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The Resale Market Boom—What Sellers and Brands Need to Know

Jan. 11, 2022, 9:00 AM

Consumer demand for sustainable goods has created systemic change in the fashion and apparel industry.

The sale of pre-owned goods, or “recommerce,” has ballooned to a $36 billion industry, and is expected to double in the next five years. The recommerce market is also diverse—brick-and-mortar is still relevant, but the future of resale is digital.

Consumer-to-consumer apps like eBay and Poshmark hold the largest market share, but consignment sites like The RealReal have become increasingly important. Traditional retailers are also entering the recommerce market in droves. Sustainability leaders like Patagonia, REI, and Eileen Fisher have long- established buy-back and/or resale programs, and others like Levi’s and The North Face have followed their lead by creating similar programs.

The luxury market—historically a recommerce hold-out—has even embraced the resale boom. For example, Kering, the luxury behemoth that owns Gucci, Balenciaga, Bottega Veneta, and Saint Laurent, among others, acquired a 5% stake in French resale platform Vestiaire Collective in early 2021. Luxury sites like The RealReal helped to elevate public perception of resale, which undoubtedly expedited the luxury market’s recent change of heart.

The “e-commerce recommerce” renaissance presents challenges for resellers and brands to navigate—including prevention of IP infringement through authentication and possible expansion of secondhand dealer laws to e-commerce. As discussed below, resellers and brands can navigate these issues through preparation and strategic partnerships within the circular economy.

Combating Infringement Through Authentication, Strategic Partnerships

It is a tale as old as resale—recommerce’s environmental and economic advantages come with the risk of purchasing knockoffs. A 2018 study by the Government Accountability Office found that 40% of a sample of goods purchased on popular e-commerce marketplaces were counterfeit. This, of course, creates reputational and financial risks for resellers, whose success is directly tied to consumer trust.

Fakes also pose problems for brands. In 2017, counterfeits amounted to a trillion-dollar problem. They also significantly harm reputation, goodwill, and brand value.

Despite the counterfeit risk, consumer demand for secondhand products continues to grow. This may be why some brands have invested in or partnered with resellers.

For example, The RealReal has scored partnerships with Gucci, Burberry, and Stella McCartney, and Alexander McQueen recently partnered with Vestiaire Collective. These partnerships allow brands to authenticate pre-owned goods, which promotes sustainability and fights counterfeits. Brand partnerships also engender reseller trust.

Brands could also consider establishing their own resale sites, which would separately satisfy consumer demand for fully authenticated secondhand products.

Compliance With Secondhand Dealer Laws

In addition to the risk of knockoffs, recommerce brings the risk of purchasing stolen goods. State and local secondhand dealer laws were established to guard against the trafficking of stolen goods. However, they place onerous licensing, information-collection, ID-verification, reporting, and auditing requirements on resellers. Violations can result in criminal fines or imprisonment.

Secondhand dealer laws also apply to any retailers with resale programs, no matter the scale. For example, GameStop’s trade-in program accounts for a mere 5% of revenue from its California stores, but it was still subjected to California’s secondhand dealer laws.

E-commerce is an increasingly popular target for regulators, so it would not be surprising if enforcement authorities begin looking for secondhand-dealer violations. If and when that day comes, it will create a regulatory nightmare for online resellers.

For example, a single transaction could be subject to three or more sets of secondhand-dealer laws if the buyer, seller, and warehouse are in different states or localities. Some states also require collection of personal information like eye color, weight, and height, which could subject resellers to data-collection regulations

Market entrants should develop a multi-jurisdictional compliance strategy for satisfying secondhand dealer laws and managing collected data.

Takeaways

Resellers and brands should carefully consider the unique legal issues facing recommerce.

Piracy is a major threat to resellers and brands alike, but it can be managed through strategic partnerships and proper authentication. Intellectual property counsel can help facilitate these partnerships through licensing, co-branding, and merchandising agreements, among others.

Application of secondhand-dealer laws to e-commerce would also present significant regulatory challenges, but compliance and privacy counsel can help online resellers plan for what’s to come.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Andrew Grant is a partner in Perkins Coie’s Technology Transactions and Privacy practice and is also chair of the firm’s Outdoor Industry practice. He represents retail and technology companies on issues related to strategic operations and product development.

Colleen Ganin is counsel at Perkins Coie. She focuses her practice on trademark and copyright deals, prosecution, and enforcement, and counsels fashion and apparel businesses on securing and enforcing trade dress rights, as well as copyright in wearable designs.

Akua Asare-Konadu is an associate in Perkins Coie’s Technology Transactions and Privacy practice. Before working at Perkins, she clerked for the Hon. Barbara A. Madsen of the Washington State Supreme Court.