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Three key trends are driving the future of retail: the shift to online, the shift to social, and the shift to second-hand. Many of these trends are led by younger generations who continue to grow their spending power as they age.
While eCommerce offers substantial improvements to buyers over in-person shopping, namely the unparalleled scale and diversity of brands, styles, and price points, the personalization element remains a challenge. The sheer scale of online inventory can often overwhelm potential customers. Despite some advances in personalization, the online buying experience is still largely one-way and transactional.
In the offline shopping experience, product discovery is inherently social. Shoppers seek the same in the digital world and increasingly turn to one another for online recommendations and validation.
Social technology platforms are central in facilitating personal, meaningful interactions at scale through photos and discovery-based content. In addition, consumers increasingly favor resale shopping, fueled by the desire for sustainable consumption and increased orientation towards value.
From the seller’s perspective, people continue to find ways to pursue their passions with a digital “side hustle” or as digital entrepreneurs. The growing demand for social shopping online creates a meaningful opportunity for sellers to expand their potential customer base from local to global, with the data-driven ability to reach, acquire, and retain buyers.
Poshmark understood these changing trends and came up with a mission to put people at the heart of commerce, empowering everyone to thrive. As strategy enthusiasts, we decided to evaluate the business model of Poshmark. How does Poshmark work and make money? What does the competitor landscape for Poshmark looks like? Let’s find out.
What is Poshmark? How does Poshmark work?
Poshmark, founded in 2011, is a social commerce marketplace where users can buy and sell new and second-hand fashion, home goods, and electronics. Poshmark is a publicly listed company that went public at a valuation of over $3 billion in 2021.
Poshmark combines the human connection of a physical shopping experience with eCommerce’s scale, reach, ease, and selection benefits. Poshmark brings the power of community to buying and selling online.
Poshmark works by curating its marketplace into lifestyle categories, including apparel, accessories, footwear, home, beauty, and pets. Powered by its proprietary technology, Poshmark is purpose-built to enable simple transactions, seamless logistics, and an engaging experience at scale. As of December 31, 2021, Poshmark had 7.6 million Active Buyers.
Poshmark empowers people to sell a few items or to become successful entrepreneurs by providing them with end-to-end seller tools. Poshmark refers to this as “making selling a superpower.” Poshmark attracts, engages, and retains sellers by creating a vibrant community where sellers can use their passion for economic empowerment.
Poshmark works on an asset-light business model. It does not own or manage inventory, as all products are listed, managed, sold, and shipped by the sellers, utilizing its transaction tools. This asset-light model creates scalability and favorable working capital dynamics.
Poshmark uses data-driven personalization to customize each user’s feed to feature the most relevant listings and make it easy to search for and find products of interest quickly.
Furthermore, sellers list various items across all price points, with the added benefit of negotiating offers directly with buyers seeking to optimize their budget, allowing sellers to manage their listings to achieve their objectives.
Network effects play a vital role in the way Poshmark works and grows. As users join Poshmark, they interact with one another and build personal networks through likes, comments, shares, follows, offers, and purchases. This engagement attracts new sellers who, in turn, increase the breadth and depth of Poshmark and ultimately attract more buyers.
Buyers often become sellers after experiencing the ease and value of selling on Poshmark. At any time, a user may be a buyer, a seller, or both. This high-velocity flywheel of Poshmark’s community engagement drives strong monetization potential and an attractive business model with efficient user acquisition dynamics.
How does Poshmark make money? What is the business model of Poshmark?
For Buyers: Poshmark wants to make shopping Social and fun. Poshmark enables buyers to grow their networks, driving positive social feedback, long-term engagement, and repeat purchases.
Poshmark’s social features make the discovery and purchase process simple and enticing for buyers, fostering high engagement and retention. Poshmark enables buyers to discover, connect, and curate their network and news feed with other users who share similar styles and personal preferences, creating a fun shopping experience.
Buyers benefit from a vast assortment of second-hand and new items from sellers. At the same time, Poshmark offers the data-driven ability to sift through all of it and personalize the experience for each user. The average order value on Poshmark in 2021 was $40.
For Sellers: Poshmark offers sellers end-to-end tools and an integrated stack for running a full-scale online shop to make selling a superpower through full listing, fulfillment, and customer support capabilities.
