What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-28 compared with 2021-03-01 · 73 added, 84 removed, 145 unchanged (52% of the section changed)

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We offer products across multiple categories including women’s, men’s, kids’, jewelry and watches, and home and art.

Gross Merchandise Value

(In Millions)

A strong network effect drives the growth of our online marketplace.

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Our Flagship Stores are typically 8,000 to 12,000 square feet with thousands of unique items for sale and are located in highly desirable, densely populated locations with strong foot traffic.

In addition, we operate smaller footprint neighborhood retail stores, or Neighborhood Stores, on the Upper East Side and Brooklyn in New York, Newport Beach, California and Palo Alto, California.

Our Neighborhood Stores are typically 2,500 to 4,500 square feet with items for sale focused in one category and are located in an area with large number of potential customers who are interested in that category.

In addition, we operate smaller footprint neighborhood retail stores, or Neighborhood Stores, in twelve locations in New York, California, Texas, Georgia, Connecticut and Florida.

Our Neighborhood Stores are typically 1,800 to 3,500 square feet with items for sale reflecting a selection of the Company's online assortment and are located in an area with a large number of potential customers.

The existing luxury resale market is outdated, fragmented, difficult to access and laden with counterfeit goods.

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This trust drives repeat purchases from our buyer base and instills confidence in first-time buyers to purchase pre-owned luxury goods.

We also operate Flagship and Neighborhood Stores .

In 2020, our stores generated approximately $52 million in GMV and approximately $81 million in retail supply value.

Our stores improve unit economics by acquiring higher value buyers and consignors, increasing lifetime value, increasing average order value, and lowering return rates.

• We also operate Flagship and Neighborhood Store s.

Our stores are valuable to us in multiple ways as they help us acquire higher value buyers and consignors, increase lifetime value, i ncrease average order value, and lower return rates.

We also benefit from increased brand awareness that accelerates overall market growth.

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Our sales professionals remove friction from the consignment process and build lasting relationships with our consignors.

In 2020, approximately 83% of our GMV came from repeat consignors.

In 2021, approximately 84% of our gross merchandise value ("GMV") came from repeat consignors.

Our unique service model incentivizes consumers to consign by making the process easy.

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We remove friction from the consignment process by providing multiple consignment methods.

We offer White Glove in-home consultation and pickup , subject to safety requirements related to the COVID pandemic, and meetings with consignors via online face-to-face platforms, or Virtual Consultations.

We offer concierge at-home consultation and pickup, subject to safety requirements related to the COVID pandemic, and meetings with consignors via online face-to-face platforms, or Virtual Consultations.

Consignors may also drop off items at our luxury consignment offices.

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Consignors may also utilize our complimentary shipping directly to our authentication centers.

We do the work on behalf of consignor .

• We do the work on behalf of consignors.

Once consigned items reach one of our four authentication centers, we authenticate, write the associated copy, photograph, price, sell and handle all fulfillment and returns logistics, making the consignment process seamless.

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Our online marketplace efficiently matches supply with demand resulting in exceptional sales velocity.

In the first three quarters of 2020 and for the full year 2019, approximately 60% and 80% of the products on our online marketplace sold within 30 days and 90 days, respectively.

In addition to sales velocity, we measure the ratio of demand versus supply in a given period, which we refer to as our online marketplace sell-through ratio.

In 2021 and 2020, approximately 59% and 60% of the products on our online marketplace sold within 30 days, respectively.

In addition to sales velocity, we measure the ratio

of demand versus supply in a given period, which we refer to as our online marketplace sell-through ratio.

Sell-through ratio is defined as GMV in the period divided by the aggregate initial value of items added to our online marketplace in that period.

In 2021 and 2020, our online marketplace sell-through ratios were 94% and 99%, respectively.

In addition to consignments from individuals, we also receive items directly from business sellers such as resellers, wholesalers, brands, retailers, or Vendors.

These Vendors consign primarily on consignment terms, but also on a “Get Paid Now” basis.

We source primarily high-value products in the handbag, jewelry and watch category and sneakers from Vendors.

We intend to continue to establish these relationships with Vendors and to develop our operational and technological capabilities to meet the unique needs of these Vendors.

In 2020, our GMV value was comprised of 78% from In-Home, Virtual Appointments, and Direct Ship, 14% Flagship and Neighborhood Stores together with Luxury Consignment Offices, and 8% from Vendors.

2020 GMV Value By Source

In addition to consignments from individuals, we also make direct purchases from business sellers such as resellers, wholesalers, brands, retailers, or Vendors, which helps to drive supply and expand our product offerings.

