On the Money

thredUP turns old clothes into cool cash

Cash in your cluttered closet

If your closets are stuffed but your wallet's too thin, a startup called thredUP is taking the hassle out of consignment with free pickup service.

"I started this business because I had a closet full of shirts I didn't wear and it was inconvenient to try and sell them on eBay, so they just sat in my closet," founder and CEO James Reinhart told CNBC's On the Money in an interview. "There needed to be an easier way."

The company launched in 2009 and is headquartered in San Francisco. So far, it has raised $131 million dollars from companies like Goldman Sachs, Redpoint Ventures, Trinity Ventures, Highland Capital and Upfront Ventures.

With thredUP, people can go on the website or mobile app and request a free "clean out" bag. After filling it up with unwanted items, customers can leave the bag on their doorstep. Reinhart says the company has a partnership with the postal service and FedEx.

Originally Reinhart started the secondhand store alternative exclusively for men's shirts. What he quickly realized, however, is that the much larger and lucrative market is women and children's clothing. The company shifted to that segment and hasn't looked back since.

"The irony is not lost on me that we still don't do men's [clothing] but it's a pretty small market in resale, Reinhart said. "Women's and kids' [clothes] is the sweet spot."

Read MoreTelling a 'Story' about brick and mortar retail

Better the brand, more the cash

Next wave of store closings may hit luxury: Real estate pro
Shoppers carry bags while walking through the Cherry Creek Shopping Center in Denver.
Danger signs at the mall? More empty storefronts

All items are inspected at thredUP's warehouse. For clothes with a resale value under $60, customers can expect a payout immediately (typically between 10 to 40 percent of the anticipated selling price). For more valuable items, customers will receive a payout after the item sells. To help get an idea of what they can expect for a payout, thredUP has a payout estimator for the public.

The company's website notes that women's brands recouping the highest percentage of the buyers' original investment include: Rebecca Minkoff, Kate Spade, Tory Burch, and Marc Jacobs. When it comes to kids, brands with the best resale value include: UGG, Moxie, Merrell, and The North Face.

Reinhart notes the company is extremely picky when it comes to the items it puts up for sale. He says approximately 50 percent of the clothing it receives is rejected and donated to charity.

According to data cited by the National Association of Resale and Thrift Shops, the clothing resale sector generates annual revenues of $16 billion. It's a growing category with a lot of interest from venture capital. In 2014 thredUP noted $100 million was invested into resale companies, up from $40 million in 2013.

Reinhart's company competes with over 25,000 traditional brick and mortar consignment shops, online auction sites like eBay, and newcomers such as The Real Real, Tradesy, and Poshmark. However, he says his company emphasizes its convenience: It provides customers and the breadth of brands it will accept. Reinhart says the company lists 12,000 items daily featuring 25,000+ brands.

For thredUP customers, the work and time spent on listing, selling, and shipping is all taken care of by the company.

"I think the people who sell their own things –I think it's just a different type of person," Reinhart said. "It's a person who really wants to maximize the last penny and willing to do a lot more work. For thredUP really it's about convenience."

On the Money airs on CNBC Saturdays at 5:30 am ET, or check listings for air times in local markets.