secondhand.

“There is a customer who enters the luxury market through re-commerce who one day will graduate into buying products of the season,” Neiman Marcus’ CEO Geoffroy van Raemdonck told Fortune. “We see a recruitment vehicle of the younger customers.”

The investment follows H&M’s announcement the prior week of an e-commerce trial of secondhand sales at its & Other Stories banner.

One concern is that reselling may dilute the aspirational branding of a luxury label. Last November, Chanel sued RealReal for selling counterfeit handbags. RealReal responded by calling Chanel’s claims “anti-consumer” and “anti-competitive” while charging Chanel only wanted to “undermine consumer confidence in the secondary market.”

DISCUSSION QUESTIONS: Does it make sense for Neiman Marcus to get into secondhand selling? Do the potential benefits of its partnership with Fashionphile outweigh any risks to its traditional business?

Please practice The RetailWire Golden Rule when submitting your comments.
"In the Marie Kondo era, I believe the consignment and secondhand stores are suddenly swimming in product. At some point, perhaps it'll settle down."
"I found that one of the consistent themes in retailers’ failure to innovate is the irrational fear of cannabilization."
"Such a smart move by Neiman Marcus. The idea that selling on secondhand platforms lowers brand value is ludicrous."

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28 Comments on "Are secondhand sales the right branding move for Neiman Marcus?"

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Charles Dimov

Definitely, Neiman Marcus is doing the right thing. Getting into secondhand selling means they are bringing in more aspirational customers. As noted, many of these consumer will graduate to buying the new Neiman Marcus goods. It is an excellent way to get more customers to focus on Neiman Marcus, even if they currently cannot afford the product categories. Plus it is positioning Neiman Marcus as a positive force in retail sustainability. This is going to become increasingly important to Millennial and Gen Z shoppers. Smart move Neiman Marcus!

Mark Ryski

Notwithstanding the impressive growth in the secondhand category, luxury retailers like Neiman Marcus need to be very careful in how they participate. Despite the argument that there’s little overlap between full-price customers and secondhand customers, I think the cannibalization risk and brand risk is larger than Neiman Marcus management thinks. That all said, Neiman Marcus is struggling and experimentation in the secondhand luxury market is an interesting move.

Paula Rosenblum

This goes all the way back to the conversation about the high rate of returns for apparel DTC sales. I seem to recall that Neiman has a very high ratio of digital sales vs. in-store sales. I want to say 26 percent of sales are consummated through a digital channel.

So if 25 percent to 30 percent of that product is returned, some real portion will not be available for sale again as first quality merchandise. And therefore, it makes all the sense in the world to have a place to sell them. Sort of like a warehouse store for a furniture business. That’s where a lot of our returned product used to end up when I was in that business.

It makes sense, but in the Marie Kondo era, I believe the consignment and secondhand stores are suddenly swimming in product. At some point, perhaps it’ll settle down, but right now there’s a real glut of secondhand everything.

David Weinand

It makes a lot sense – not necessarily to reap benefit from pre-owned sales but to have an outlet for their core customer to drop off their pre-owned products and then be in-store to buy more new product. That appears to be the strategy. If they can also pick up some new customers that are more prone to shop pre-owned, that is an added benefit.

Dave Bruno

While I do see some risk of brand dilution and potentially cannibalizing sales of new items, I am nonetheless bullish on this move by Neiman Marcus. There is clearly a market for secondhand luxury merchandise, and I suspect that their CEO is probably right that a significant percentage of secondhand buyers will eventually graduate into in-season shoppers. The bet they are placing is that there are more waiting to graduate to in-season buyers than there are those permanently entrenched in the secondhand market. I’d say that is a good bet to make.

Carol Spieckerman

Much like it’s partnership with Rent the Runway, Neiman Marcus is wisely spreading its tentacles through alliances and minor investments. Neiman Marcus is a glaring example of a retailer that faces an existential threat from generational irrelevance. The bright side is that Neiman’s is doing something about it without attempting to build everything in house. Its investments in re-commerce, rentals and other alternative models demonstrate Neiman Marcus’ determination to win, even if it means playing a long game.