We make it easy for buyers to shop our vast, yet curated selection of authenticated, primarily pre-owned luxury goods.

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Buyers access our omni-channel online marketplace through our website, mobile app and retail stores, enabling them to purchase anytime, anywhere.

Our Flagship and Neighborhood Stores also offer our buyers world-class service, surrounded by a beautifully designed space, where they can shop our dynamic curation of authenticated pre-owned luxury goods across all of our categories.

Our Flagship and Neighborhood Stores also offer our buyers sophisticated service, surrounded by a beautifully designed space, where they can shop our dynamic curation of authenticated pre-owned luxury goods across all of our categories.

• We build trust by putting every item through our authentication process.

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Our gemologists and horologists authenticate and inspect our fine jewelry and watches, and each piece comes with an authentication certificate.

We utilize sophisticated gemological devices to assist our experts and continue to innovate in this area.

In 2021, we developed a proprietary technology with the University of Arizona to inspect gemstones faster and more accurately, without unmounting the stone.

In addition, our team of fine art curators and specialists research and validate art pieces for authenticity.

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We have a zero-tolerance policy when it comes to counterfeit goods.

Items that are deemed to be counterfeit are confiscated.

We are also working with the University of Arizona to develop proprietary technology to inspect gemstones faster and more accurately, without unmounting the stone.

Items that are deemed to be counterfeit are removed from our authentication centers.

• We provide access to unique, highly coveted and exclusive products.

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We believe we are expanding the overall market for both new and pre-owned luxury goods, as the ability to experience and engage with luxury brands through our online marketplace results in an earlier appreciation for high-quality, well-crafted items, and inspires consumers to purchase new luxury items.

As of December 31, 2020, while we had no contractual or other affiliations with luxury brands other than our partnerships with Stella McCartney, Burberry and Nanushka, we believe our online marketplace cultivates customer relationships for luxury brands.

As of December 31, 2021, we had partnerships with Stella McCartney, Burberry, Nanushka, Saks Fifth Avenue, and Mytheresa, and we believe our online marketplace cultivates customer relationships for luxury brands.

Our Technology

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Our powerful data analytics capabilities enable us to improve both consignor and buyer experiences.

Our online marketplace generates and aggregates hundreds of millions of unique data points, including data from approximately 733 million views of items on our online marketplace in 2020 by potential buyers, which we refer to as item views, and approximately 17.1 million item sales since inception.

Our online marketplace generates and aggregates hundreds of millions of unique data points, including data from approximately 865 million views of items on our online marketplace in 2021 by potential buyers, which we refer to as item views, and

approximately 23.0 million item sales since inception.

Each consigned item also has up to 50 unique attributes.

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Environmental, Social and Governance

All of our stakeholders are essential to our business—shareholders, consignors, buyers, employees, and the communities in which we do business.

We are committed to operating our business with positive economic, social and environmental impact.

We have taken steps in human capital initiatives that drive equality through equal pay and equal opportunity, including linking Diversity and Inclusion goals to corporate goals.

We provide information on our Environmental, Social and Governance (ESG) progress on our Investor Relations at https://investor.therealreal.com/investor-relations.

Our stakeholders are essential to our business—shareholders, consignors, buyers, employees, and the communities in which we do business.

We aspire to operate our business with positive social and environmental impact.

We have taken steps in human capital initiatives that drive equality through equal pay and equal opportunity.

Our board of directors and its committees provide oversight on certain human capital matters, including our Diversity and Inclusion programs and initiatives.

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Our Audit Committee works closely with our management to discuss current and emerging risks related to our workforce and what steps management is taking to manage and reduce the Company’s exposure to risk.

The action of these committees and the work of our board of directors and management seeks to attract, retain and develop a diverse and inclusive workforce that is motivated to achieving the Company’s business objectives.

The actions of these committees and the work of our board of directors and management seek to attract, retain and develop a diverse and inclusive workforce that is motivated to achieving the Company’s business objectives.

Our Sustainability Program

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We believe a growing awareness of the environmental impact of recirculating luxury goods significantly contributes to the appeal of consigning and purchasing on our online marketplace.

Based on our survey data, approximately 50% of our consignors cite environmental impact or extending the lifecycle of luxury as key motivators for consigning with us and a third of our buyers say they shop our website as a replacement for “fast fashion”, half of which is disposed of in less than a year.

At a time when one garbage truck’s worth of textiles is landfilled or burned every second, driving awareness of resale and sustainability is crucial.

