We Foresee Authentic Problems for the RealReal as Demand Environment Softens

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrance. We view the firm's strategy as relatively sound and believe that investments in automation, neighborhood stores, and diversified supply sourcing represent a solid roadmap toward eventual profitability, but recognize that the firm will need to get lean quickly to assuage market concerns and service its 2025 and 2028 convertible debt issuances.