{"id":14035,"date":"2021-02-28T22:38:05","date_gmt":"2021-03-01T03:38:05","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/poshmark-turning-rags-into-riches\/"},"modified":"2021-02-28T22:38:05","modified_gmt":"2021-03-01T03:38:05","slug":"poshmark-turning-rags-into-riches","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/poshmark-turning-rags-into-riches\/","title":{"rendered":"Poshmark: Turning Rags Into Riches?"},"content":{"rendered":"

The beginning of this year has seen an IPO boom, including an impressive entry from Poshmark, a platform that allows people to resell their used clothing. With 4.5M sellers and 6.2M active buyers, Poshmark has found a secondhand place in the retail market traditionally overlooked [1]. Poshmark\u2019s opening saw its stock price more than double above its target price, putting its valuation comfortably within the unicorn range, with market cap ~1 month after IPO at $4.25B [2]. While investors certainly see the appeal of the Poshmark platform, there are questions as to whether Poshmark is simply riding the wave of an IPO bubble or truly a sustainable platform.<\/p>\n

Poshmark\u2019s business model is quite simple: it creates value by connecting buyers with sellers of secondhand clothing. What is interesting about Poshmark\u2019s approach is how hands off it is. Sellers are responsible for holding goods until sold and for \u201csharing\u201d their listings with their own followings to drum up buyer interest. Because Poshmark\u2019s role in sales is so limited, it charges a relatively low commission rate of ~20% [3]. In some ways, Poshmark replicates a retail consignment model where sellers are only compensated for their clothes after purchase, but they keep their item until sold. Their model also differs from other online secondhand platforms. For example, ThredUp sellers only have to ship merchandise to ThredUp to complete transactions. ThredUp takes a much higher percentage of revenue (20-95%) for the additional sorting, operations, and sales services that it provides [4]. With its stripped-down model, Poshmark appeals to investors with an incredibly asset-light approach to secondhand retail where it incurs almost no inventory risk and minimizes working capital requirements.<\/p>\n

Poshmark does make a few targeted attempts to create more value beyond a simple matching service. Similar in some ways to the efforts of large platforms like Alibaba, who had to instill consumer confidence before e-commerce was a known factor in the Chinese market, Poshmark identified a need to increase consumer confidence in buying second-hand. Posh Protect refunds buyers for failed shipments or merchandise that does not match its listing. Posh Authenticate places Poshmark as a go-between on transactions for items worth >$500 where experts inspect and confirm the authenticity of merchandise. With this value capture approach, Poshmark grew revenue almost 30% last year and made a profit for the first time [5]. Despite these measures, Poshmark did admit before its IPO that it has had some issues with fraudulent merchandise [6].<\/p>\n

Despite its string of recent success, the scalability and sustainability of Poshmark\u2019s platform is far from assured. For sellers, there is almost a dyssynergy of scale, as every additional seller makes it harder for products to be found and purchased. Sellers are already acknowledging the challenges of making a sale if they do not bring their own base of buyers [7]. With additional supply scale, smaller sellers will be increasingly crowded out in favor of more popular sellers who could command enough of a following that they may be able to disintermediate Poshmark. Poshmark has also practically invited multi-homing by refusing to take ownership of inventory until a transaction has completed; a seller could list on several sites (e.g., ebay) and simply remove its Poshmark listing if another option closes faster or at a higher than expected price.<\/p>\n

Poshmark now boasts over 200M items across a wide range of categories [1], but that scale introduces challenges to a buyer unless they know exactly what brand or item they are looking for. Poshmark launched Posh Parties in an attempt to combat scale challenges by grouping similar listings for limited time events, but that means niche products or lesser known brands are increasingly marginalized. Poshmark may instead be left with those customers who know exactly what brand or item that want for the best deal possible, introducing price pressure where Poshmark already takes a relatively small commission.<\/p>\n

While its asset-light approach has catapulted Poshmark to success on the equity market, it faces massive challenges to scale on both the seller and buyer side of the platform. It has done little to create \u201csticky\u201d value for buyers or sellers that would retain them or prevent multi-homing. Its efforts to build customer credibility on its own platform may in fact have built up credibility in the broader online secondhand market in a way that allows other competing platforms to capitalize on its effort. This may be one investor unicorn that fails to live up to the heightened expectations of an IPO boom.<\/p>\n

 <\/p>\n

Sources:<\/p>\n

[1] Beltran, Luisa. \u201cPoshmark Stock Soars 142% in Market Debut. Petco Took Off Too.\u201d Barrons<\/em>, 14 Jan. 2021, www.barrons.com\/articles\/petcos-and-poshmarks-ipos-are-about-to-start-trading-51610639178.<\/p>\n

[2] The Wall Street Journal. \u201cPOSH | Poshmark Inc.\u201d The Wall Street Journal<\/em>, 28 Feb. 2021, www.wsj.com\/market-data\/quotes\/posh\/.<\/p>\n

[3] Poshmark<\/em>, https:\/\/poshmark.com\/<\/a>.<\/p>\n

[4] ThredUp<\/em>, https:\/\/www.thredup.com\/<\/a>.<\/p>\n

[5] Schubarth, Cromwell. \u201cPoshmark Sets Targets for IPO at More than Double Its Valuation.\u201d Silicon Valley Business Journal<\/em>, 6 Jan. 2021, www.bizjournals.com\/sanjose\/news\/2021\/01\/06\/poshmark-resale-marketplace-ipo.html.<\/p>\n

[6] Garcia, Tonya. \u201cPoshmark IPO: 5 Things to Know about the Online Marketplace before It Goes Public.\u201d MarketWatch<\/em>, 23 Dec. 2020, www.marketwatch.com\/story\/poshmark-ipo-5-things-to-know-about-the-online-marketplace-before-it-goes-public-11608745839.<\/p>\n

[7] Schoen, Stefanie. \u201cCloset Clean Out: Poshmark vs. ThredUp.\u201d The Style Safari<\/em>, 16 Feb. 2020, thestylesafari.com\/closet-clean-poshmark-vs-thredup\/.<\/p>\n","protected":false},"excerpt":{"rendered":"

Poshmark provides a platform for secondhand retail that has captured the heart of investors, but will its success last?<\/p>\n","protected":false},"author":18507,"featured_media":14036,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-14035","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/platform-variety\/","yoast_head":"\nPoshmark: Turning Rags Into Riches? - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/poshmark-turning-rags-into-riches\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Poshmark: Turning Rags Into Riches? 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