Etsy Buys Depop for $1.6 Billion and the Rise of Resale

Etsy just bought Depop, an ecommerce marketplace known for vintage clothes and streetwear that's highly popular with Gen Z. We discuss the deal logic, how the $40 billion resale market is outpacing overall apparel, the recent IPOs of Poshmark and Thredup, Gen Z buyer values, downward seller fee pressures from incumbents like Facebook Marketplace and eBay, and how resale platforms bolster their competitive position via product UX and distribution partnerships.

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EPISODE TRANSCRIPT:

Chris Erwin:

So Andrew, lots of activity in the overall resale goods market, particularly just saw that Etsy over the past couple of weeks bought Depop for around a little over 1.6 billion. Did you see this?

Andrew Cohen:

I did. I did. Yeah. The market is definitely having a moment right now.

Chris Erwin:

Pretty wild stuff. So a few details on the deal. So Depop is a secondhand e-commerce marketplace that's known for vintage clothes and streetwear. It's very popular with Gen Z, while the Etsy audience skews a bit older, typically targeting Millennials.

Chris Erwin:

A few notes on the combination and deal logic. Both are very aligned in terms of DIY spirits across both companies. The Depop apparel items are known for being a bit more cool and cutting edge, that whole streetwear vibe. So Etsy gains access to Depop's high-value Gen Z audience, and then for Depop they get improved search and discovery, which is something that Etsy has been working on for years. Also, the ability to scale internationally, which Etsy has done, and then also a boost in fulfillment and logistics support as well for the overall Depop market end users.

Chris Erwin:

Also of note is that the revenue multiple for the deal was 23X, and that is reflective of 2020 revenue of around 70 million. A pretty high multiple there, but I think it's time to step back, Andrew, and talk about all the activity that we are seeing in the resale market overall, and I think you have a few interesting datapoints here.

Andrew Cohen:

The Depop deal is just the tip of the iceberg, and the resell market as a whole is definitely having a moment right now. In 2019, the growth of the second-hand fashion market outpaced that of the overall retail market by 25X. This year, resale apparel sales are excited to hit 40 billion worldwide, and although that's only 2% of the total apparel market, it's also projected to grow up to 20% year over year for the next five years. So we definitely expect it to represent a much bigger share of the fashion market going forward, and because of that, definitely excited to see a lot more of these deals, a lot more companies popping up to meet this market demand going forward.

Andrew Cohen:

Couple of big recent deals that also speak to the power of this moment. Poshmark, which went public in January after raising 280 million, its valuation peaked at 7 billion, thredUP went public in March after raising 170 million, and all this momentum is really fueled by some unique buying habits that we're seeing, mostly from Gen Z. So for Poshmark, they had 6.2 million active buyers. For thredUP, 77% of their supply comes from repeat seller, which jumps out at me as really being indicative of a deeply engaged, passionate user base, and as we see in media or really any other consumer business, that's how you win. It's really going deep with an everyday, recurring, passionate user base and it definitely seems like it's Gen Z is the demo that's fueling that fire. Wh