ThredUp is testing out a new premium service with a higher processing fee

CEO James Reinhart described this new program as a way to encourage people to send in better items that will sell at a higher price point.

“We want to be a place where customers can find great brands for a great price, not a dumping ground for stuff,” he said. “And I think a lot of the work we’ve done to really level up the selling experience by definition levels up the buying experience.”

Consignment Premium is the latest example of how ThredUp is experimenting with new fee structures. Founded in 2009, the company built a name for itself in the early days of online resale. Customers would request its signature polka dot foil bags to fill with their items and send it back to ThredUp to list them on the marketplace. ThredUp would receive the items, determine a resale value and then reimburse the sellers either in cash or store credit.

But one of the biggest challenges the company has faced is people sending in items that aren’t fit to be resold. This could be due to the products being low-value fast-fashion cast-offs or damaged items. At times, ThredUp had to close down its service to catch up on processing items, much to the chagrin of customers. Over the years, the company has experimented with various fees and charges for services like item return, but it officially rolled out a $14.99 service fee for all Clean-Out transactions in early 2023.

ThredUp went public in 2021 as demand boomed with people sorting out their closets amid the lifestyle changes of the pandemic. The company debuted at about $18 a share, but the stock is now under $2. Still, ThredUp has seen three consecutive quarters of positive adjusted EBITDA. In the first quarter of 2024, revenue hit $79.6 million, a 5% increase year over year, and active buyers hit 1.7 million, an increase of 4% year over year. Looking ahead, It anticipates generating free cash flow for the full year.

Part of the business’s trajectory has been initiated small-scale experiments to see what works for buying and selling resale online. Not all are successful. Reinhart confirmed to Modern Retail that it shut down its 777Thrift spinoff shop, which sold value brands under $7 an item. An earlier Consignment Pro selling service for luxury items was also tested out in with about 5% of users last year, but was also shuttered.

Some changes, though, are permanent. ThredUp no longer gives people reimbursements for low-priced brands like Forever 21 or Old Navy. It’s added transparency in its sellers guide, like pointing out how premium and designer brands like Lululemon or Gucci will get up to 80% of the selling price. Shoppers can check ahead of sending their bags to see which brands are eligible for payouts, a tool that could address concerns from sellers who felt they were getting low payback for their items.

These business model experiments reflect the changing nature of the world of online secondhand apparel world, where companies are faced with the twin challenge of serving sellers and buyers. Poshmark, which facilitates resale via a peer-to-peer format, is pushing live shopping and community events to gain more sales. Mercari, for its part, recently canceled seller fees and rolled out buying service fees — though it quickly reversed a policy that would allow returns for any reason. Meanwhile, many brands are also looking to get a piece of the secondhand profits by standing up their own resale programs.

Though Reinhart wouldn’t share how many people have used it, the Consignment Premium service so far has seen “positive sentiment.” The test includes people who signed up for a waitlist advertised on the “sell” section of the site, as well as as well as 20% of traffic that comes to the Clean Out page. “People really value the clean-out service. But one of the biggest things they don’t understand is ‘Why didn’t you take this item?’ And so this new premium service allows you to pay a bit more to get guaranteed we are going to accept everything.”

The one caveat, Reinhart said, is the items still have to be in sellable condition and meet its standards. “If you’re sending good stuff, it’s a value trade.” 

Matt Semmelhack, co-founder and CEO of reusable packaging company Boox, said it makes sense to see ThredUp charge for its services in the hopes of getting people to send in better items. “They’re offering a service with value, and people are willing to pay the cost,” he said. He added that people are becoming more willing to drop off a package if there is an incentive for them.

Boox makes packages that can be reused if people return them, a point of friction for many. But a one-year experiment at Boox that allowed people to send in clothing donations with their package yielded about six tons of clothing. Semmelhack believes the program was successful because customers were more likely to send the Boox back if they knew they were responsibly disposing of clothing.

Boox works with Goop, for example, on a service that includes a free gift if people opt to get their shipment in a Boox. That introduction tripled the return rate of the packages, Semmelhack said.

Tinkering with the fee structure

When ThredUp launched about 15 years ago, offering a free Clean-Out Kit was a way to drive customers to test out a new concept. “We wanted you to fill it up, and we wanted to keep it as convenient as possible for consumers, and that worked very well.”

But the e-commerce boom brought on by the pandemic saw ThredUp get overwhelmed with people sending things in. Additionally, more people had boxes arriving at their doorstep as they changed their own retail habits. Reinhart said that was when the company started introducing the idea of letting people print their shipping labels to use on their own packages. “If you really want to clean out your closet on a Saturday, we can help you. You print the label, put it on a box and be done with it.” Meanwhile, those who want the Clean-Out Kit bag sent to their homes will pay $2.99 fee out of their earnings. There are also about 800 stores that ThredUp works with in its brand partner resale program that can give clean-out kits to customers in person for free.

ThredUp experimented with offering the choice to select users before making it permanent for all sellers. But those tests showed that there were some people who preferred the free option, while others still craved the “elegance” of the kit. Right now, it’s split about 50-50 which options consumers choose, Reinhart said, with some shoppers choosing one or the other at different times. “We’re seeing our existing sellers have a habitual response to this, and I think that’s a sign of success,” Reinhart said. 

Another experiment that became permanent is the $14.99 processing fee that’s charged to someone’s earnings. Knowing that a cut will be taken off the top of their payout cuts down on the amount of unsellable items people send in. “We basically could not accept any more clean-out kits, we were being inundated with low-quality kits,” he said. “The fee [created] a moment for the consumer to say, ‘Oh, I’m going to send reasonable nice stuff in here because otherwise it might not make a lot of sense.’”  

While turning a free service into a paid one could be seen as a drag to participation, it had the opposite effect. Clean-out kit requests went up by 74% from the first quarter of 2022 to the first quarter of 2023. There was also a 19% increase in the return of clean-out kits, meaning people were more likely to send back items after requesting a label. 

The seller fee also means people send in more items — and higher-quality brands — in hopes of getting a return. The premium item mix went up by 12% from the first quarter of 2022 to the first quarter of 2023.

”It’s better economics,” Reinhart said. “People are not being crowded out by people who are just looking to donate, and I think that’s where we’re really able to make an impact.”