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Start-up gives secondhand a fresh start

One start-up allows consignment store junkies to buy and sell quality secondhand clothing with a tap on a smartphone.

James Reinhart, founder and CEO of re-commerce start-up ThredUP says, "Our mission has been to inspire a new generation of consumers to think secondhand first."

Reinhart had 60 seconds to pitch his start-up, ThredUP, to a CNBC "Power Pitch" panel with Eurie Kim, principal of Forerunner Ventures; Sapna Shah, angel investor and retail expert; and Alicia Syrett, founder and CEO of Pantegrion Capital. Watch the video to find out if they were in or call it a dud!

Think secondhand first

A mom and her children filling their ThredUP bag with clothes.
ThredUP
A mom and her children filling their ThredUP bag with clothes.

While living in a tiny Cambridge apartment, Reinhart experienced a common problem: He lacked the space to store clothing he no longer wanted.

His vision for ThredUP materialized. He saw busy moms with unwanted clothing and used kid's clothes as an ideal target and launched his online start-up, ThredUP, in 2009.

And to help out those moms on the go, the ThredUP model caters to busy customers. "We send you a prepaid bag. You fill it and leave it on your doorstep. We pick it up right at your house," Reinhart said.

Consignment with class

The start-up tries to ensure that only quality clothing is sold on the ThredUP website. Each piece of clothing goes through a rigorous 12-point inspection process, and is then sold online up to 90 percent off retail price. "We sell more than 25,000 brands across every major category," Reinhart said. In fact, on any given day, there are hundreds of thousands of items for sale on the website. In 2013, ThredUP sold close to 2 million items and recycled one million pounds of clothing that did not meet quality-inspection standards.

Sellers can earn up to 35 percent for their items that sell under $20 on ThredUP. Any item that sells over $20 on ThredUP will earn sellers 50 to 80 percent.

During the Power Pitch segment, Retail expert Sapna Shah asked Reinhart how ThredUP would manage its operations effectively as it continued to grow and scale.

ThredUP sells over 25,000 brands of clothing.
ThredUP
ThredUP sells over 25,000 brands of clothing.

"We've built processes for people and systems to scale beyond one distribution center to multiple distribution centers. We've hired an amazing team, and we're investing a lot of resources in training and process innovation to make sure that we can continue to deliver a great customer experience," Reinhart said.

Forerunner ventures principal Eurie Kim asked Reinhart if ThredUP is able to make enough profit on a per-bag basis even at the lower price points.

"We can do things at a very low cost. Based on the way that we pay sellers, based on the price of their items, which ranges anywhere from 10 percent to 80 percent, we're actually able to put those items online and sell them at a profit," Reinhart answered.

Besides traditional consignment stores, other competitors in this space include TheRealReal, a luxury fashion resale company, and Twice, a company with a similar model to ThredUP. Unlike ThredUP, though, Twice only buys and sells women's clothing.

To date, ThredUP has not been profitable and it would not disclose its projected profitability date. However, it has raised $48 million in venture capital and expects future revenue to grow 50 percent quarter over quarter with sales up three times from 2013. The company would not disclose its revenue numbers.

By CNBC's Heather Schnepf.

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