ThredUp sells millions of secondhand garments every year, yet the company still isn’t profitable. Here’s how its AI-powered consignment model works, why sellers are frustrated, and what it means for the future of online thrifting.
As I’ve reduced my time on social media, I have found myself more frequently perusing conversations on Reddit. I especially enjoy following the ThredUp subreddit. It’s mostly humorous listing errors, unexpected steals, and just the right amount of consumer angst.
Why is selling on ThredUp so bad?
One of the most frequent complaints is about the selling process. ThredUp* operates on a consignment model. The prospective seller purchases a Cleanout Bag, ThredUp mails it to them, they fill it with clothing and accessories, then they ship it back for sorting and listing.
In the early years, ThredUp employees assessed, sorted, and listed everything by hand. These days, the company boasts expanded use of AI to verify brand, assess quality, list items, and price inventory based on demand. ThredUp’s April investor report says: “AI is the engine helping scale resale by improving search and discovery. By automating everything from pricing to verifying authenticity, technology is removing the old headaches of secondhand and making it as fast and efficient as buying brand new.”
That’s not to say that human labor isn’t still necessary. But it helps clarify some of the most common seller complaints: people report new-with-tags items being labeled as “flawed;” designer items sold way under market value as “unbranded;” and some items even getting lost. Swimsuit separates are sold as separate items or marked as underwear and not sold at all. People frequently report finding high end brands like All Saints and Ganni in the “Assorted Brands” category, which is intended as a catch-all for Amazon and WalMart brands.
If items aren’t labeled correctly internally, the seller can lose out on commission. But even when items are labeled and sorted correctly, sellers frequently report that ThredUp makes about 90% commission, versus a more typical 60-40 split at traditional consignment. (ThredUp reports just over 80% gross margin in the fourth quarter of 2025.)
In spite of processing errors, ThredUp is making a killing. They reported 200 million items for sale, 1.37 million active buyers, and $300 million in revenue in 2025. If you remove peer-to-peer resellers like Ebay, Poshmark, and Depop, this likely makes ThredUp the largest online thrift store.
Why isn’t ThredUp profitable?
Looking at those numbers, you would expect ThredUp to be profitable. But, in fact, they’re not.
It’s difficult to imagine, until you realize that ThredUp is not really a thrift store in the traditional sense: it’s part warehouse, part logistics, and part tech company. It costs a lot of money to receive, sort, store, and package 200 million individual products – especially secondhand clothes, a product category that almost always loses value over time.
ThredUp has generated interest from investors by positioning themselves as logistics innovators, especially in the case of AI automation. In the long term, this will save ThredUp operational costs.
In a filing for the SEC, they report: “Our facilities run on a suite of our custom-built applications designed for ‘single SKU’ operations. Our engineering team has implemented large-scale, innovative and patented automation for put-away, storage, picking and packing at scale. This automation results in reduced labor and fixed costs while increasing storage density and throughput capacity. Our proprietary software, systems and processes enable efficient quality assurance, item-attribution, sizing and photography.”
But in the short term – as systems are being developed and tested – this is an extremely expensive undertaking.
ThredUp isn’t profitable on purpose
The same SEC filing notes that the company is intentionally losing money in order to gain market share, improve logistics, and develop innovative AI technology. As a venture backed, publicly traded company, they can afford to operate this way as long as they continue to have cashflow.
For those of us who don’t spend a lot of time thinking about investing, it can seem counterintuitive that a company bleeding millions every year could be seen as a bright star in the investor market. But in today’s financial landscape, people can afford to hedge their bets. If all goes as planned, ThredUp will likely be profitable in 2-3 years.
What does this mean for consumers?
Even though they specialize in secondhand clothing, ThredUp’s business model is ironically antithetical to the concept of slow fashion because it privileges a “move fast and break things” approach over a slow and steady one. The only way for them to be successful long term is to have a monopoly on the online thrift market. And to do that, they have to cut corners in ways that impact consumers, reducing human labor, speeding up processing, and offering pennies to consigners.
The plus side of this, however, is that shopping on ThredUp can provide an increasingly customized and enjoyable process for buyers, keeping prices low and creating just enough friction for a “thrill of the hunt” type shopping experience. And, of course, if you prefer to shop secondhand, you’ve got 200 million products to choose from. For many of us, our local thrift stores are not the hidden gems they once were. Online resale seems like the best alternative.
If I were you, I would not bother trying to sell your stuff to ThredUp if there’s a local thrift store or nonprofit that can take your items. You’re not going to make enough money to justify the environmental cost of shipping, and the headache of pre-sorting.
But if you’re just there to shop, it can still be worth your while, providing a middle ground between the local thrift store and less consistent secondhand shopping experiences on marketplaces like Poshmark.
What do you think? Do you shop at ThredUp?
*This post contains affiliate links and I may make commission on items purchased, at no cost to you.
Hi Leah — this is such a thorough breakdown of a model that a lot of people in the secondhand space have quietly been questioning for years. The tension you identify is real: when resale scales like a logistics company, the seller experience almost inevitably suffers because the economics just do not work in their favor at that volume.
I am one of the co-founders of BONNEE, and we built our model specifically around the frustrations you describe here. Rather than a consignment structure where we take custody of someone’s clothes and extract margin at every step, BONNEE is a peer-to-peer swap marketplace. You list what you have, earn Swap Coins when your item is approved, and use those coins to claim something from someone else’s closet. No selling, no waiting to find out what ThredUp thinks your item is worth, no 90% commission disappearing into a warehouse operation.
The model you describe — where profitability requires monopoly and monopoly requires cutting corners — is exactly what we were trying to build around. We are still early, but we believe the circular fashion space has room for a model that actually puts the person with the clothes at the center of the transaction rather than the infrastructure around it.
Thank you for writing this. It is the kind of analysis the secondhand community genuinely needs more of. If you ever want to dig into alternative models, I would love to connect.
Maritza
Co-Founder, BONNEE
bonnee.co