Cathy Hotka

Luxury customers have made it abundantly clear that they want gently used product, whether it’s from upscale consignment stores (check out Worth Avenue in Palm Beach!), or online sites like Poshmark and TheRealReal. It makes complete sense for Neiman’s to get in on the action, providing its customers with a one-stop shop.

Joy Chen

Secondhand selling is a good partnership for Neiman Marcus. It provides them with an opportunity to tap into a potential consumer base and an outlet to sell Neiman Marcus’ own returned items. By being part of secondhand selling, this will enlarge their share of total purchases.

Oliver Guy

Awesome — very brave to be first-mover in this way but it is likely to be a growing market. Luxury brands are investing in this way – Richemont recently purchased a pre-owned watch retailer to tap into the market. The difficulty is that this is a new business model – it requires new people skills, processes and systems in order to support. Systems to support are not readily available in the marketplace so they have to be built.

Steve Dennis
I was the chief strategy officer at two big retailers (including Neiman Marcus) and through that experience, as well as consulting and studying innovation for my book, I found that one of the consistent themes in retailers’ failure to innovate is the irrational fear of cannabilization. Almost no brand can control the evolution of the market and it’s very easy to calculate the share you get of a market you don’t participate in. When I was at Sears I can’t tell you how many times we failed to place meaningful bets in key categories for fear of cannabilization or diversion from our core business. Along the way the amount of share and market value that was ceded to Home Depot, Lowe’s and Best Buy (among others) was, as everyone knows by now, massive and will ultimately prove fatal. Whether Fashionphile is the right horse to ride, I don’t know. But re-commerce is becoming an important market and Neiman Marcus would be stupid not to experiment with it. Of course one must be careful not to… Read more »
Jeff Sward

Well said. Cannibalize — or lose. Experience some left-pocket/right-pocket dynamics — or lose. Participate in the evolution that will take place with you or without you — or lose. Execute in a manner consistent with your current brand promise — well, that’s the hard part.

Cynthia Holcomb

An excellent decision by Neiman Marcus. Make it easier to trade in your Gucci handbag from last year for a new one this year. Meanwhile, Fashionphile delights a customer with a more affordable option, a slightly used Gucci handbag! A win-win move for Neiman Marcus and its customers.

Georganne Bender

It’s interesting that although sellers can drop off product at select Neiman Marcus locations, it won’t will sell used products in any of its stores. The words “used” and “Neiman Marcus” don’t often appear in the same sentence.

This is a smart way to gain credibility with younger shopper while introducing them to its stores. The move won’t disturb staunch Neiman Marcus luxury customers who scour the sales floor in search of this season’s latest fashions.

Rich Kizer

It’s a brilliant move. I think it will encourage their regular price customers to “recycle” previous purchases and then purchase new looks and items in-store more frequently. At the same time, I think this is a one-way elevator UP, encouraging “secondhand” customers (who may have never visited the stores) to visit the retail floor.

David Naumann
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
2 years 15 days ago

Secondhand or “pre-loved” luxury merchandise is joining the mainstream trend of consumers that are passionate about sustainability and recycling. Buying used merchandise and clothing doesn’t have the stigma it had in the past when people were embarrassed to admit they purchased an item at a secondhand store. Now even some very affluent consumers are comfortable and proud to purchase previously-owned items. Partnering with luxury resellers enables Neiman Marcus customers to enjoy the benefits of luxury goods at a fraction of the full price and it is a great way for aspiring consumers to obtain luxury goods they normally couldn’t afford.

Partnering with resellers enables luxury retailers to participate in the secondhand market opportunity without setting up completely new processes for obtaining used merchandise, inspecting it, and managing the inventory and promotion of the items. It allows them to offer used merchandise options immediately with minimal start-up costs.

