Fast-growing South African venture FARO raises $6M to source, refurbish and sell surplus clothing

Global fashion brands struggle with excess inventory. For example, ASOS had over £1.2 billion of unsold products in 2022 Mostly, these brands avoid reselling in key markets like UK and US to prevent market cannibalization. Meanwhile, emerging markets such as Africa rely heavily on secondhand clothing imports, but 30% to 40% of these items are considered unusable upon arrival, causing environmental degradation due to discarded textiles.

The situation presents a paradox: a surplus of new, unsold inventory in developed markets coexists with environmental damage caused by secondhand imports in emerging markets. But that dynamic creates unique arbitrage opportunities for startups Global resale market Also known as – Re-trade – which is set to reach nearly $350 billion by 2027.

Attempts are being made to utilize that opportunity faroA South African upstart that came on the scene last year and recently raised $6 million to pursue its vision of making fashion affordable while tackling textile waste across Africa.

Selling excess inventory in emerging markets

Here’s how it works: African markets lack the economic capacity to support full-price retail stores for brands like Calvin Klein, Tommy Hilfiger and Zara. However, the desire for authentic products on the continent continues. FARO ensures that excess stock of these brands gets a second life in South Africa, where they are in high demand, creating value for both markets and reducing waste.

The re-commerce startup targets consumer returns with minor defects that brands often discard or burn due to high labor costs, co-founder and co-CEO David Tor told TechCrunch. FARO collects these items and restores them using its facilities equipped with industrial laundries, steam tunnels and cost-effective labor. This approach prevents waste while enabling startups to buy inventory at ultra-low prices—sometimes as low as £1 per piece—and resell it after a value-adding process.

Tor explains that the business operates on a fixed margin model that targets 45% after all costs, including swing tags and processing. He also said that instead of increasing profits when margins exceed targets, FARO invests in better value for its customers.

Currently, FARO has four stores with ambitious plans to reach 1,000 locations in the next decade. Its inventory consists of roughly 40% reconditioned returns and 60% overstock items. FARO sources these clothing items through partnerships with major brands such as ASOS, Boohoo, G-Star, Jack & Jones, and Levi’s, offering some at up to 70% off retail price.

“Our fundamental belief is if we can be the most exciting value driver for the customer, that’s how we can build loyalty and engagement, and how we can reach 1000 stores is to focus 100% on customer centricity,” said Tor.

South Africa’s retail market, unlike the rest of Africa, is highly developed, with over 2,000 shopping centres, making it a prime location for true value retail distribution. This approach is essential because off-price inventory—often including consumer returns with unique, single-item pieces—is too expensive to digitize and catalog online.

Even large off-price retailers like TJX operate primarily offline, relying on established supplier relationships and profitable legacy systems that provide little incentive for innovation. However, the inefficiencies of these systems are becoming increasingly apparent, as inventory management still relies on outdated, labor-intensive processes, with planners manually managing huge manifests in Excel.

Tor says FARO is developing AI-powered agents designed to break down this complex buyer workflow into manageable micro-tasks, thereby streamlining operations.

“Some brands employ more than 15,000 people at the head office level just manipulating Excel data,” he says. “If you look at what AI can do, you can create an AI agent for that, and that’s what we did. We’ve begun deploying our first purchase models that can do this — not in hours, but in seconds. And its accuracy will be infinitely better than that of man who would otherwise do it.”

According to Tor, the startup plans to add personalized shopping tools. For example, customers interested in a particular brand or item can be notified when similar products are about to arrive at one of its stores, enhancing the shopping experience.

It could prove a meaningful differentiator if it works. E-commerce is hampered in Africa by logistical challenges and population density, making delivery models expensive. When choosing a platform Takeaway And Jumia While they have held their own for years, the rise of ultra-cheap, trendy platforms like Temu threatens not only their dominance but also fast-fashion brands operating in South Africa that appeal to the continent’s price-sensitive consumers.

A street of a thousand shops

Instead of abandoning e-commerce entirely, FARO is finding its place by optimizing its internal operations and partner supply chains and targeting aspirational buyers who value branded products for their status and perceived quality, Tor said.

FARO kicked off 2023 with an experimental pop-up store in South Africa, generating $100,000 in its first month. Initially, the company is expected to need seven stores to hit $2 million in annual revenue, based on traditional retail benchmarks.

Instead, FARO, which operates in urban hubs, mid-market centers and formal retail spaces, says it reached that milestone – $2.3 million – with just four stores, achieving 20x revenue growth last year. Now, the recommerce startup aims to grow fivefold this year, according to CEO David Tor.

As for the plan to scale to 1,000 stores, it depends on how effectively it creates a local price profile tailored to regional needs and specific brands available with a view to expanding into other emerging markets. Consumer behavior and preferences are not universal and can vary significantly between regions. A strategy that thrives in South Africa may not resonate in Kenya or Nigeria.

Tor launched FARO with three other co-founders: Will McCarrin, Chris Makania and Amber Penny-Young, who collectively bring experience from Amazon, Youcook, LeLive, Jumia, Rocket Internet and Zumi.

Bloomberg President JP Zammit led its new pre-seed round. VC firms such as Presight Capital, Garage Ventures and private investors including Mato Perich (MPGI), Leonard Stiegler (Pulse), Oliver Markle (Flink), Vikram Chopra (Cars24), Tushar Ahluwalia (Razor Group), and managing director Daniel Funk Thiel Capital , participating in