Poshmark makes it easy for sellers, from casual consumers to professional sellers, brands, and retailers, to build their businesses with seamless listing, merchandising, promotion, pricing, and shipping.
Sellers use their passion to feature content, select and style inventory, and engage in social interactions to monetize their listings and drive the growth of their businesses quickly and cost-effectively. Additionally, Poshmark works on a success fee business model, which means Poshmark makes money when sellers make money. No upfront fees.
Poshmark’s marketing strategy focuses on acquiring profitable new users via organic and paid channels, retaining and engaging existing users through its communication channels, and activating users to engage with one another via Poshmark-organized virtual and in-person events. These marketing programs drive users to be buyers and sellers in its social marketplace, which drives revenue growth.
Organic marketing is generated by word-of-mouth from users who invite friends to join Poshmark directly and share their listings across other social media channels such as Facebook, Instagram, Pinterest, Snapchat, TikTok, and Twitter.
Poshmark users meet members via self-organized, in-person, and virtual events to share selling best practices and help onboard new members. Moreover, Poshmark creates virtual parties in-app centered on merchandising categories to further fuel user activity and engagement.
Poshmark leverages social media channels, content creation, curation, and influencer marketing as distribution channels to increase brand awareness and drive the acquisition of new users.
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Poshmark’s paid advertising is based on direct digital response (i.e., social media, search engine optimization, mobile ad networks). Poshmark has also scaled into more mass media channels (i.e., TV and radio) to expand its reach and attract new demographics. These channels have the added benefit of re-engaging existing users and introducing new users to Poshmark.
Poshmark-sponsored events serve as conduits for marketing and knowledge sharing as users engage with other users. Examples of these events include Posh Party Live, which includes closet consultations and often has panels with local sellers, Posh N Sip, community-hosted events; and PoshFest, Poshmark’s annual two-day conference.
How does Poshmark make money: revenue model
Poshmark made $326 Mn in 2021. Poshmark makes money from sellers for fees earned when sellers sell items they have listed on the Company’s platform to buyers. In contrast, Poshmark makes money from buyers for fees earned when they purchase shipping labels used to deliver the items purchased.
Sellers: Sellers can list their items for sale on Poshmark at no charge. Poshmark charges a fee upon selling items listed on its platform. The fee is a fixed dollar amount for orders under a particular value and a fixed percentage of the final sales price of the item for orders greater than that.
The services Poshmark provides sellers include facilitating the sale of their items and certain ancillary activities such as payment processing and authentication (for luxury items).
Sellers monetize their listings using content, inventory selection, and social interactions. The business model of Poshmark for sellers is simple. Poshmark makes money by charging a fee on the success of a sale. Poshmark’s fee is 20% of the final price for sales $15 and over or a flat rate of $2.95 for deals under $15. Poshmark generated ~96% of the revenue from Sellers in 2021.
Buyers: Poshmark makes money from buyers for fees earned when they purchase shipping labels used for delivery of the items purchased. When a sale is finalized, the buyer buys a shipping label from USPS through the Poshmark platform. Poshmark acts as an agent of the buyer in facilitating the shipping.
Poshmark’s revenue increased by $64.4 million in 2021 compared to the prior year, primarily due to a 27% increase in the volume of GMV to a total of $1.8 billion.
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Competitor landscape of Poshmark
Poshmark faces competition for buyers and sellers from a wide range of competitors, including both online and offline retailers, such as significant marketplaces, national retail chains, local consignment and vintage stores, and other venues or marketplaces.
The biggest competitors for Poshmark are Amazon, eBay, Etsy, Facebook, Mercari, Shopify, T.J.Maxx, and Walmart. Poshmark segregates its competitors into two categories:
Buying and Selling Merchandise: Poshmark competes for shopping market share across both new and resale merchandise.
New merchandise consists of both items sold directly by manufacturers and retailers, and examples of competitors include online and offline general retailers and specialty retailers. Resale merchandise consists of items that have been previously purchased and used, and examples of competition include online and offline specialty retailers dedicated to resale merchandise and informal, peer-to-peer venues for selling used items.
Discovery and Engagement: Poshmark also faces competition from social media sites and commerce enablement companies that provide other outlets for engagement time spent. For instance, social media sites that are not explicitly dedicated to commerce and offline gatherings that focus on shopping.