Why Etsy’s Acquisition of Depop Is Bigger Than You Think

If Etsy said anything in its acquisition of Depop, it’s that the secondhand market is no longer just booming — it’s here to stay.

Yesterday, the DIY-friendly e-commerce marketplace snapped up the Gen Z-favorite platform in a $1.6 billion mostly-cash deal. The transaction, which is expected to close at the end of the third quarter, would allow Depop to continue operating out of London as a standalone marketplace run by its existing leadership team.

According to experts, the arrangement would give Depop the tools to continue its expansion through the resources of a much larger and public company, while Etsy could reap the benefits of its trendsetting demographic’s patronage.

“Etsy is much more established, while Depop is much hipper, so this partnership is going to be very complementary,” explained Gabriella Santaniello, founder of retail consultancy A Line Partners. “It’s going to help both of them reach a whole new customer base.”

Here, why experts say Etsy’s purchase of Depop might be bigger than you think.

It emphasizes secondhand’s strength over general retail

Although it had already been recording exponential growth, the secondhand market was dealt an even bigger boost by the COVID-19 pandemic. Shoppers who slashed their budgets and were stuck indoors looked to value and convenience for their discretionary purchases.

Plus, buying secondhand has only accelerated as more consumers get serious about fashion’s impact on the environment. In a study, sustainable fashion marketing resource Green Story indicated that 449 million pounds — or 18,700 garbage trucks full — of waste would be saved if everyone bought one used item instead of new each year.

According to GlobalData statistics, the United States-based secondhand market is projected to expand at a 39% compound annual growth rate from 2019 to 2024, reaching $64 billion, and twice the size of the fast-fashion industry on a global basis. More specifically, online secondhand is set to improve 69% between 2019 and 2021, while the general retail sector is predicted to shrink 15%.

“Even if consumers are heading back out to stores with the economy reopening, there’s still room for growth because the resale market for a while has been having a re-lift [and has] changed the way people shop for secondhand, especially now that it’s been digitized,” said Jessica Ramirez, retail research analyst at investment research firm Jane Hali and Associates. “[Plus], with everyone focused on sustainability, secondhand will continue to have legs for future growth.”

It highlights the growing power of Gen Z

Since its founding a decade ago, Depop has matured into a community of about 30 million registered users across nearly 150 countries. Last year, it recorded 4 million active buyers and 2 million active sellers — and, more interestingly, 75% of its sellers were also buyers.

But what makes the platform different from other resalers like Poshmark and ThredUp is its solid hold on Gen Zers: According to the company, approximately 90% of its active users are under the age of 26 — a demographic that’s adopting the secondhand market faster than any other age group. (In 2016, 40% of shoppers aged 24 and younger bought secondhand shoes, clothes and accessories, compared with about 26% in 2016, according to GlobalData.) Comparatively, Etsy’s core demographic averages at about 39 years old.

“The secondhand market is so hot right now, especially among the younger generations,” explained Farla Efros, president of consultancy HRC Retail Advisory, adding that, “Etsy, in general, [could] appeal to that demographic in a huge way. This is a great complement and allows them to increase their reach.”

It marks further market dominance for Etsy

Etsy, which was founded in 2005 and went public in 2015, now has a market capitalization topping $21 billion — already well ahead of rivals Poshmark and ThredUp at nearly $4 billion and $356 million, respectively. It also reported earnings before income, taxes, depreciation and amortization of $678 million in the first quarter — a spike of 254% year over year.

However, while it dabbles in the resale space, Etsy is better known for its offering of vintage and handmade goods as well as craft supplies. With Depop, Etsy could gain a larger market share in broader resale, which has also seen the entry of traditional brick-and-mortar players like Neiman Marcus (through its acquisition of reseller Fashionphile) and luxury consignment sites such as The RealReal.

In addition, the online platforms will offer some of the lowest commission rates on the market: Unlike their competitors, which charge about 20% on the total transaction amount, Depop’s fee is at 10% while Etsy’s is at an even lower 5% — which Ramirez said “makes it pretty attractive to both sellers and buyers.”

In the M&A call with analysts, Etsy CFO Rachel Glaser said, “We believe Depop’s core user demographic is a huge untapped opportunity and see plenty of room to expand the seller and buyer community. … We plan to leverage Depop’s strong organic base and work to capitalize on macro trends shaping the future of e-commerce, the shift from offline to online, the growing importance of resale and the influence of social. We believe Depop is well positioned to take advantage of a massive opportunity in the retail market, and we’ll bolster their ability to do so.”

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