The RealReal Starts to Hit Its Stride With New CEO and Profit Growth

Rarely do the worlds of high luxury and big value meet. 

And when they do — as is the case with The RealReal Inc. — there’s usually some confusion. 

When the company started out 14 years ago, it was the techie resale pioneer, breaking new ground, buzzy as can be and threatening to drop luxury on its head. 

As the years rolled by and the company felt around for its sweet spot, inching only slowly toward profitability, much of the fashion world moved on as the next new thing inevitably came to the fore. 

But The RealReal — having cycled through different approaches and chief executive officers — might just finally be starting to hit its stride. 

Rati Levesque, the company’s first employee who stepped up to become CEO in October, hit a profitability milestone recently, turning in adjusted earnings before interest, taxes, depreciation and amortization of $9 million for 2024.

Gross merchandise value expanded 6 percent to $1.83 billion while revenues increased 9 percent to $600 million, with the average order value rising 4 percent to $545. 

It took time for The RealReal to get to know itself. 

The latest round of changes came when Levesque and chief financial officer Robert Julian took the reins as co-interim CEOs when founder Julie Wainwright left the business abruptly in 2022. 

“[We] looked at each other and said, ‘there’s a profitable business in here. We know there is one.’ And so we made some big changes during that time,” Levesque told WWD in a recent interview. 

For instance, the company boosted its “take rate,” increasing the amount it charges on each sale. That brought in more money and helped cut out items valued at under $100, where the economics are harder to square with its service, which authenticates every piece sold.

The RealReal’s sweet spot was “anything over $100,” Levesque said. 

“We can sell really well, we can get top dollar for both the consignor and the RealReal [at that price],” she said. “You earn more with us because we’ve got over 40 million luxury shoppers on the site. When you’re known for luxury resale, you can sell things for more because you’ve got more of that client on the website and shopping in our ecosystem.” 

The clientele is exacting and isn’t just looking for a vintage Prada look, but a particular print from a 2002 collection, she said. 

The RealReal also moved to a consignment model and stopped buying inventory. And it stepped away from unprofitable categories, including kids, home, art and outdoor goods. 

Going Back to the Core

“We just went back to our core of fashion buying jewelry, watches, handbags, ready to wear, shoes,” Levesque said.

The San Francisco-based company also stuck to its longtime love of high-tech everything and implemented a smarter pricing system that’s driven by AI, factoring in color, sizing, sleeve length, skirt length and so on. 

All that together has reset The RealReal.

“It’s a completely different business model because we made those changes because we took a position on the product offering and who we want to be,” Levesque said.  “The good news is it worked. We needed some time, we actually shrunk our base because some of the buyers and the consignors were only buying and consigning low-value items.

“The P&L is different,” she said. “The flow-through from revenue to adjusted EBITDA now is much healthier. Now we got back to growth.”

But in some ways, nothing has changed. 

The RealReal still has something to prove — not to its buyers and consignors who are already fans and supporters. Women make up 70 percent of The RealReal’s workforce and the CEO said the younger employees come in wearing Zara and leave in Givenchy. 

But the broader business world might still need some convincing. 

“People at the beginning told us, ‘Is this a real business? No one’s going to resell anything,’” Levesque said. “We went from investor to investor, and I’ll never forget all the ‘Nos.’ ‘My wife would never resell any of her shoes.’ ‘My wife only shops at X place.’”

The bar kept moving for The RealReal, which was first told it couldn’t grow by 30 to 40 percent, and then that it couldn’t produce adjusted EBITDA and then that it couldn’t generate positive cash flow. (Free cash flow tallied $1 million last year, an improvement of $104 million from 2023). 

Levesque’s response, maybe the only possible response besides giving up, was: “We’ll just prove it. We’re always going to have that. All we can do is obsess over service, drive operational excellence and grow profitably and really continue to deliver product that resonates with our consumer and show that this can be a viable longer-term business. There’s $200 billion sitting in people’s closets and in just the U.S. alone, $80 billion gets added every year.”

Investors are paying attention to The RealReal. It was the best-performing fashion stock last year and is up nearly fourfold for the past 12 months. But the company’s overall value doesn’t necessarily reflect that opportunity of all those luxe bags and dresses hidden away in the back of closets. 

The stock rose 4.4 percent to $6.82 on Friday, leaving it with a market capitalization of $759 million. When it went public in June 2019, the company was valued at $2.5 billion on its first day of trading.

“I don’t think people quite understand that this is not a commodity. I think we get lumped up with discretionary from an investor shareholder standpoint, but in a lot of ways we’re different than that. We’re a value play,” Levesque said. “When the consumer might be pulling back a little bit, we see less of that because of who we are and what we’re doing.”

So The RealReal and Levesque are just going to have to keep proving they can do it.

“Resale is not going to go away,” the CEO said. “It’s now a part of how people are thinking about things. It’s a part of the community, the broader culture. Resale is becoming more mainstream, and it is changing the way people shop every day. 

“It’s kind of exciting,” she said. “If you can wrap your head around that, you realize that we’re just getting started in so many ways.”