The RealReal's shares plunge as poor training and tough quotas cast doubt on 'no fakes' pledge

Key Points
  • The RealReal is an online luxury consignment store that differentiates itself by saying everything is 100% real. The CEO has said there are "no fakes on our site" and "every single item [is] authenticated."
  • CNBC spoke with nearly three dozen former employees and obtained internal company documents that show not everything is authenticated by an expert and employees work under strict quotas that lead to fakes being sold on the site.
  • CNBC read nearly 1,400 online reviews of the company and found that fakes, damaged items and mistakes are top complaints.
  • The RealReal, which refused an interview, defended its authentication process and said it has no tolerance for counterfeits.
Fakes and mistakes: Inside The RealReal
Fakes and mistakes: Inside The RealReal

Wendy Meltzer prides herself on knowing fashion.

"I would say I'm extremely savvy," she said. "I'm comfortable when I go to buy something, I'm getting a fair deal, if not a steal."

So she found what she thought was a perfect solution to clearing out her closets by selling her clothes and bags to The RealReal, the world's largest marketplace for authenticated luxury consignment.

But after years as a happy customer selling and buying from the company, she says she is now not only unhappy but outraged.

"If your name is The RealReal, inexcusable. Don't say you're The RealReal with authenticators and not be able to stand behind it," Meltzer said.

Wendy Meltzer, The RealReal Customer
Source: CNBC

She is not alone. Of nearly 1,400 reviews of the company found online, the top complaints are fakes, damage and poor customer service. The complaints include wrong sizes and that the photos online were misleading because they did not match the appearance of the item.

The RealReal, launched in 2011, went public this year on June 28. That day, CEO and founder Julie Wainwright said on CNBC's "Squawk on the Street" that "every single item has already been inspected, authenticated before it gets on the site." And in 2016, she told CNBC, "There's no fakes on our site."

This promise is key to the brand's identity: the idea that the company takes an extra step to ensure items are authentic. Several analysts said that its valuation could be hurt if consumers stopped trusting this promise.

At the start of November, the company was valued at about $2 billion, but the shares have yet to return to the high set on the day it debuted.

The RealReal exterior
Soruce: CNBC

The company's high profile dovetails with the increasing popularity in luxury online shopping and benefits from a consumer who is more willing to buy secondhand merchandise. A report by Cowen Equity Research estimates $200 billion worth of U.S. luxury goods are available for resale, saying The RealReal is "the only platform currently that offers a vast product offering with 100% authentic luxury items."

On its Facebook page, The RealReal proclaims "with an expert behind every item, we ensure everything we sell is 100 percent real."

A CNBC investigation found real questions about that claim, after interviewing nearly three dozen former employees, speaking to unsatisfied customers around the country and obtaining an internal company document from 2018 that shows copywriters in the Secaucus, New Jersey, warehouse have been tasked with authenticating some of the items that go on The RealReal's site. In the wake of this report, RealReal shares plunged as low as $18.46. The stock closed Tuesday down nearly 11% at $19.37.

Copywriters said they had little training on how to spot fakes and were hired to write descriptions of the items to post on the website. Broadly speaking, there isn't any formal training or certification for authenticators who handle luxury items in the industry. But those who do this type of work say fakes are becoming more and more difficult to spot.

Other internal company documents clearly spell out strict quotas that employees have been expected to meet or face discipline. This means some obvious problems with merchandise can be overlooked.

'Obviously a major error'

Meltzer said it was inexcusable that The RealReal sold her a scarf that was mislabeled.

She showed CNBC the scarf from designer Loro Piana that she bought from The RealReal for $537. She said she thought she was getting a great deal because The RealReal's listing valued the scarf at $3,325.

When the scarf arrived at her home, Meltzer said she discovered the price tag attached to it belonged to a women's coat from Loro Piana. CNBC sent the scarf to Loro Piana, which confirmed the wrong tag was attached but the scarf was authentic.

After Meltzer complained, a RealReal employee admitted in a text message to her that it was "obviously a major error."

CNBC found that this was not an isolated case.

In September, celebrity shoe designer Amina Muaddi called out The RealReal on her Instagram page for selling a fake shoe on the site. "I was disappointed to see a website like @therealreal selling an overpriced fake version of the shoe which I never even made in a flat version," Muaddi wrote on her Instagram page. "I don't want you to risk purchasing fake product."

Cherish Garcia The RealReal Customer
Soruce: CNBC

Cherish Garcia, who lives in the Philippines, was also a satisfied customer until she bought what was advertised as a Prada dress.

"I was pretty excited," Garcia said. "And then when the dress arrived, it's like what you hear about when you order on the internet — expectation versus reality. It was a cheap-looking polyester. And the lining was cheap too. I have Prada dresses, so I know the quality."

