James Reinhart in November 2008 found himself staring at a closet filled with clothes he didn’t want to wear. Sensing that his sartorial dilemma wasn’t unique, the then-Harvard Business School student began contemplating ways to solve the problem. Ten months later, he and two friends, Oliver Lubin and Chris Homer, launched ThredUP, a Web-based company to facilitate adult clothes swapping. That approach fizzled. The real potential, they realized, was in kids’ gear, where the forced obsolescence of goods drives demand. “Once you start dipping into the data, it turns out to be a $6 billion-a-year market,” says Reinhart.
By age 17, the average American has shelled out roughly $14,300 on clothes and outgrown about 1,300 items, according to U.S. Agriculture Dept. data and a ThredUP survey of 412 mothers. ThredUP, which in April 2010 relaunched as a kid-to-kid service, taps into the resulting secondhand market. Members bundle roughly 15 “new to you” items in a box, then log the contents online by size, brand, gender, and style. Other “thredders” can then purchase the box for $5, plus the cost of shipping, and must eventually contribute packages of their own. For $30 a year they can also become premium members with advanced access to newly posted boxes. Reinhart estimates that users save $50 per box by swapping rather than buying secondhand.
Despite publicizing only through mommy bloggers, San Francisco-based ThredUP has signed up nearly 200,000 members across the U.S. as of July 20; about 1,000 more join each week. More than 50,000 pounds of clothes have been recycled, and ThredUP users spend a total of over $8,000 per day on shipping. Last December, ThredUP expanded into toy swaps, and last month members began trading children’s books. In May, ThredUP, which won’t disclose if it’s profitable, raised $7 million in second-round funding from investors led by Redpoint Ventures. (It previously raised $1.4 million.) It also brought on former EBay (EBAY) Chief Operating Officer Brian Swette as an adviser to help devise an international strategy. ThredUP may enter at least one European or Asian market before the end of 2012, says Reinhart.
Sites for swapping kids gear are nothing new—others include SwapBabyGoods.com and Zwaggle.com. However, Reinhart says his company profits from three advantages. Instead of one-to-one swaps, where only one user generally benefits from outgrown clothes, ThredUP gives members access to thousands of boxes of goods. The site also streamlines mailing by providing prepaid shipping labels and empty boxes directly to users’ homes. Finally, several items are bundled into each box, which reduces postage. Neal Gorenflo, publisher of the online magazine Shareable, says ThredUP has “cracked the nut and proven their model works … and that the swap business can be scaled up.”
Quality is policed by users who rate the boxes they get for condition and style, earning the sender points. Some 90 percent-plus of boxes win ratings of three or more stars on a scale of 1 to 4. As on Amazon.com (AMZN) and EBay, users build credibility by contributing quality goods. They’re also awarded “badges” for desirable boxes and for network-building actions such as trading with new thredders or moms in different states. “Members display the badges on their profile pages,” says ThredUP spokeswoman Kelly Vogt Campbell. “People are more likely to buy boxes from moms who have a lot of badges.”
ThredUP’s founders hope to eventually tap their growing network for business beyond swaps, such as providing a platform for other companies to offer services and coupons. “The American mom is the most powerful consumer in the world,” says Reinhart. “In a world where we have a lot of moms who are just an e-mail away for us, there are a lot of opportunities.”