That’s why we put sustainability in the spotlight:

in our marketing and advertising, throughout our shopping experience, and in conversation with both our community and the industry.

We are committed to extending the lifecycle of luxury goods by promoting their recirculation, rather than creating waste.

By creating a circular economy and reshaping consumer purchasing behavior, we contribute to a more sustainable world.

Our sustainability efforts include:

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In November 2019, we were the first company to take the pledge in the CEO Carbon Neutral Challenge issued by Gucci CEO, Marco Bizzarri.

The RealReal has pledged to be Carbon Neutral in 2021.

To become fully carbon neutral in 2021, The RealReal has engaged third-party experts to accurately measure The RealReal’s total GHG emissions, as part of the Challenge’s guiding principles.

Upon completion of measuring our total GHG emissions, we will chart a path to carbon neutrality by implementing reductions and annually offsetting emissions that can’t be eliminated.

National Consignment Day .

We founded National Consignment Day as a national recognition day that occurs on the first Monday of October.

National Consignment Day celebrates the positive impact consigning has on the environment.

Each year we create a National Consignment Day campaign as an opportunity to encourage people to consign.

We pledged to be carbon neutral in 2021, and we reached that goal in 2020 (Scope 1, Scope 2 and certain Scope 3 emissions (downstream transportation and distribution, employee travel, purchased goods and services (corrugate), and capital goods (paper))).

The RealReal engaged an independent third-party to measure The RealReal’s total greenhouse gas (GHG) emissions.

Our path to carbon neutrality included implementing reductions and annually offsetting emissions that cannot be eliminated.

• Sustainability Calculator.

In 2018, we launched our Sustainability Calculator on National Consignment Day as a tool to quantify the positive impact consignment has on the planet.

This calculator, vetted by sustainability experts, focused solely on women’s apparel, our largest product category, and measured the environmental savings of women’s clothing items consigned to The RealReal compared to buying new items.

In 2019, we expanded our calculator to include Men's clothing.

Since our inception in 2011 through December 31, 2020, consignment with The RealReal saved 17,023 metric tons of carbon and 827 million liters of water.

Sustainability Taskforce .

In 2020, we formed a cross functional Sustainability Taskforce to identify projects throughout the organization that have the potential to reduce our environmental impact.

The Taskforce prioritizes high impact projects, meets bi-weekly and is actively embedding a focus on sustainability across the organization.

Regular updates are provided to our executive steering committee.

Ellen MacArthur Foundation .

We are a member of the Ellen MacArthur Foundation Circular Economy 100 USA, which connects organizations that are rejecting the traditional linear economy in favor of a self-sustaining circular economy.

This network brings together a diverse set of stakeholders to encourage collaboration on issues related to sustainability.

The Ellen MacArthur Foundation advised us on the methodology used to create our proprietary Sustainability Calculator, which quantifies the greenhouse gasses, energy output and water usage offset by the most popular items consigned on our platform.

• Circular Resource Lab and ReCollection 02.

In 2021, we launched our 64-piece apparel collection, which reimagined the unwearable or damaged into unique and premium luxury items.

ReCollection 02, the first project from our new Circular ReSource Lab that works to create impactful solutions to the fashion waste crisis, gives new life to clothing that would otherwise likely end up in a landfill.

Circular ReSource Lab is a hub for us to test, learn and share to create impactful solutions to the fashion waste crisis.

• National Consignment Date.

We founded National Consignment Day as a national recognition day that occurs on the first Monday of October.

National Consignment Day celebrates the positive impact consigning has on the environment.

We expect to create a National Consignment Day campaign as an opportunity to encourage people to consign.

• Environmental Management System.

In 2020, we formed a cross-functional Environmental Management System (also known as our Sustainability Taskforce) to identify projects throughout the organization that have the potential to reduce our environmental impact.

The Sustainability Taskforce prioritizes high impact projects, meets bi-weekly and aims to embed a focus on sustainability across the organization.

Throughout 2021, we provided regular updates to our executive steering committee on progress toward achieving our goals and initiatives.

• United Nations Climate Change’s Fashion Industry Charter for Climate Action.

In April 2019, we became the first company in the resale industry to join the UN Climate Change’s Fashion Industry Charter for Climate Action, which aims to limit global warming within the fashion industry and inspire climate action.

In April 2019, we became the first company in the resale industry to join the United Nations Climate Change’s Fashion Industry Charter for Climate Action, which aims to limit global warming within the fashion industry and inspire climate action.

