The Ratings Game: ThredUp will appeal to middle-income consumers who will be spending money on clothing post-COVID

“[W]e think that ThredUp is well positioned as middle-class consumers turn to apparel spending,” analysts led by Edward Yruma wrote.

Analysts and investors have turned their attention to spending behavior as the vaccine rollout continues. Clothing sales are expected to be one of the areas that will get a boost from the end of the pandemic.

With prices about 40% less than retail, the ThredUp marketplace provides middle-income shoppers with a chance to buy more at better prices.

ThredUp will also benefit from repeat business, according to data KeyBanc compiled.

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“Our Key First Look (KFL) Data points to strong cohort retention behavior, and we think improving macroeconomic/apparel conditions will reaccelerate sales.”

ThredUp is also helped by consumer trends that have accelerated during COVID-19, including the shift to e-commerce and the consumer desire to shop sustainably.

On Tuesday, Lululemon Athletica Inc.
LULU,
-1.86%
became the latest brand to offer secondhand goods. Nike Inc. launched a refurbished sneaker business last week. And Walmart Inc.
WMT,
+0.77%
and Gap Inc.
GPS,
-1.94%
are just a couple of the companies that have partnered with ThredUp over the past year on their own resale initiatives.

Secondhand competitors Poshmark Inc.
POSH,
-2.29%
and The RealReal Inc.
REAL,
-3.55%
have gone public over the past couple of years.

Also: Poshmark will benefit from shift to secondhand, consumers cleaning their closets

“Cowen believes that department stores and mall-based retailers are likely to be share donors over the next few years, due to a combination of store closures and a greater shift in consumer preference toward online and value-oriented concepts,” wrote Cowen analysts in a March 26 report.

Cowen expects the online resale market to grow 25% on a compound annual growth rate (CAGR), reaching $70 billion by 2028.

Resale adoption is most robust among women between 18 and 34 years old, according to the Cowen Consumer Tracker.

Cowen says ThredUp, along with Poshmark and The RealReal, are among the leaders in the resale space, with smaller companies like Mercari and Rebag making the category more competitive.

“We see significant room for growth as resale becomes popular across all age groups with sustainability becoming an important theme. Further, the flywheel effect of buyers becoming sellers and vice versa should support resale growth and drive customer retention,” analysts led by Oliver Chen wrote.

Wells Fargo initiated ThredUp stock at overweight with a $22 price target. Analysts led by Ike Boruchow think resale is a “potentially disruptive” sector of the retail market, and ThredUp’s business model can scale and “support high margins long term.”

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Both Wells Fargo and KeyBanc analysts also highlight the efficiency in ThredUp’s operations.

“ThredUp’s network of highly automated distribution centers allow it to have solid order economics given a $69 AOV [average order value],” wrote KeyBanc.

“Low handling/distribution costs are very important given the low price points, and we think this provides a significant structural advantage.”

ThredUp shares jumped 11.1% in Tuesday trading, though they have slumped 27.6% for the month to date. The S&P 500 index
SPX,
-0.68%
is up nearly 4% for April so far.