ThredUp CEO James Reinhart says that when it comes to the environment and retail strategy, secondhand clothing is the perfect fit

ThredUp is known for collecting used clothes, but in the last couple years it’s also shown a knack for collecting new partners. Just today, for instance, ThredUp announced its latest: working with Pacsun to build Pre-Loved Pac, an online secondhand-clothing store.

• Customers will be sent a kit to load with clothes and ship for a store credit, while ThredUp’s proprietary technology will help sort, photograph, and price the items.
• According to ThredUp’s 2021 Resale Report, 34% of consumers report being more likely to shop with a brand that offers secondhand along with new clothes.

For ThredUp, which went public in 2021, Pacsun marks the 29th brand it has signed on for its resale-as-a-service (RAAS) program, which also includes Adidas, Crocs, and Walmart.

But RAAS isn’t the only place where James Reinhart, the co-founder and CEO of ThredUp, thinks resale can go.

Reinhart, who holds not one but two degrees from Harvard, an MBA and an MPA, is a data obsessive. When we spoke to him at Shoptalk in Las Vegas last week, he frequently pulled out his iPhone to show the latest graphs and pie charts ThredUp has posted. He talked about resale’s big picture, like his theory about how today’s market is like a Prius, the environmental benefits of used clothing, and why he doesn’t think anything he sells should be taxed.

You’ve said that the secondhand clothing market is at the Prius stage. How so?

We’re at the Honda Insight and Prius stage of resale. When those cars originally came out, they weren’t particularly attractive. The Prius was an ugly car. And the Honda Insight was an ugly car. But people who bought them were early adopters. They really believed in electric cars, and in the future of electric cars, so they were willing to tolerate poor design and poor battery life and all those things.

And that’s like where we are in resale. There’s a lot of things where the experience of shopping resale is inferior to shopping new, but these things are evolving. And my view is that so much of the technology around photography, inspection, and authentication—all these things are improving such that consumers are going to be getting a superior shopping experience as the resale industry evolves.

My point about Tesla is that now people can buy an electric car where not only is it sustainable, it has great performance, and aesthetically it makes sense. And so that’s my analogy: I think we’re moving out of like that early adopter resale phase, which is where I think we’ve been in for the last few years.

Who do you think of as ThredUp’s competitors?

The competitive environment is nuanced. So on the supply side, we generally compete with the Goodwills, and the Buffalo Exchanges, and the Crossroads [Trading Co.]. And just general consumer inertia, which is like, “I’ve always just given my stuff away. I don’t have to change my behavior.” And on the demand side, when we surveyed customers, we said, “Hey, if ThredUp didn’t exist, where would you have purchased this item?” 70% said TJ Maxx or another off-price store.

Did that surprise you?

No, it didn’t surprise me. Because part of my thesis, as the company was growing, was that one of the real structural advantages we have over off-price is being online.

Do you see ThredUp as taking a share of the market away from Goodwill, or as growing the overall secondhand clothing ecosystem to everyone’s benefit?

We’re creating a new way for that product to get into the secondhand or resale market. So I’m quite passionate about the idea that we’re actually helping consumers get that product into the market in a way that has previously not happened—that’s part of the supply disruption.

What percentage of what ThredUp collects ends up in a landfill?

About 4% of what we get ends up in a landfill. So, say a collection bag comes back with 100 items, right? We accept between 50 and 60 of those items, right? Then about 20 to 30 of those items get repurposed to be sold in a domestic thrift store. So there’s stuff that we can’t sell online, because it’s got a stain and it’s very hard to communicate that stain online in a context that’s going to delight the customer. But on the rack, a customer can see a stain and say, “I’m gonna put a patch over that, it’s fine.”

And then about 10% of the stuff we get is reconstituted as wipers—there’s a huge market for rags. The clothes get turned into pulp and reconstituted as rags that are used at, like, Jiffy Lube. There’s a whole supply chain around what they call “the wipers market.”

So what does that 4% that you have to send to landfills look like? Does it actually have maggots crawling out of it?

No, it’s just that the stuff that gets turned into pulp and rags has to be cotton. What ends up being that 4% is the stuff that’s pretty dirty and has a complex chemical makeup—polyesters and synthetics.

You’ve been advocating removing the sales tax on secondhand clothing. Where’d the idea come from?

It was probably a year ago. It just occurred to me that it’d be amazing if the government could figure out how to incentivize people to reuse stuff. There was a time when we didn’t recycle, and it was really the government that put in regulations around recycling.

Why do we tax secondhand goods? They’ve already been taxed once. Isn’t that double taxation? And if the government really wanted to help people buy secondhand products and reuse stuff, one simple way would be to reduce the tax, because effectively, that would make secondhand goods 10% cheaper, broadly speaking. And so now we have a new head of policy who we hired, Seth Levey, because I really think there is a role for us in trying to get legislation introduced to address this. Think about used cars.

Well, yeah, what about used cars?

I want to do it for everything if it’s used. It’s already been taxed once.

Ok, so homes? Real estate?

Yeah, I hadn’t thought through the real estate one. That’s interesting. It probably would not happen with real estate. There’s probably something I haven’t thought all the way through around real estate. But I wouldn’t consider that like a consumer good, right? It would probably be in a separate bucket.

Is it true that before you started the business, that your “aha moment” had to do with you getting rid of your own used clothing?

Yup.

So how do you end up creating this huge, innovative, and successful company—that doesn’t accept men’s clothing?

Yeah, it’s a great irony. So the business that I first launched was a men’s shirt-swapping service. And it was a terrible business idea, because men weren’t naturally inclined to do this. And so we pivoted into kids, and we were just like a hand-me-down business of swapping kids’ clothes. And I quickly realized that swapping wasn’t quite right, because we invented money for a reason: swapping’s hard. And so we pivoted into a proper marketplace concept. And women really are the dominant force in the resale market. They make up 80% of resale. It’s like 80% women, 10% kids, 10% mens.

Why hasn’t secondhand clothing caught on with men?

Typically, men wear clothes out at much higher rates. By the time we’re done with our button-down shirts, they’ve got like pit stains on them and nobody wants them. Or our jeans are all mangled and nobody wants them.

Archive, which sets up secondhand clothing stores for companies like Oscar de la Renta and The North Face (in Canada), told Retail Brew recently that among consumers who sold clothes back to those brands, rather than cash, about 75% took a credit to likely buy new clothes from them. Doesn’t that suggest that the ultimate growth of resale—and the environmental benefit of resale—is limited?

Over the next 10 years, our data shows that still a little bit less than 20% of a person’s closet is going to be secondhand. We’re Americans; we like new stuff. We can’t put our heads in the sand around that. But I think what we need brands to do is appreciate that everything they produce should be given a chance to be recirculated and not end up in a landfill.

And we want to be the guys that help power that opportunity. Because what I hope ends up happening is that, ultimately, brands will produce higher quality things. They can charge higher prices because [when they have their own branded secondhand sales channels], they have this recurring resale revenue stream. And then, maybe, we’ll have less fast fashion.

This interview has been lightly edited and condensed for clarity.