Image for post
Image for post

Recommerce: The New Old

Recommerce giants will redefine the multi-billion dollar used goods market

Christoph Braun
Mar 27, 2017 · 6 min read

Recommerce breaks up the traditional model of consumption (brands produce, and consumers buy, use and discard) and taps into a multi-billion-dollar market by institutionalizing second-hand, resale, vintage and thrifting businesses. Over the last three years, the online resale market for fashion in the US alone has grown 82 per cent and is expected to grow significantly each year through 2025, making it a $25 billion market. According to Deloitte, the used smartphone market grows five times faster than the overall smartphone market. Growth in the resale market is expected to outpace all e-commerce and retail sectors in the coming years.

Mobile marketplaces, online platforms, exchange schemes and novel brand buy-backs offer new opportunities for consumers to ‘trade in to trade up’, while addressing ethical and environmental concerns and alleviating financial burdens. The ownership of a product is not limited to the original buyer (from cradle to grave) anymore, but extends over its full lifecycle with different owners having the maximum benefit.

Taking the hassle out of selling used goods

The recommerce business is tough operationally but provides ample opportunity for growth. Recommerce companies like momox, rebuy, musicMagpie or ThredUp are at the forefront of this emerging market, providing online services for the buying and selling of used media products, electronics and fashion items.

While selling individual items on eBay is a tedious and time-consuming process, recommerce platforms allow customers to empty and sell many items from their attic or closet within minutes with maximum transaction certainty and security. For the customers, the sales process is straightforward: with their mobile phone they scan the barcode number of the book, CD, DVD and game, or describe the fashion item they want to sell, and receive an immediate purchase offer as well as payment once the items are accepted. Next, they send a parcel or have it picked up without delivery charges. This simplicity and ease of use has prompted private sellers to switch to recommerce platforms from eBay and other sites. On the receiving end, momox, rebuy, musicMagpie and ThredUp stock the items as inventory and resell them on their own platforms or via Amazon and eBay.

With this approach recommerce companies operate in a mass market segment. The concept works. momox achieved double-digit growth for the seventh consecutive year and is the fastest growing and most profitable recommerce player in Europe. The company operates platforms in Germany, France, the United Kingdom, and Austria, and employs more than 1,000 people.

Consumer mega trends driving the recommerce rise

We live in a time where having a certain product is less meaningful than having it at the right time for the right price. This behavioural change has given rise to product life-cycle extension strategies and the concept of the sharing economy in which people prefer accessibility to ownership. Some of the most successful business models in the world like Uber, Airbnb and DriveNow operate on this concept.

The recommerce phenomenon is driven by three consumer mega trends:

  • On to the next one: Many of today’s consumers strive to purchase the best and newest products. New product editions and features lure them into making new purchases on a frequent basis while leaving them with well-functioning but out-dated products.

Mobile is both enabling and driving recommerce. In some segments, already 68 per cent of all resale activity takes place on mobile devices. Technology attributes heavily to the growth of the sector. The mobile phone provides access to information and allows for immediate transactions.

The core economics of recommerce

The venture capital market for e-commerce companies has become more challenging. Dominating players like Amazon are one factor. Another one is the quest for asset-light models with minimum working capital requirements. The economics for recommerce players are attractive: Building on continuous automatic improvements, 120 million past purchases as well as 80 million past sales, momox has built a sophisticated proprietary pricing algorithm to drive volume and margin, while optimizing the working capital cycle. The platform creates a virtuous circle: increased selection — more buyers — more sellers — increased selection. This opens the opportunity for arbitrage on the platform, creating attractive financial returns.

Establishing strong operational processes is the biggest challenge for logistic-heavy recommerce businesses. Shipping and handling items is expensive; so is the quality assessment of received products. Margins are higher than traditional e-commerce with wholesale-based margins, yet lower-priced goods require high volumes of sales to make a profit. A heavy marketing spend is necessary to build a brand name that attracts both buyers and sellers. Consequently, every part of the business must run as efficiently as possible. At the same time, these tailored back-end systems and capabilities create high barriers to entry for new competitors.

Asset light platforms versus inventory players

Business models operating in the recommerce space are multifarious, reaching from marketplaces and online platforms to exchange schemes and brand buy-backs. Two different approaches must be distinguished:

On the one hand, there’s the marketplace that takes no inventory risk. eBay, Amazon or Shpock all fall into this category. The marketplace simply connects buyer and seller, receives a commission for enabling the contact and helps to facilitate the transaction, e.g. by providing payments as trust service.

On the other hand, there’s the platform that takes on inventory risk, as with companies like momox and reBuy. These platforms buy used goods, assess their quality and sell the product at a later point to an interested buyer, either through their own sites or third party marketplaces. This increases convenience for both buyer and seller.

What’s next for the industry?

Over the next decade growth in the resale market is expected to outpace all e-commerce and retail sectors. With mainstream players like Amazon and Apple getting into the selling of refurbished goods, the recommerce trend is only going to increase.

Recommerce models provide brands with the opportunity to tap into new consumer segments by offering their products at a more affordable price. Brands that suffer from counterfeit can use recommerce platforms to establish a trusted and safe second-hand market to maintain their brand value and to target a younger generation. Luxury retailers like Neiman Marcus have already embraced fashion recommerce platforms like The RealReal by offering gift cards in exchange for consignment on the site. Macy’s is distributing co-branded ThredUp bags at stores in the New York City market. When a customer returns one of these bags to ThredUp, instead of getting ThredUp credit, she receives a Macy’s gift card.

The reselling of physical products is just the beginning. Why shouldn’t apps, flight tickets and software licences be resold as well? There is still a myriad product categories that we have not yet seen being resold. Blockchain could potentially have some very interesting technological implications by playing the role of a trusted third-party and attributing ownership. All products deserve a second chance.

Dr. Christoph Braun is a Managing Partner at Acton Capital Partners, a leading European Venture Capital firm based in Munich, Germany. More: actoncapital.com

This article was part of Acton’s quarterly newsletter. Sign up here.

Acton Capital

GROWTH. DRIVEN BY REASON. Insights into our investment strategy and portfolio.

Christoph Braun

Written by

Co-founder & Managing Partner at Acton Capital Partners (www.actoncapital.com)

Acton Capital

Insights into our investment strategy and portfolio. Sign up here for our newsletter: http://eepurl.com/cpCH-5

Christoph Braun

Written by

Co-founder & Managing Partner at Acton Capital Partners (www.actoncapital.com)

Acton Capital

Insights into our investment strategy and portfolio. Sign up here for our newsletter: http://eepurl.com/cpCH-5

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store