Global fashion brands grapple with excess inventory. ASOS, for instance, had over £1.2 billion of unsold products in 2022.  Mostly, these brands avoid reselling in core markets like the UK and the U.S. to prevent market cannibalization. Meanwhile, emerging markets like Africa heavily rely on secondhand clothing imports, but 30% to 40% of these items are deemed unusable upon arrival, leading to environmental degradation due to discarded textiles. 

The situation highlights a paradox: a surplus of new, unsold inventory in developed markets coexists with ecological harm caused by secondhand imports in emerging markets. But that dynamic also creates unique arbitrage opportunities for startups in the global resale market – also known as recommerce – which is poised to reach about $350 billion by 2027.

Trying to seize on that opportunity is FARO, a South African upstart that came onto the scene last year and recently raised $6 million to pursue its vision of making fashion affordable while combating textile waste across Africa.

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 persists. FARO ensures excess stock from these brands gets a second life in South Africa, where they are in high demand, creating value for both markets and reducing waste.

The recommerce startup targets consumer returns with minor defects that brands often discard or incinerate due to high labor costs, co-founder and co-CEO David Torr tells TechCrunch. FARO collects these items and restores them using its facilities equipped with industrial laundries, steam tunnels, and affordable labor. This approach prevents waste while enabling the startup to buy inventory at ultra-low prices—sometimes as little as £1 per piece—and resell it after value-adding processes.

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

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

“Our fundamental belief is if we can be the most exciting driver of great value for the customer, that is how we create loyalty and stickiness, and how we just get to 1,000 stores is by being 100% focused on customer centricity,” says Torr.

South Africa’s retail market, unlike the rest of Africa, is highly developed, with over 2,000 shopping centers, making it a prime location for physical off-price retail distribution. This approach is essential since off-price inventory—often consumer returns with unique, single-item pieces—is too costly to digitize and list online.

Even massive off-price retailers like TJX operate primarily offline, relying on established supplier relationships and profitable legacy systems that leave little incentive to innovate. However, the inefficiencies in these systems are becoming increasingly apparent, as inventory management still relies on outdated, labor-intensive processes, with planners manually handling massive manifests in Excel.

Torr says that FARO is developing AI-powered agents designed to break down these complex buyer workflows into manageable micro-tasks, thereby streamlining operations.

“Some brands have over 15,000 people employed at a head office level who are just manipulating data on Excel,” he says. “If you look at what AI can do, you could build an AI agent for this, and that’s what we’ve done. We’ve started deploying our first buy models that could do this — not in a matter of hours, in a matter of seconds. And its accuracy will be infinitely better than the human being that would otherwise be doing that.”

According to Torr, the startup also plans to add personalized shopping tools. For instance, customers interested in specific brands or items could 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 continues to face hurdles in Africa due to logistical challenges and population density, making delivery models costly. While platforms like Takealot and Jumia have held their own for years, the rise of ultra-cheap, trendy platforms like Temu threatens not only their dominance but also that of fast-fashion brands operating in South Africa that appeal to the continent’s price-sensitive consumers.

By eschewing e-commerce entirely to instead optimize its in-house operations and partner supply chains, and by targeting aspirational buyers who value branded goods for their status and perceived quality, FARO is finding its place, Torr says.

FARO began 2023 with an experimental pop-up store in South Africa, generating $100,000 in its first month. Initially, the company 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 with just four stores and achieved a 20x revenue growth last year. Now, the recommerce startup aims to grow fivefold this year, according to CEO David Torr.

As for its plans to scale to 1,000 stores, these hinge on how it effectively it builds localized price profiles tailored to regional demand and the specific brands available as it eyes expansion 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.

Torr launched FARO with three other co-founders: Will McCareen, Chris Makanya, and Amber Penney-Young, who collectively bring experience from Amazon, UCook, Lelive, Jumia, Rocket Internet, and Zumi. 

JP Zammitt, president of Bloomberg, led its new pre-seed round. VC firms like Presight Capital, Garage Ventures and individual investors including Mato Perić (MPGI), Leonard Stiegeler (Pulse), Oliver Merkel (Flink), Vikram Chopra (Cars24), Tushar Ahluwalia (Razor Group), and Daniel Funk, the managing director of Thiel Capital, participated.