FARO, a fast-growing South African enterprise, has already raised $6 million to buy, repair and sell clothing

Global fashion brands they struggle with billions of dollars worth of unsold inventory. Basically, these brands avoid selling in major markets like the UK and the US to avoid cannibalizing the market. Meanwhile, developing markets such as Africa rely heavily on second-hand clothing imports, but 30% to 40% of these items are deemed unusable upon arrival in the country, causing environmental degradation due to discarded textiles.

The situation highlights a paradox: a surplus of new, unsold inventory in developed markets exists alongside the environmental damage caused by second-hand imports in emerging markets. But this dynamic also creates unique arbitrage opportunities for startups global resale market – also known as trade again – which is set to reach nearly $350 billion by 2027.

It is trying to take advantage of this opportunity FAROa South African startup that hit the scene last year and recently raised $6 million to realize its vision of making fashion affordable while tackling textile waste in Africa.

Selling excess inventory in emerging markets

How it works: African markets lack the economic capacity to support full-price retail stores for brands such as Calvin Klein, Tommy Hilfiger and Zara. However, the desire for authentic products on the continent continues. FARO ensures that surplus stock from these brands gets a second life in South Africa, where demand is high, both creating value for markets and reducing waste.

The rebranding startup, with high labor costs, the co-founder and CEO, is targeting consumer returns with small flaws that brands often throw away or burn. David Torr he tells TechCrunch. FARO collects these items and restores them using its facilities equipped with industrial laundries, steam tunnels and affordable labor. This approach avoids waste, while allowing the start-up to buy inventory at extremely low prices (sometimes less than £1 a piece) and resell it after further value-adding processes.

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

FARO currently has four stores with ambitious plans to reach 1,000 locations in the next decade. Its inventory includes approximately 40% refurbished returns and 60% excess stock products. FARO sources these clothing items through partnerships with key brands such as ASOS, Boohoo, G-Star, Jack & Jones and Levi’s, offering some at up to 70% off retail prices.

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

South Africa’s retail market, unlike the rest of Africa, is highly developed with over 2,000 malls, making it a prime location for off-the-shelf retail. This approach is important because off-price inventory – often returned by the consumer with unique, one-off items – is too expensive to digitize and list online.

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

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

“Some brands have over 15,000 people working at the head office level, just manipulating data in Excel,” he said. “If you look at what AI can do, you can build an AI agent for that, and that’s what we did. We started implementing our first acquisition models that could do this in seconds, not hours. And his accuracy will be infinitely better than the human doing it otherwise.’

According to Torr, the startup also plans to add personalized shopping tools. For example, customers interested in certain brands or products can be notified when similar products are about to arrive at one of its stores to enhance their shopping experience.

If it works, it could prove a meaningful differentiator. E-commerce in Africa continues to be hampered by logistical challenges and population density, making delivery models expensive. While the platforms like Takeaway and Jumia 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 and appealing to the continent’s price-sensitive consumers.

The road to a thousand stores

Instead of optimizing internal operations and partner supply chains, FARO is finding its niche by eschewing e-commerce altogether and targeting avid shoppers who value branded goods for their status and perceived quality, says Torr.

FARO started 2023 with an experimental pop-up store in South Africa, earning $100,000 in its first month. Initially, based on traditional retail sales figures, the company expected to need seven stores to reach $2 million in annual revenue.

Instead, FARO, which operates in downtowns, mid-market centers and formal retail locations, said last year it reached $2.3 million with just four stores and grew revenue 20 times. Now, the re-commerce startup aims to grow fivefold this year, according to CEO David Torr.

As for its plans to reach 1,000 stores, it depends on how effectively it builds localized price profiles to suit regional demand and specific brands that look to expand into other emerging markets. Consumer behavior and preferences are not universal and can vary significantly between regions. A strategy developed in South Africa may not resonate in Kenya or Nigeria.

Torr founded FARO with three other co-founders: Will McCareen, Chris That’s whyand Amber Penney-YoungBringing together expertise from Amazon, Jumia, UCOOK, Superbalist, Spice & Roots and Zumi.

Bloomberg President JP Zammitt led the investment. VC firms such as Presight Capital, Garage Ventures and individual investors including Mato Peric (MPGI), Leonard Stiegeler (Pulse), Oliver Merkel (Flink), Vikram Chopra (Cars24), Tushar Ahluwalia (Razor Group) and Daniel Funk, Managing Director Thiel Capital participated.