Bob Phibbs

Since they can’t seem to sell the merchandise for full price anyway it seems like it’s a decision that supports that reality.

Steve Dennis

What’s your support for that Bob? My guess is the vast majority of their sales are at full-price. Certainly was the case when I was there and while I think it’s worsened, your statement seems like quite a generalization.

Dave Nixon

If there is a focused effort on moving customers from “secondhand” to the aspirational “new” market, then Neiman is poised to be one of the best in the retail business at doing this. But the risk is cannibalizing from their own market share. This “secondhand” demographic will need to be analyzed differently and nurtured into growing into the Neiman Marcus brand, without leaving for other premium retailers. Cross-branding and cross-merchandising have to be careful, and will also be key to their success.

Lee Peterson

I’m sorry, but I think this is just a bad brand fit. Also VERY hard to do: change gears and create a “used” space in a, get ready, Neiman Marcus. Huh? Having had experience in the used music business, I can tell you, it is the exact opposite of your normal product delivery process: study, buy, deliver, merchandise looks, etc. The entire used business is random, from what’s brought in the door to when it’s brought in the door to where it goes to how it looks together. Which is very UN-Neiman’s IMO.

Just because something is a trend doesn’t mean it fits your brand. Should Gap sell the hottest product from Hot Topic (vampire badges)? Should Saks sell cannabis? Should Apple sell kale? I’d say, get better and broader in your lane, not in what customers perceive to be someone else’s.

Jasmine Glasheen

Such a smart move by Neiman Marcus. The idea that selling on secondhand platforms lowers brand value is ludicrous. If anything, it’s a great way for brands to introduce customers who don’t normally shell out for luxury products to their lines.

And unlike diffusion lines, which consist of lower quality products with the same brand name, secondhand selling platforms like Fashionphile can help brands grow a cult following of aspirational luxury consumers.

Patricia Vekich Waldron

Luxury items are a natural for the growing portion of the population who are using rental, subscription and resale to style themselves!

Craig Sundstrom

The problem with secondhand, of course, is the lack of control/inconsistency of quality. Sure, one can set up minimum standards — thoroughly laundered (of course), no tears or fades, etc. — but you’re still dealing with products of an infinite number of manufactures, of whom you often know little (or nothing). And if you find something that sells, well too bad, ‘cuz you don’t have 500 or even 50 in stock, you likely have one (or maybe two). So while I won’t say “don’t,” I’m wondering how well thought out this is.

Steve Dennis

I think there is plenty of data on most luxury brands. And the whole off-market seems to do pretty well on a discovery and scarcity principle.

Shep Hyken

Did it make sense for Nordstrom to open a discount store (Nordstrom Rack)? There were quite a few naysayers when Nordstrom made that announcement, and it appears they were wrong. I think this is an interesting opportunity that will expand the Neiman Marcus reach. Executed well, this will bring additional revenue to the bottom line — and then watch how the competitors start to develop similar concepts.

Steve Dennis

Not sure I get your point Shep. Neiman’s has had Last Call stores for years. This isn’t anything like an off-price concept selling first hand products. Seems to me the Real Real is the better analogy.

Cate Trotter

The move makes sense. I think Neiman Marcus would rather have a slice of the resale market than let others take charge — especially as those buying secondhand might become the next luxury shoppers. Secondhand products are a great entry point, as well as being a way for those who always want the latest products to trade in and upgrade. It’s also a smart move to make the stores the drop-off point as it means customers have to go in, which will hopefully translate to other sales. Plus, by not selling the secondhand products in its store, Neiman Marcus is clearly working to keep that level of separation between its main business and resale.

Eve Asbury
2 years 15 days ago

I think this is a great strategy. Customers come to the store to do the drop off and are given money to shop in the store. It’s highly likely they will spend more. This is most definitely a disruptive and brave move for Neiman Marcus. Kudos!