ETSY TO ACQUIRE GLOBAL FASHION RESALE MARKETPLACE DEPOP

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Depop, the fashion resale marketplace beloved by Generation Z, will be acquired by Etsy for USD 1.6 billion, underscoring the growing influence of clothing resale platforms. Etsy aims to advance its leadership in community-driven and differentiated marketplaces within the rapidly growing resale sector, especially serving the upcomingGen Z audience, offering an ideal fit with Etsy's marketplace M&A criteria.

The global secondhand clothes market is estimated by Boston Consulting Group to be worth up to USD 40 billion a year, about 2% of the total apparel market. The pre-worn segment is expected to grow 15-20% a year for the next five years. Alone in United States, the second-hand market is projected to grow at a 39% CAGR from 2019-2024, reaching USD 64 billion, and to grow to twice the size of fast fashion on a global basis. Depop is not alone in tapping into the fast-growing trend. Vinted, a site created by two Lithuanian women in 2008, was valued at EUR 3.5 billion, when raising EUR 250 million. Poshmark, a US resale site, floated on the US stock market in January and is valued at USD 3.5 billion.

Depop, which was founded in 2011, has been particularly successful in building a marketplace for younger consumers, who are adopting secondhand fashion faster than any other group. The platform is particularly known for its vintage clothes and streetwear — and for creating a new cohort of online influencers famous for selling their wares. In addition, the pandemic as accelerated the secondhand trend as more shoppers looked to declutter wardrobes, earn cash by selling their old clothes or set up fashion customization businesses from their bedrooms. Further, more shoppers, especially young consumers are adopting second-hand fashion faster than any other audience, are turning to the secondhand market for something cheaper and — potentially — greener as the overproduction of clothing increasingly adds to landfills.

Etsy, which was founded in 2005 and floated in 2015, has been seeking to expand its influence among a younger generation as its users’ average age is 39 and the app focuses on craft and handmade items as well as secondhand clothing. Etsy chief executive, Josh Silverman said he believed the platform had “significant potential to further scale” and said that he saw “significant opportunities for shared expertise and growth synergies” for Etsy’s apparel sector, which was valued at USD 1 billion last year. Depop is expected to be accretive to Etsy's top line growth rate and modestly dilutive to Etsy's adjusted EBITDA margin, however Silverman expects the resale craze would continue long after the recovery from the pandemic, and that it would be led by Depop’s “passionate community” of fashion-conscious young people. More than 90% of Depop’s 30 million users across almost 150 countries are under the age of 26, putting them in the highly sought-after smartphone addicted generation Z – the age bracket below millennials. Etsy said Depop was the 10th most visited shopping site among gen Z consumers in the US.

Etsy operates a two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. Etsy believes Depop has a highly differentiated position in the fast-growing resale space, whereas its peer-to-peer marketplace follows a similar capital-light operating model and financial characteristics as the one of Etsy. For many sellers on the app the money generated is a “side-hustle”, but one of Depop’s most dedicated sellers claims to have made more than GBP 1 million reselling clothes on the app. Bella McFadden, 24, who sells via a Depop store called “@internetgirl”, said last year she hit the £1m milestone last summer. McFadden, who lives in Los Angeles, told Fast Company that she dropped out of college in 2016 to work on her Depop store full-time and now employs four people full time to work with her. To date, she has sold 61,491 items – mostly sourced from thrift stores and deadstock suppliers but also with some of her own designs.

Founded in 2011, Depop is a community-powered marketplace to buy and sell unique fashion, with a mission to build the world's most diverse and progressive home of fashion. The business now has offices in London, Manchester, New York, Los Angeles and Sydney and about 400 employees. In 2020, the company generated a gross merchandise sales (GMS) and revenue of approximately USD 650 million and USD 70 million, respectively, each increasing over 100% year-over-year. Depop's GMS grew at a compounded annual growth rate of nearly 80% from 2017-2020. With 4 million active buyers and 2 million active sellers in 2020, we believe Depop's cohort behavior is particularly impressive: for example, in 2020, 75% of GMS was from existing cohorts; ~75% of sellers were also buyers; and, on average, sellers sold approximately 10 items and buyers bought approximately 6 items. Depop significantly grows Etsy's GMS in the apparel sector, which was around USD 1 billion in 2020. 

Rachel Glaser, Etsy's CFO, commented, "We've admired Depop for a while, and are excited to have now reached an agreement to purchase this fantastic business - a company we believe is still in the early innings of its growth opportunity. We love Depop's rapidly growing GMS and loyal and engaged customer base, excellent user engagement and unit economics, opportunities to expand value added seller services, clear path for geographic expansion, and highly scalable, 'capital light' operating model. We're excited to build a 'house of brands' where the whole is greater than the sum of its parts." Following the close of this transaction, Etsy will operate three highly differentiated, non-commoditized and loved ecommerce brands: Etsy, Reverb, and Depop. These businesses all share similar levers of growth to unlock value, including improving search and discovery, building human connections, and making selling and buying easier. The marketplaces will operate independently, while benefiting from shared expertise in areas such as product, marketing, technology, and customer support.