Welcome to luxury fashion resale: Discerning customers beckon to brands

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The resale luxury market, already sizeable (estimated at $25–30 billion in 2020), is surging: industry watchers predict an annual growth rate of 10–15 percent over the next decade. This is thanks in part to the success of specialized digital trading platforms, as well as changes in consumer behavior.

With such rich rewards, brands are eyeing the market with interest, with some taking steps to invest. Others remain cautious: with valuable brand identities as well as margins to protect, there’s good reason to think carefully about the inherent value of the resale sector.

Over the past three months, McKinsey has delved into this topic, conducting consumer research in North America, the EU and Asia, canvassing luxury players, and running directional studies. Our findings confirm the appeal of the resale trade: done prudently, brand entry should not erode margins, and would result in only limited cannibalization.

For discerning consumers, brand involvement is an attractive prospect. For brands, the challenge is finding unique ways to add value to the resale shopping experience. What’s clear is that luxury resale is here to stay—and those brands that choose not to participate risk missing out on a significant opportunity.

A thriving trade—fuelled by customer excitement

Overall, 75–80 percent of luxury consumers are still strictly new-product buyers. However, consumer behaviors and concerns are changing, pointing many toward pre-owned products. In the watch market, for example, by 2025 we expect that resale will comprise a full third of the total market. These patterns have been accelerated by the pandemic, by digitization, and by the so-called “generational headwind”: younger buyers (Generation Z and Millennials) are significantly more willing than Generation X and older to purchase pre-owned products.

Around half the luxury resale trade currently consists of jewelry and watches, with handbags and shoes comprising just over a third; it is mainly oriented towards women’s fashion. The market is situated largely in the European Union, followed by the US. Ten percent lies in China. While the trade is still largely offline, online platforms are growing very much faster. Indeed, specialized digital platforms for trading pre-used goods, with a 25–30 percent market share, are driving much of the sector’s growth, with a predicted expansion of 20–30 percent per annum.

Buyers and sellers flock to these online marketplaces, attracted by the range of unique products and services offered: from pick-up, storage, and delivery to repair and refurbishment; from authentication to price-setting advice; and from high-end photography and copywriting to virtual shopping events. For these specialist services, platforms may add a commission of 20–40 percent on top of selling price.

Part of what attracts buyers is access to rare and exclusive products—a primary draw for 41 percent of respondents. A similar number wish to contribute to greater sustainability in the industry. Somewhat fewer, 35 percent, prioritize affordability: buying pre-owned helps them to save money, or to obtain particularly desirable products (Exhibit 1).

Buyers of both pre-owned and new luxury products choose pre-owned items largely for rarity value and sustainability.

Nine in ten customers currently participating in the resale market are also buyers of new products, and three-quarters sell goods too. The numbers reveal a circular trade, with customers frequently selling items to free up space in their closet, to change their style, or as part of a pattern of getting rid of out-of-date items (Exhibit 2).

Luxury pre-owned sellers mostly sell items to free up space, or to change their style.

What gains flow to customers from brand involvement?

With this committed consumer base, it’s no surprise that certain high-profile brands are dipping their toes in the luxury resale water: for instance, Gucci is partnering with TheRealReal to recycle / upcycle garments. Richemont have acquired UK-based watch specialist Watchfinder, thereby gaining new distribution channels and becoming a retailer of rival brands. Last but not least, Kering has invested in Vestiaire Collective, to enhance its customer experience and boost its sustainability efforts.

But do such arrangements give the consumers something special, beyond what they’re already finding for themselves? Currently, customers are mostly unaware of luxury resale partnerships.

However, when they do become aware of brand participation, three-quarters perceive it as a good development, with consumer loyalty, and perception of brand desirability, generally maintained. Around half of current new-product buyers react positively, with a negative response from only five percent, if all other aspects of the customer experience remain the same (Exhibit 3).

Entry of brands into the resale market has positive impact on loyalty and desirability among new-product buyers.

The ability of a brand to sustain and engage in a secondary market reinforces a desirable aura of craftsmanship, durability and sustainability: four in ten buyers consider that brand participation will raise the market value of their own pre-owned products. Many also feel that luxury brands exert more control of their product this way, resulting in less counterfeiting, for example.

(Notably, however, there are cultural differences. In contrast to US or French consumers, Japanese buyers’ perception of brand desirability, and their willingness to buy more brand items, was in fact markedly reduced when they became aware of brand involvement in the resale trade.)

Choices ahead for luxury brands

The pre-owned market is no passing fad but presents a real and lasting opportunity. For example, the vast majority of luxury OEM makers were initially hesitant to grant resale customers the same exclusive treatment as new-car buyers. In recent years, however, these companies have come to see that trade-ins present huge opportunities, both to enhance the customer experience and to target a new customer base. Buying a pre-owned luxury car now comes with premium service, including certification and guarantees, and offers of scarce, vintage products for loyal customers.

Other luxury brands are faced with the same significant decision: in or out? Those choosing not to take part in resale will have a smaller addressable market—while still seeing their goods traded on outside digital platforms.

For those that do step in, other considerations arise. Firstly, how does this serve customer needs? Brands might find ways to appeal to specific client segments. For discerning collectors of iconic pieces, brands could play a role in organizing the market more efficiently, or by offering sought-after items. For those interested in buying new products only, the trade-in experience could be improved. And for all buyers, of both new and pre-owned products, brands could provide superior authentication and guarantee services, with specialist insights and access.

Another concern for brands is how participation in resale will impact their own operations. Their decision will depend on acceptable risk, and their ability and willingness to take on the market by themselves—or with a specialist partner. Going in alone promises higher profits, while the risks and burdens of entering an unfamiliar sector are lowered with an experienced partner.

Once these questions are resolved, the revenue and profitability of the resale market will mostly be influenced by operating-model choices (direct versus outsourced operations, inventory and supply-chain options), by the breadth of services offered, and the average value of the resold products.

The luxury resale market holds great promise for both customers and brands. Leading the way, largely, are customers, who are generally eager for established brands to play a larger role. For brands, if they choose to participate, it is a way to expand their offerings, appeal to committed client segments, stay abreast of digital innovation, and reinforce their sustainability efforts—if they can find ways to add meaningful value to loyal customers’ experience.

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