She said TheRealReal insisted the dress was authentic. But she said she got even more suspicious when she saw a very similar dress from a lower-end brand on the site.

That's when she took her complaint to Diet Prada, a popular Instagram account that calls out fake items. The day after that was published, she said, TheRealReal offered to take back the dress.

"I honestly don't think that dress was thoroughly checked. I think maybe they've just gotten too big and are not willing to put the time to really check each item," Garcia said.

CNBC made repeated requests to The RealReal for interviews with Wainwright or a company official, which were declined. After CNBC asked for specific comment about the copywriters and quotas, the company emailed a statement, which did not address those issues.

The statement said, in part, "Unlike most resale companies, The RealReal takes possession of all items and physically evaluates every one to authenticate it. All items are put through a thorough, brand-specific authentication process by our trained team of luxury experts before they are accepted for consignment."

Former employees speak out

Dozens of former employees — most who were afraid to be quoted by name — said the company's claim of expert authentication was not accurate.

Chanice Parchment said she felt it was important to speak out.

"It was almost like a nightmare," said Parchment, who worked at The RealReal for nearly 3½ years.

Parchment, who described her job as a team leader tasked with spotting mistakes, said the explosive growth of the company and demands on employees made it unbearable to work there.

Chanice Parchment, Former Employee
Soruce: CNBC

"In the beginning, I loved it. It was awesome," she said. But, she said, the quotas were unreasonable and led to mistakes.

"Everyone is supposed to authenticate everything at the end of the day," she said. "That should be part of your skill, but there were certain items, like Chanel, Louis (Vuitton), Yeezy, Prada, that would go to our authentication team."

Parchment and other former employees said that copywriters, who often examined the items, did not have sufficient training to spot fakes.

"It's so much product. It's really hard for someone to properly authenticate something when they're not probably the best qualified to be even doing that in the first place," she said. "And they're being rushed to hit a goal."

An internal chart from 2018 obtained by CNBC shows which products and items were being authenticated by copywriters. For example, Prada handbags, wallets and pouches were sent to the authentication team, while shoes and garments were not.

Hermes garments and shoes were being authenticated by copywriters, as were Gucci hats, scarves, belts and shoes. All Chanel went to the authentication team, but for Lady Dior it was only handbags. Some of the most counterfeited brands in the world include Chanel and Gucci, according to a 2015 World Customs Organization Report.

The RealReal told CNBC that the company employs more than 100 gemologists, horologists and "brand experts on staff, as well as hundreds of additional trained authenticators. We make every effort to accurately authenticate the items we receive, arming our authenticators with tools and technology as well as authentication guides. Our authentication team receives daily training updates to stay ahead of the latest developments from brands and counterfeiters."

"Authentication is extremely complex. It's both an art and science. We stand by our authentication process and will always work with our customers to make things right," the company said in a statement.

The RealReal said it will refund the price of an item if there is a question about its authenticity and that it has a zero-tolerance policy for counterfeiting.

Asked for additional comment, Erin Santy, head of public relations, said, "What I provided is our final statement."

But Parchment said, in her experience, corrections were frequent. "I don't think anyone had enough training at the end of the day," Parchment said. "The fakes are getting really good. And when you have such a high volume that you have to get through and you're worried about hitting your goal, at the end of the day, I don't really think they cared whether it was real or not anyway."

Internal documents stated copywriters have been subject to disciplinary action if a minimum of 50% of their daily quota was not met.

"It is expected that copywriters will reach their daily quota during their shift," a document marked "updated Feb. 1, 2019" stated. "Daily quotas are set depending on the category the copywriter is in. Copywriters are expected to consistently reach their daily quotas."

In the ready-to-wear category, the daily quota was 105 items for an eight-hour shift and 131 items for a 10-hour shift. In contemporary ready-to-wear, it was 128 items for an eight-hour shift and 160 items for a 10-hour shift.

The RealReal's use of copywriters to authenticate items is not new. Greta Stehr, a former luxury manager in Los Angeles for The RealReal, said she saw that firsthand during an employee tour of the Secaucus warehouse in 2015.

"The first time that I became aware of something like this happening was when we had a company tour of the Secaucus warehouse during one of our annual summits," Stehr said.

What she witnessed shocked her.

"So instead of the top-tier authenticators taking a long time, a sufficient amount of time to review each piece, most pieces were being handled by the copywriters, and only very, very high-value items, it seemed, were being authenticated by the actual lead authenticators," she said.

"It was very surprising because I was under the impression, even as an employee, that every item was authenticated by an expert. And it didn't really seem to be the case when we saw what was actually happening," she said.

Stehr compared the company's culture to a "rat race."

"Everyone was racing around so intensely and so aggressively that it almost felt unreal," she said. "I have never been in a corporate environment like that before."

