Global fashion brands are struggling with billions of dollars worth of unsold inventory. In most cases, these brands avoid reselling in core markets such as the UK and US to prevent market cannibalization. At the same time, emerging markets such as Africa rely heavily on second-hand clothing imports, but 30% to 40% of these items are considered unusable upon arrival, resulting in discarded textiles leading to environmental degradation.
The situation highlights a paradox: a glut of new unsold inventory in developed markets coexists with the ecological harm caused by second-hand imports in emerging markets. But this dynamic also creates unique arbitrage opportunities for startups in the global resale market, also known as re-commerce, which is expected to reach approximately $350 billion by 2027.
Attempting to seize this opportunity is South African upstart FARO, which came to prominence last year and recently raised $6 million to pursue its vision of making fashion accessible while eliminating textile waste across Africa.
Here's how it works: African markets lack the financial capacity to support full-price retail stores for brands like Calvin Klein, Tommy Hilfiger and Zara. However, the continent’s thirst for authentic products remains. FARO ensures that excess inventory from these brands is given a second life in South Africa, where demand is high, creating value and reducing waste for both markets.
Co-founder and co-CEO David Torr told TechCrunch that the re-commerce startup targets consumer returns, but brands often discard or incinerate these small defects due to high labor costs. FARO collects these items and restores them using its facilities with industrial laundry rooms, steam tunnels and affordable labor. This approach prevents waste while enabling startups to purchase inventory at ultra-low prices (sometimes as low as £1 per unit) and resell it after a value-added process.
Toll explained that the business operates on a fixed profit model, targeting 45% after all costs, including tagging and processing. He also said FARO would not overstate profits when margins exceed targets, but instead invest in better pricing for customers.
FARO currently has four stores and has ambitious plans to expand to 1,000 stores over the next decade. Its inventory consists of approximately 40% refurbished returns and 60% overstock. FARO sources these garments through partnerships with major brands such as ASOS, Boohoo, G-Star, Jack & Jones and Levi's, with some items discounted up to 70% off the retail price.
“Our fundamental belief is that if we can be the most exciting driver of great value for our customers, that’s how we create loyalty and stickiness, and how we get 1,000 by focusing 100% on customer centricity store," Torr said.
Unlike the rest of Africa, South Africa's retail market is highly developed with more than 2,000 shopping malls, making it a prime location for physical discount retail distribution. This approach is critical because discount inventory, which consumers often return with unique items, is too costly to digitize and list online.
Even large discount retailers like TJX operate primarily offline, relying on established supplier relationships and profitable legacy systems that offer little incentive to innovate. However, the inefficiencies of these systems are becoming increasingly apparent, as inventory management still relies on outdated, labor-intensive processes, with planners manually processing large lists in Excel.
FARO is developing AI-driven agents designed to simplify operations by breaking down these complex buyer workflows into manageable microtasks, Torr said.
"Some brands employ over 15,000 people at the headquarters level and they're just manipulating data on Excel," he said. "If you look at what AI can do, you can build an AI agent for it, and that's what we've done. We've started deploying the first buying model that can do that - not in a matter of hours," But within seconds and its accuracy will be much better than humans."
The startup also plans to add personalized shopping tools, according to Toll. For example, customers interested in a specific brand or item can be notified when similar products are about to arrive in one of its stores, thus enhancing the shopping experience.
If it works, it could become a meaningful differentiator. E-commerce continues to face obstacles in Africa due to logistical challenges and population density, resulting in costly delivery models. While platforms such as Takealot and Jumia have maintained their position over the years, the rise of ultra-cheap, trendy platforms such as Temu threatens not only their dominance but also that of fast fashion brands operating in South Africa, which attract reaching the continent’s price-sensitive consumers.
Toll said FARO is finding its niche by eschewing e-commerce entirely, optimizing its internal operations and partner supply chain, and targeting aspirational buyers who value the status and perceived quality of branded merchandise.
In 2023, FARO opened an experimental pop-up store in South Africa, generating $100,000 in revenue in the first month. Initially, the company projected it would need seven stores to achieve $2 million in annual revenue based on traditional retail benchmarks.
In contrast, FARO, which operates in city centers, mid-market centers and formal retail spaces, said it reached the milestone of $2.3 million with just four stores, achieving a 20-fold revenue growth last year. CEO David Torr said the e-commerce startup aims to grow fivefold this year.
As for its plans to expand to 1,000 stores, that depends on how effectively it builds localized price configurations that suit regional needs and the specific brands available as it looks to expand into other emerging markets. Consumer behavior and preferences are not universal and can vary significantly between regions. Strategies that thrive in South Africa may not resonate in Kenya or Nigeria.
Torr co-founded FARO with three other co-founders Will McCarren, Chris Makanya and Amber Penney-Young, who together bring experience from Amazon, Jumia, UCOOK, Superbalist, Spice & Roots and Zumi.
Bloomberg President JP Zammitt led the investment. Presight Capital, Garage Ventures and other venture capital firms and individual investors include Mato Perić (MPGI), Leonard Stiegeler (Pulse), Oliver Merkel (Flink), Vikram Chopra (Cars24), Tushar Ahluwalia (Razor Group) and Managing Director Daniel Funk Thiel Capital participates.