Deal focus: VCs see value in secondhand luxury

Alibaba Group's Idle Fish – known as Xian Yu in Chinese – is a C2C platform that allows customers to sell pre-owned items. Launched in 2014, it has received lukewarm response. The C2C model and non-standardized sales items are two reasons for this outcome. Sellers list used goods, ranging from smart phone covers to personal jewelry, and price them at will. This results in skepticism among potential buyers who are concerned about the quality and value of the products. 

Xinshang, which focuses on selling luxury secondhand goods, adopts a different model: B2B2C. The company connects small-scale offline shops with consumers, selling luxury used handbags, watches and clothing from brands like Louis Vuitton, Chanel and Hermes. Each item is authenticated and priced by Xinshang's 10-strong team of experts. Consumers who mistakenly buy fake products are reimbursed.

GGV Capital and Joy Capital clearly believe in this model. They have led a $50 million Series C round of funding for the three-year-old company, with participation from existing investor Northern Light Venture Capital. 

"Online trading has become more popular among Chinese consumers. Value-add services are critical for trading platform businesses to be successful, especially in the secondhand goods segment," says Eric Xu, a managing partner at GGV. "Through a B2B2C model, Xinshang offers authentication, consumer financing and maintenance services to facilitate smoother transactions. We believe this model can propel the used luxury goods industry forward." 

Chinese consumers spent more than RMB500 billion ($77 billion) on new luxury goods in 2016, accounting for nearly one-third of all purchases globally, according to McKinsey & Company. Spending levels are expected to double by 2025. Although the secondhand luxury market is only worth $1.5 billion now, it's projected to grow along with new luxury goods purchases. 

"The secondhand luxury goods market is comparable to used cars in China. Over the past few years, a number of used cars trading platforms have raised rounds of funding at high valuations. Not much attention has been paid to secondhand luxury goods sites, but we expect they will gain a similar level of traction," says Xu. 

Xinshang has so far processed more than 50,000 transactions. It generates revenue through commission payments from sellers and maintenance services provided to buyers. While most of the secondhand goods are supplied by offline shops, the company plans to expand its coverage to include individual sellers. 

"The company's business model is evolving. When you view a luxury bag as an asset, it can be used in different ways: it can be sold or leased, or it can be sold after being leased for a while. Ultimately, Xinshang wants to be a one-stop luxury trading platform – users can rent or buy anything whether new or pre-owned," Xu adds.   

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• Topics
• Greater China
• Consumer
• Technology
• Expansion
• China
• TMT
• GGV Capital
• Northern Light Venture Capital
• Growth capital