Stehr left the company after three years to work for a competitor. The RealReal sued her, accusing her of
taking its clients, which she denies. The case was eventually settled.

A former supervisor in Los Angeles, who oversaw a team of employees, confirmed that "there is a huge amount of pressure to get this stuff on the site."

Another former manager said The RealReal's authenticity claim should be revised.

"In general, I don't think many companies can say 100%. Maybe they should switch to something else," the former manager said, adding that copywriters should not be authenticating any items.

The thing about authentication is that there's no formal training, so it's kind of like the wild West in a sense. There's not a roboticism to it. There's some level of human error and opinion involved.
Anthony Velez
Owner, Bagriculture

A former senior level manager, who said he could not be identified because of his non-disclosure agreement with the company, described quotas as "benchmarks" that any company would need to set up to achieve success. The company's goal, he said, was to have "zero fakes."

Emily Bobb, a former copywriter who worked at the Secaucus warehouse, said she tried her best to authenticate items, with limited training.

"We had slideshows which helped you authenticate an item," Bobb said. "So I would use that to kind of help me out. And I sort of had an idea of, you know, how to authenticate a handbag. So I would go in and do it myself, praying that it was authentic."

"We had such a big number to hit every single day, 10 hours a day, four days a week, you know? And it's overwhelming. And all you focused on is, 'I have to hit this goal, so I could be good for the month.'"

"I had training. I wouldn't say I had enough because I obviously had some bags that I published on the site that were fake," said Bobb, who worked at The RealReal for about one year and left in August. She said a manager had alerted her to the fake items she had published.

Bobb posted a photo from the CNBC interview on her Instagram account.

Emily Bobb, former employee
Soruce: CNBC

Two days after the interview, she received a letter from a law firm representing The RealReal warning her that she was bound by a non-disclosure agreement she signed when she took the job.

"We are aware that you have met with reporters from CNBC," the letter dated Sept. 19 said.

"We write this letter to express our concern that in the course of those interviews, you may have used and disclosed The RealReal's highly sensitive, proprietary information you may have unlawfully taken from The RealReal."

Chanel files lawsuit

Issues with authentication were also raised in a lawsuit filed last year by Chanel Inc. against The RealReal. In the suit, Chanel claims The RealReal has sold counterfeit Chanel handbags.

"Only Chanel itself can know what is genuine Chanel," the suit said.

In a statement to CNBC, a Chanel spokesperson said, "Chanel would like to reassure its clients about the fact that they are, of course, completely free to resell, give or offer any item they have purchased at Chanel. In this precise matter, the House has brought this lawsuit to reaffirm its commitment to protect consumers seeking to purchase Chanel products."

The luxury designer said its goal was that "customers are not deceived or mislead by false marketing or advertising efforts which imply that this platform can guarantee the authenticity of Chanel products whereas several counterfeited items were available among the displayed products."

In response, The RealReal said in court documents that "Chanel's objective is not to police the market for counterfeit goods, but rather to stifle the legitimate secondary market by harassing (The RealReal) with meritless litigation." It also said that "bad actors sometimes try to pass off counterfeit products and TRR fights against this reality by employing a team of trained authenticators."

The case is pending in federal court in the Southern District of New York.

Chief authenticator departs

The RealReal's chief authenticator, Graham Wetzbarger, abruptly left in October. Wetzbarger was the face of the authentication department and appeared in numerous videos on the site that explained the steps of the company's vetting process, reassuring potential customers that all the items on the site were real.

Reached by phone, Wetzbarger said in a brief conversation that his departure was unrelated to any issues with the authentication process.

"I won't discuss why I left the company," he said. "I am working as an independent appraiser. I'm looking to see what's next."

He also would not respond to questions about the copywriters' duties and quotas.

However, late Monday during the company's earnings call, Wainwright acknowledged that copywriters do authenticate certain items. She said only "high risk" items are sent to the expert authentication team. This was the first time she has publicly addressed this issue.

Anthony Velez, Bagriculture Owner
Soruce: CNBC

Anthony Velez, the owner of luxury handbag consignor Bagriculture, said he did business with The RealReal dating back to 2013. He said the company initially contacted him to increase its inventory and over several years continued to buy from Bagriculture.

"The thing about authentication is that there's no formal training, so it's kind of like the wild West in a sense," Velez said. "There's not a roboticism to it. There's some level of human error and opinion involved."

Velez said super fakes are improving.

"You can go get a Cartier bracelet that looks exactly like the real thing," Velez said. "Completely counterfeit. Made out of real gold? Completely counterfeit. Just because it has a serial number and the fake certificate doesn't make it real at all. But people will think that that's all it needs. It's much more than that."

Asked about imposing a tight time frame on the authentication process, he said, "Once you start rushing the process, you already failed."