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Resale clothing platforms like ThredUp, The RealReal, and Vestiaire have transformed how consumers think about secondhand clothing. The resale fashion market is booming, even outpacing traditional retail fivefold in 2024. In new research, information technology professor Sreekumar Bhaskaran of ÎÞÂëרÇø Cox and coauthor Stephen Gilbert sort through the economics and social benefit of resale channels. Industry claims by some firms about sustainability benefits of resale channels are mixed, according to the findings.

Counterintuitively, resale channels can lead to overproduction, exacerbating the goals of sustainability. “Resale channels seem like a natural way to address some of these concerns,” Bhaskaran notes. Demand indicates consumers want to reuse products, versus always buying them new. To consume apparel responsibly, from environmental and production standpoints, more work is needed by the industry, according to Bhaskaran.  

Scaling platforms

Studying resale channel platforms was a natural extension of Bhaskaran’s and Gilbert’s early research about secondary markets, such as autos. He also mentioned that claims about resale apparel channels reducing overproduction—clothes piling up in landfills—was an open question. The apparel industry contributes approximately 10% to global carbon emissions, with fast fashion a significant portion of it. A single pair of jeans requires about 7,500 liters of water to produce. For environmentally conscious consumers, particularly Gen Z and millennials, buying secondhand appears to be an obvious solution, he adds. 

Apparel firms and platforms have been monitoring this trend for some years, believing a positive impact was possible. The market for resale clothing is expected to reach $367 billion by 2029 with annual growth of 10%. Bhaskaran and coauthor wanted to know: If these channels are growing, then what are some of the implications of it? How should firms view these channels and what are some of the drivers? 

Independent third-party platforms such ThredUp and luxury brands-focused The RealReal have put gently-worn clothing into the spotlight. Major platforms now deal in upscale brands, with companies like Patagonia and Lululemon launching their own resale programs, Worn Wear and Like New, respectively. Customers can return used items for store credit. Levi’s also has a resale channel.

A paradox revealed

Bhaskaran's research reveals important distinctions between brand-operated resale channels and independent third-party platforms. The authors developed game theory models to parse the options for the two types of channels. Brands controlling their own resale markets generally work as intended: "The brand controlling does not lead to overproduction beyond what is socially optimal," he notes. 

The problem emerges when third-party platforms enter the picture, especially in the fast fashion segment where production costs are low. These platforms capture most of the residual value from used clothing, but manufacturers may see this value being extracted without benefiting from it. This creates a perverse incentive. In response, manufacturers may increase production and adjust pricing strategies to capture more of that value upfront. Simultaneously, consumers who can recoup value by reselling their purchases feel less constrained about buying new. Bhaskaran says. "That actually ends up exacerbating the problem associated with overproduction rather than reducing it." 

The research identifies specific conditions under which resale markets achieve their sustainability goals. Brand-operated programs like Patagonia's Worn Wear generally succeed because they extend product life while maintaining control over the virtuous cycle they create. "It's almost like when we look at what happens in the auto industry," Bhaskaran observes. "Trade-ins tend to stimulate demand for new products." 

A key difference with apparel is how quickly individual or consumer preferences change, Bhaskaran mentions. 

The market decides

Rather than relying primarily on regulation, Bhaskaran advocates for market-based solutions. Recent developments show promise: major fast fashion retailers like H&M and Zara have launched their own resale platforms. Third-party platforms could also partner with brands through "reasonably structured, well- intentioned contracts that think about how the value gets shared in the supply chain." 

The research also highlights the essential role of technology to scale up resale markets. "You need to use AI or other sophisticated technologies to identify and sort products efficiently," Bhaskaran explains. 

Importantly, Bhaskaran emphasizes that the growing awareness around resale has inherent value. "The fact that resale markets are present is a good thing," he says, because the conversations they generate make people "more conscious about their choices." 

From the complexities of apparel production and transaction costs to supply chains, the challenge is to find better ways to fine-tune resale channels. "Whenever we look for solutions, we always look for this one silver bullet that can solve everything,” Bhaskaran concluded. “In reality, it does not exist, and we need to dig deeper into the problems.” 

The paper “The Implications of Resale Channels in the Apparel Industry” is authored by Sreekumar Bhaskaran of ÎÞÂëרÇø’s Cox School of Business and Stephen Gilbert of University of Texas-Austin.

Written by Jennifer Warren.