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The best online fashion marketplace business model

by Investoradar
women shopping in clothing store

The pandemic resulted in a boom in E-Commerce, meanwhile, malls, and physical stores are suffering big time. Brands like Brooks Brothers went bankrupt, Gap (GPS) just announced that they are closing all stores in the UK and department stores are struggling to survive as well. Yet due to the shift in shopping habits, online fashion marketplaces have enjoyed the tailwind from the boom in E-Commerce. Mr.Porter, Grailed, Farfetch (FTCH), and TheRealReal (REAL) have all seen a rise in sales, while all of them have a different business model. Which of them actually have the best model and will succeed in the long run?


  • Mr.Porter holds inventory directly from brands. This increases its fixed costs and reduces its financial flexibility. However, it is able to have better quality control and logistics as all of its products are already in the warehouse and ready to be shipped.
  • It only sells first-hand items from luxury brands. This limits its target audience to a relatively niche market as not many people are able to afford high-end brands, also selling only first-hand items is making it miss out on the rising trend of vintage clothing.


  • Grailed does not hold any item itself, instead, it acts as a marketplace for people to buy and sell first-hand and vintage items. This dramatically reduces its cost yet they have no control over quality and logistics and is easy to lose customers because of it. However, being able to offer first-hand and vintage items from low to high-end, increases the audience they are able to reach.
  • It charges commission from each transaction but this makes their revenues largely dependant on the price of each sale. Even they may sell more due to the pandemic, but if the average price of each sale drops, their revenue might not increase.


  • Farfetch (FTCH) does not hold any inventory as well, instead, it signs a contract with small to large boutique around the world and allows the customer to shop through their marketplace. This allows them to have a wide range of offerings from stores all over the world without having to hold any product. It decreases its quality control and logistics but is better than Grailed as the supplier is a reliable boutique instead of an individual.
  • Because Farfetch offers products from different boutiques, their prices fluctuate a lot as each boutique sells at a different price. Their supply is also unstable at times as the boutique itself may have sold their item at their physical store already.


  • TheRealReal (REAL) is a marketplace that works with a consignment system. Customers can sell their items through TheRealReal and it charges a commission. However, unlike Grailed, TheRealReal receives the item first before selling and shipping it out to customers which allows it to have good quality control and smoother logistics but their costs increase accordingly too. Their offerings are very wide as well as they consign a variety of items with different brands from first-hand to vintage.
  • TheRealReal is the only shop out of the five that have a physical store, it leverages the store smartly for authenticating items and using it as a showroom. This tactic is smart as the shop serves multiple purposes and can achieve what a traditional store can do at the same time.


Comparing the four, I believe Farfetch and TheRealReal are poised to be the go-to fashion marketplace. Both Farfetch and TheRealReal offers a wide range of product which is a must to succeed in my opinion, also they both don’t hold any inventory directly which allows them to have lower costs and more flexibility to counter different situations. Farfetch caters to customers that love first-hand items and want to shop from boutiques all around the world while TheRealReal caters to customers that love both first-hand and vintage items and may want to check out the item in-store before purchasing. Besides TheRealReal offers a consignment system so besides buying customers can also sell their items back through their marketplace which increases TheRealReal’s revenue stream. Therefore I believe TheRealReal is the winner with Farfetch closely behind. Both companies went public and it is worth checking them out if you are interested in investing in the fashion marketplace industry.

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