Sharing is Caring: The rise of second hand retail

Analysis of what the shift to ‘something old’ has had on real estate

Second hand shopping has become increasingly popular over recent years resulting in the emergence of new business types and operating models, all of which pose a unique set of questions to the world of real estate. Whilst historically, second-hand shopping gathered pace during times of economic hardship, a driver that remains equally as prominent during the pinch of the cost-of-living crisis, shoppers have evolved beyond financial parameters and are now more educated, savvier, and concerned about the environmental, geopolitical, and social impact their purchases have.

The resurgence of the second-hand sector in its latest form brings with it some clear and some not so clear implications for both retail real estate, and supply chains. Understanding the composition of the various business types within the sector and their potential implications offers opportunities for the real estate world.

In this brief insight piece, we make a clear distinction between four key second hand business types. Within this we exclude both the clothing rental market and dedicated buying and sell back operators, that are related but largely trade with little implication for the prime retail market.

Second Hand Market Types

Charitable resale - Requires a physical location for collection and sale of charitable items. Donations are made free of charge and require hands on sortation. Traditionally the charitable resale sector has been a strong occupier of secondary regional high streets, but the sector has seen notable growth allowing for the modernisation and movement into prime real estate.

Aftermarket arbitrage - Often independent with no real estate needs until scaling. Focusses on the sale of limited supply and collectible items in short supply. Some evidence exists of after-market arbitrage operators using pop-up space to test a transition from digital marketplaces to physical marketplaces.

Second hand digital marketplaces - Often independent no real estate needs until scaling, although some evidence exists of platforms using pop up space and temporary retail pitches, this has largely been for marketing processes, using physical space to target specific demographics and grow reach.

Vintage and specialist resale - Vintage operators specialise in the provision of unique and dated product with striking design. Successful vintage operators require expertise in sourcing and sorting vintage product. Strong demand from vintage clothing companies have been recorded for multi-let logistics and industrial property in city locations.

The growth of the second-hand market has been exponential since the outbreak of the pandemic. So much so that the UK Government is now rapidly trying to monitor and quantify the volume of goods being sold through the aftermarket channels, signalling its importance within both the wider retail spectrum and the economy.

Growth has been particularly notable for second hand marketplaces, where several platforms have capitalised on a lack of centralised aggregation and poor user experience. According to data from the Guardian, sales on the Online platform Vinted rose by 51% during 2023. In addition, applications and marketplaces such as Depop and Vinted have both seen significant growth in recent years, reducing the need to visit the Charitable resale market, and increasing the opportunity for donors to monetise donations.

Drivers of Demand

Cost of Living

The cost of living crisis, whilst leading to a rise in demand for affordable quality, has also rapidly grown the supply of second hand clothing, with hardest hit demographics opting to pass on former outfits for financial return. These demographic segments are also the most digitally engaged and as such have been able to benefit from extensive growth in online marketplaces and applications dedicated to the sector. The lipstick principle has also seen consumers look to allocate surplus savings made from displaced spend on major purchases on things like holidays, international travel, and housing.

Changing Consumer Trends

Consumer trends such as the proliferation of the Y2K fashion scene, and the re-emergence of the "indie" identity, has seen a reversion in consumer trend back to styles last prolific in the early 2000's. But this reversion has also been twinned with a need for younger consumers to own and wear unique items of clothing, meaning large fashion operators have been unable to emulate and sell en masse to this market.

Ethics and Sustainability

The rising importance of ESG and the adoption of circular economy principles has seen significant momentum in the demand for second hand product. Numerous campaigns outlining the pitfalls of fast fashion, and mass production largely undertaken with limited consumer visibility of manufacturing processes and potentially unethical conditions, have given this trend further impetus among increasingly ethically minded audiences.

New European Union regulations addressing textile waste and heightened customer demand are pushing retailers to adapt their strategies and explore different resale models. Several retailers including Ba&sh, Panagia and H&M are embracing preloved clothing options. For example, H&M rolled out its first pre-loved section in its Barcelona and London flagship stores.

Real Estate Implications

An important placemaking contributor & asset management tool

Traditionally markets such as Charitable resale and Vintage specialist resale have seen limited interaction with the prime real estate world. However, over recent years countless examples now exist of where the real estate world has utilised various aspects of the second-hand market for mutual benefit.