The charter endeavors to achieve a 50% reduction in carbon emissions in the fashion industry by 2030 and net zero emissions by 2050.

We are helping to create a clear path to achieve the actions outlined in the Charter by joining the Charter’s working group on promoting broader climate action.

We are currently developing a detailed plan to meet our target of reducing our total GHG emissions (Scope 1, Scope 2 and Scope 3) 50% by 2030, from our 2019 emissions baseline.

• Repair Program.

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Our employees are guided by our mission to empower consignors and buyers to extend the life cycle of luxury goods.

We have an incredibly diverse global community, and we aim to reflect that diversity within our team.

We are part of a diverse global community, and we aim to reflect that diversity within our team.

We believe diversity and inclusion foster a collaborative culture, which fuels our ability to innovate as we work to create a more sustainable future.

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None of our employees is represented by a labor union or covered by a collective bargaining agreement.

We consider our relations with our employees to be good.

We consider our relations with our employees to be positive.

Diversity and Inclusion

We work to inspire and empower our employees to think creatively and authentically, share their ideas, bring their whole selves to work, and strive for greatness every day.

We're proud to have a diverse team, and we recognize there's opportunity for us to continue improving representation, particularly among our senior leadership.

We support and celebrate all diversity, and are committed to providing an equal employment opportunity regardless of race, color, ancestry, religion, sex, national origin, sexual orientation, age, citizenship, martial status, disability, gender identity or expression, or Veteran status.

Below is a breakdown of how our team self-identifies as of December 31, 2020:

We are proud to have a diverse team, and we recognize there is opportunity for us to continue improving representation, particularly among our senior leadership.

We support and celebrate diversity, and are committed to providing an equal employment opportunity regardless of race, color, ancestry, religion, sex, national origin, sexual orientation, age, citizenship, marital status, disability, gender identity or expression, or Veteran status.

Below is a breakdown of how our team self-identifies as of December 31, 2021 (table does not reflect, of the total individuals surveyed, approximately 3% who chose not to self-identify, approximately 4% who self-identified as two or more races, and approximately 1% who self-identified as Native American):

All Corporate Management Executives Board

Black 18 % 15 % 8 % 0 % 22 %

Hispanic/Latinx 29 % 12 % 17 % 0 % 0 %

In 2020, our DEI journey focused on listening and learning.

We have since hired a head of Diversity, Equity and Inclusion, established and invested in Employee Resource Groups, and we are creating structures and policies that empower employees to form and participate in these critical communities.

We have delivered training on Managing Bias to nearly all managers of people, which we will continue to deliver to new managers.

We have also invested in a proactive tool that encourages employees to report bias, discrimination, and harassment, and provide feedback on culture, as well as in the retention and advancement of our BIPOC talent through differentiated leadership development programs.

We implement our diversity strategy by working to embed diversity values and goals across all strands of employee management including recruitment, talent development and promotion, and awareness and education.

We’re also implementing stronger systems to support and empower our team.

We’ve formed a Diversity Task Force, and we are establishing Employee Resource Groups, conducting listening sessions, holding unconscious bias training for all managers and engaging a diversity consultant.

This work helps us continue to evolve and be a better advocate and ally.

In addition, our Board believes that in order to fulfill its overall fiduciary responsibility to its stockholders and the Company, it must maintain a strategic composition that includes the experience, qualifications, skills, and diversity needed for each Board member to complement the others.

When searching for new directors, the Board actively seeks out women and individuals from minority groups to include in the pool from which Board nominees are chosen.

As of December 31, 2020, five of our nine board members were female, and two of our nine members represented a minority group.

Asian 8 % 19 % 13 % 14 % 0 %

White 36 % 45 % 55 % 79 % 78 %

Female 66 % 65 % 63 % 53 % 67 %

In 2021, we developed and launched our current DEI vision and strategy.

We aspire to be designers of an equitable future.

Creating a more sustainable future by growing the circular economy requires us to bring different perspectives together to solve problems in new, meaningful ways.

We believe that a culture of trust, safety and belonging is key to unlocking the power of differences, leading to creative problem solving and high performing teams in order to fuel our purpose and impact.

In order to deepen visibility into our workforce data, in 2021 we expanded employee self-reporting options to include gender identity, LGBTQ, veteran, and disability status.

In 2021, we continued to develop and grow our six Employee Resource Groups (ERGs) by developing clear missions, introducing a new leadership structure, and amplifying diverse voices across our company.

ERG membership grew to over 1,000 employees, or 20% of our workforce, since launching one year ago.

