Buying second-hand clothes may be good for the planet but it is not always cheap.

Etsy, the US homemade goods marketplace, is paying $1.6bn to buy Depop, the London-based fashion resale app popular with Generation Z. While the market for “preloved” garments is growing fast, the valuation of this mostly cash deal looks overdressed.

Privately held Depop generated $70m in revenue in 2020, more than double that reported in 2019. Still, this means Etsy is acquiring Depop at a price to revenue ratio of 23 times. Etsy itself only trades at around 12 times. Rival second-hand clothing platforms Poshmark and ThredUp are on 13 times and 11.5 times respectively.

It helps that Depop stands out as the cool kid in a sea of used clothing resale platforms. Part-eBay and part-Instagram, the app’s ease of use and clever emphasis on social connections has made it a hit with young shoppers. Ninety per cent of its 30m users are under 26. Depop is also the 10th most visited shopping site among Gen Z consumers in the US.

Buying Depop would give Etsy — whose users tend to be older millennials — an opportunity to tap into a younger demographic plus a bigger chunk of the used clothing market.

A recent report from ThredUp reckons the total resale market for second-hand clothes could hit $64bn by 2024, compared with $32bn in 2020. Younger consumers — some driven by environmental concerns, others just looking for a bargain — are adopting second-hand fashion faster than any other group.

The problem is that young people can also be a fickle bunch. A hit app today may be deleted from their phones tomorrow. There is also the question of whether the deluge of closet cleaning and online shopping prompted by the pandemic will continue, now that people are no longer forced to stay at home.

Etsy’s willingness to shell out top dollars underscores its optimism that gaining access to Depop’s young blood is worth the potential challenges. Despite 10 years in the business, Depop remains lossmaking. No garment on the website needs upcycling quite as badly as its distressed-look P&L.

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