ThredUp tests consignment fees, cleanup fees and new return policies in pursuit of profitability!

Marking a major shift in ThredUp’s value proposition to consumers, the resale marketplace is testing a slew of new initiatives to boost its profit margins, including a new return policy and fees for a “cleaned kit” consignment service, The Wall Street Journal has learned.

ThredUp quietly rolled out the changes, which CEO James Reinhart called a “rich experiment” to optimize its economics by making “real-time adjustments to both the supply and demand sides of our business.” Reinhart said the company hopes to break even on adjusted EBITDA in the second half of 2023.

ThredUp beat fourth-quarter 2022 expectations, but revenue still fell 2% year over year to $71.3 million, which the company attributed to a sharp pullback in consumer discretionary spending and an influx of discounted products from other retailers during the holiday season.

"While we are not exposed to the same inventory risk as traditional retailers due to our consignment model and flexible supply chain, we believe we have been impacted by the influx of cheap apparel," Reinhart said on the company's fourth-quarter 2022 earnings call. "The ThredUp brand represents value, and that message is getting lost in this over-promotional environment. We are seeing many of our core shoppers sitting on the sidelines, and for those who are in the market, the resale value proposition is diluted relative to the ultra-low prices offered for new clothing."

However, Reinhart said he is "cautiously optimistic about resale in 2023" and is positioning the company to move from defense to offense as these "competitive dynamics normalize."

Among the offensive activities is a new fee trial for ThredUp's cleanup service, which was previously free . Sellers can now choose to download free labels and use their own packaging to ship the items they want to sell, or pay $2.99 ​​to get one of the brand's signature polka-dot cleanup bags. Either way, sellers will also pay a $14.99 fee for processing the items they send, and can choose to pay $22.99 for expedited three-week processing.

“Demand for our cleaning services never really wanes, so we’re looking for ways to prioritize our best-sellers and monetize the brand equity we’ve built at ThredUP as the most convenient place to clean out your closet,” Reinhart said. “We’ve been testing fees at different price points, and also fees for cleaning bags. We feel really good about the results. We’re seeing consumers really understand why we’re making these changes.”

In addition to offsetting shipping and processing costs, Reinhart said the new fee structure is driving some beneficial changes among sellers. They’re sending fewer bags, filling those bags more, and including higher-quality items, all of which Reinhart attributes to a shift in mentality “when people are paying for a service.”

Routine processing of cleared kits can still take more than eight weeks, but the company is on track to achieve its goal of a four-week turnaround time by mid-September 2023. This is thanks in large part to the opening of its new Dallas processing facility, which has increased its network-wide storage capacity from 6.5 million to 9 million items. “Because we process bags in real time, we can better understand the mix of seasonal items we launch online and increase buyer engagement, purchase frequency, and satisfaction,” Reinhart added.

Now that the Dallas factory is open, ThredUp will also be able to significantly reduce its capital expenditures in 2023, by about 60% compared to last year, which will also help the company achieve its ambition of breaking even this year.

ThredUp also highlighted the continued expansion of its resale-as-a-service (RaaS) offering for brands and retailers, now offering a large selection of non-consignment or “owned” products to its marketplace.

The ThredUp RaaS roster now includes 42 customers. New retailers joining this year include J.Crew, Kate Spade and Francesca’s.

It is learned that in addition to increasing the "restocking fee" on returnable items from $1.99 to $3.99, ThredUp is also trying measures such as return restrictions on many products.

Editor ✎Estella/

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