In partnership with the DEI team, ERGs led initiatives and programs focused on education, awareness, career development, and social connection.

We also enabled pronoun features across our technologies to enhance inclusion of trans and non-binary employees and normalize pronoun sharing.

We provide training on managing bias to managers of people and have invested in a DEI learning curriculum to empower employees at all levels with the knowledge and resources to practice inclusion.

We implemented a tool that encourages employees to report bias, discrimination and harassment, or behavior that does not reflect our values and policies, and provide feedback on culture.

In 2021, we formed several new recruiting partnerships to strengthen access to diverse talent communities, including the Black in Jewelry Coalition, Jopwell and the National Sales Network.

We participated in both the Black in Fashion Council and Racial Equality Project benchmarking surveys to uncover opportunities to advance equity.

We implemented a diverse slate requirement for all roles Director and above requiring at least one underrepresented candidate to be interviewed before filling a role, which has been 100% met to date.

This summer, we hosted our first internship class as part of our work to build a diverse talent pipeline, 67% of whom identified as women, and 67% as Black, Indigenous, and people of color ("BIPOC").

We are also investing in the growth and retention of our diverse talent through differentiated leadership development, including by launching a six month coaching and development pilot for 100 BIPOC women.

In addition, when searching for new directors, the Board actively seeks out women and individuals from minority groups to include in the pool from which Board nominees are chosen.

Talent Development and Training

We believe that the training and development of our employees is critical to our long-term success.

We offer a variety of employee training programs, including onboarding, technical skills training, product and services training, and managerial soft skills training.

We offer a variety of employee training programs in addition to the DEI programs discussed above, including onboarding, technical skills training, product and services training, and managerial soft skills training.

These programs include training specific to each of our business functions, enabling us to provide our consignors and buyers with a consistent luxury experience.

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Our authentication team receives training depending on one of five levels.

Entry level authenticators receive a minimum of 40 hours of training, while our expert authenticators receive a minimum of ten months training.

In 2020, we also delivered a Manager Development Series to all people managers across the organization and offered a Leadership Development Program to our people managers at the director and above levels .

As a valued member of our team, each employee receives training appropriate to the scope and nature of their role.

Our employees receive an annual performance review and our people managers have quarterly meetings with their employees to address performance and development.

Entry level authenticators receive approximately 40 hours of training, and our expert authenticators receive additional and ongoing trainings to stay informed on the latest developments in brand authenticity.

In 2021, we also delivered a Manager Development Series that was open to all people managers across the organization, and we offered a Leadership Development Program for selected people managers at the director and above levels.

Each employee receives training appropriate to the scope and nature of their role.

Our FLSA exempt employees receive an annual performance review and our people managers have quarterly meetings with their employees to address performance and development, as appropriate.

As a part of our onboarding program, we have developed an engagement monitoring plan for our employees in the form of personal check-ins and questionnaires.

This past summer we launched our first employee engagement survey.

All of our employees were offered an opportunity to participate, of which 75% submitted a response.

The survey consisted of 50 questions on which employees were asked to indicate their level of agreement with a statement based on a five-point scale from Strongly Agree to Strongly Disagree and five free-text questions to which employees were asked to write a response.

The responses returned an overall favorable engagement score of 66%, 23% neutral and 11% unfavorable.

Our senior leaders built department-level action plans in 2020 that focus on employee engagement.

Health, Safety and Wellness

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We believe we have been able to preserve our business continuity without sacrificing our commitment to keeping our employees safe during the COVID-19 pandemic.

Most importantly, we recognize the importance of supporting our employee’s overall well-being.

To that end, we invested in new company-paid benefit programs in 2020 including, parent programs to support both birth and non-birth parents.

Before the COVID-19 pandemic, we had observed trends in seasonality of supply and demand in our business.

Importantly, we recognize the importance of supporting our employee’s overall well-being and invested in programs that support mental and emotional health.

Historically, we have observed trends in seasonality of supply and demand in our business.

Specifically, our supply increases in the third and fourth quarters, and our demand increases in the fourth quarter.

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We also incur higher operating expenses in the last four months of the year as we increase advertising spend to attract consignors and buyers and increase headcount in sales and operations to handle the higher volumes.

However, the adverse impacts of COVID-19 on our business has made it difficult to evaluate the impact of seasonality in our business.

While we expect supply will continue to be negatively impacted by COVID-19, we believe its growth will accelerate in 2021.

Additionally, we expect higher advertising spend and demand increases in the fourth quarter.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business