Second hand now forms a large part of the sales area configuration for flagship or regionally important retail stores, resulting in an impact on retail requirements, fit out, and store planning. Leading brands have been able to effectively co-place re-sale and vintage alongside new product lines without cannibalising sales. Successful integration of the second-hand market not only allows brands to diversify the in-store experience, but also offers a strong opportunity for brands to communicate their commitment to self-imposed ESG targets through retail media and marketing.

Major retailer Urban Outfitters are often cited as a key example of how this co-placement can strengthen performance; the brand has seen particular success in its vintage & renewal offering in towns with large student populations. The diversification of its product range, and co-placement of complimentary new and second hand products is often cited as a key proponent of the American retailers strength. As well as delivering strong earnings per share and strong trading updates through the tribulations of the global pandemic, Net sales for the three months ending October 31 2023, rose by 9% vs the same period last year, outperforming initial estimates.

Simultaneously, landlords have been able to work collaboratively with second hand operators in order to alleviate persistent and sticky voids; offering tenants favourable terms and broadening the tenant mix and thus catchment where successful.

Growing Role within Prime Real Estate

The growth of the sector has also seen a number of prime central London schemes emerge that have modernised the charitable resale market The wealth of examples, and their growing role within prime real estate goes a long way to proving that the once tarnished ‘ugly ducklings’ of the high street can now be a central part of high street destinations.

Charity Super.Mkt also has presence within Oxford Westgate shopping centre

• Charity Super.Mkt opened via a pop-up in the former Fenwick site on bond street. Charity Super.Mkt offer an innovative approach to co-placing multiple charitable resale businesses and offering aggregation and collaboration between charity operators simultaneously reducing the need for financial commitment to a longer-term lease.

• Carnaby Street also welcomed it first permanent charity shop Mind in 2022, with the 563 sq ft prime pitch focussing on the curation of a unique high quality vintage product offering.

• Amazon opened its first second-hand pop-up store ‘Second Chance’, located in the Brunswick Centre in December 2023. Second chance registered over £4m in sales over throughout 2023, with the e-comm giant stating second-hand retail revenues surpassed £1bn across their European and UK platforms.

• Whilst regionally some landlords have opted to look at speciality stores such as Off the Record, a scheme run by Willen hospice that aggregates music related donations into a modern store concept, complemented by a knowledgeable team of sales advisors.

Complex Supply Chain Requirements

Particularly for the sortation handling and movement of vintage goods, an agile supply chain is required to facilitate the upward movement of product being received in non-standard formats. The new retail sector is accountable for a significant proportion of demand within the Logistics and Industrial sector, typically taking 1 in 5 sq ft signed for every year. Typically, retail supply chains have been concerned with the movement of tote or palletised stock downwards through the supply chain.

The growth of the second hand market and its overlap with new retail has induced further supply chain challenges for the sector. The collection, categorisation and handling of non-palletised goods at current requires a hands approach often moving bags quantified by weight and sortation. At the same time success particularly for charitable re-sale is often attributed to economies of scale, where operators can aggregate large volumes of donations, sort, bucket and re-direct to the most appropriate sales area. The upward movement of goods is largely referred to as reverse logistics, and reverse logistics is now becoming a greater consideration for supply chain decision makers at the large retail brands.

Messina Hembry, based in Suffolk, signed for a large modern industrial and distribution warehouse at the Port One Logistics park in Great Blakenham. The company specialises in the sortation and handling of second hand and vintage product. The move to a modern facility has enabled the company to increase its total capacity five times over, simultaneously reducing carbon emissions by 150,00 tonnes a year, and also expects to grow its team from 30 employees to 325 employees by 2025.

Outlook

The global second-hand market is expected to outpace the growth of new sales by 2030, reaching a value of $84bn according to Statista. As we transition towards economic growth in late 2024, the adoption of second hand purchasing will still be prevalent with consumer focus framed by environmental agenda and social considerations. This presents retailers with the opportunity to add a compelling second-hand offer likely delivering concepts yet to be seen. However, from a property perspective vacancy within prime retail has now come down, meaning that persistent voids are becoming less of a challenge for asset managers across the sector. The opportunity to secure favourable tenant terms is shrinking, and as such second hand concepts that reach the prime real estate market are likely to be game changers.