"Retrade" is a concept as old as trade itself. Everyone knows thrift stores or has bought a used product before; it is not a new concept. However, today it has become one of the hottest topics for consumers, brands and investors alike with a record approximately $6 billion from venture capital funding in recommerce companies in 2021 and the market projected to reach $250 billion by 2027. That's 5 times faster growth than the general retail market.
Why the sudden revival of trade
This is due in large part to the changing cultural and social value placed on sustainability. We waste a lot…everything. In apparel and textiles alone, billions worth of products are destroyed, thrown away, or stored each year because brands overproduced or the item didn't sell. Industry analysts estimate that the the global fashion industry contributes up to 10% of all greenhouse gas emissions each year.. We can do better.
To understand how, look at Gen Z's deep generational emphasis on ethical consumption. Gen Z has approximately $150 billion in purchasing power in the US, forecast for the 40% of global consumers in the early 2020s. As Generation Z enters the labor force, begin to flex their growing purchasing power with sustainability-oriented, value-aligned brands. This becomes clear in a recent IBM survey where Gen Z indicated their willingness to pay a price premium of approximately 49% for a basic white cotton T-shirt that was sustainably sourced and manufactured.
Recommerce enters the boardrooms of the big brands
Historically, brands had little visibility in the second-hand market to their products. Without being able to measure the impact on bottom line, new business was never at the forefront of boardroom discussions. However, the proliferation of successful third-party resale marketplaces such as PoshMark, The RealReal, and StockX has generated hundreds of millions in revenue and more than billion reviews.
With increased visibility of the reselling economy, coupled with consumer sentiment shifting towards sustainability, recommerce has now become a priority. One of the most progressive consumer companies of our time, Patagonia, has publicly stated that it wants 10% of the income will come from resale in the next few yearsrepresenting >$100 million (based on a estimated annual revenue >$1 billion).
This makes sense when you think about what recommerce offers brands: the ability to sell the same item multiple times with costs only related to repurchase and product logistics. Since brands can control the price they pay for a good, it provides a compelling avenue to drive both top-line growth and bottom-line margin with low labor/production cost.
3 Areas That Attract Venture Capital Investment
There are three main areas of recommerce that VCs activate: (1) managed marketplaces, (2) enabling tools and software, and (3) application of recommerce to new consumer-facing industries. We'll explore each below, along with some food for thought for founders building startups in this (re)emerging space.
Markets
There are two main forms of retrade marketplaces: (1) branded (eg, Stockx) or (2) white label where a startup manages the process of a brand (eg, Thunder). Re-commerce companies manage most (or all) of the reselling experience, from product intake and authentication to merchandising and shipping. Platforms typically have a small SaaS fee, but most revenue is generated through an acceptance fee for goods sold, which ranges from 10-25%.
The type of market largely depends on the vertical. For example, brand markets are well positioned for consumer electronics given the high price and slowing innovation in new phone models, creating less of a cultural ethos around owning the latest phone. It also comes with a high level of due diligence and a complex logistical process for quality assurance, which is less attractive to existing device manufacturers who prefer to invest in R&D and marketing for the next version. This is one of the reasons why we are seeing markets for E-commerce consumer markets like the US and Singapore. Reebel and Back Market (valued at over $5 billion) take off.
It's a different story in fashion. Private label re-trade marketplaces give brands control of their pre-owned supply, adding unique inventory that attracts new customers and purchases. There is also a strong psychological element, as C2C markets have long suffered from the need to commoditize trust (while established brands benefit from an implicit degree of consumer trust).
How to proceed:
Relentlessly focus on supply-side acquisition. Shoppers gravitate towards platforms with enough inventory to make it worth browsing. This is essential to building repeat customers and shifting the heuristic towards the brands re-commerce site as the first stop for second hand products. One critical nuance: Play the long game when repurchasing products: Insulting customers with low offers can negatively affect brand perception. Focus on getting customers in the door to increase the supply. As direct-to-brand reselling becomes the default, gradually reduce repurchase prices and increase resale margins over time.
Enabling tools and software
New emerging companies they are addressing various parts of the e-commerce value chain. The most promising areas include inventory sourcing, pre-owned product discovery, and product authentication.
The recommerce discovery process can be challenging as inventory is often scattered across multiple sites. Additionally, many third-party platforms suffer from mislabeled items and insufficient product information (eg brand, size, color, measurements). While brand-sponsored platforms should improve some issues, it's exciting to see companies like Disco and Beni offer extensions based in browser that show buyers all the second-hand versions of a product available in all the places and markets. Other startups, like Flyp, offer shipping matchmaking, matching secondhand products with energy resellers and coordinating internal logistics.
Product authentication is another essential area, but today it is a hurdle. In-person verification is both critical to commodifying trust and an existential threat to re-commerce. Marketplaces like GOAT take advantage of authentication teams to verify products, requiring sellers to first ship to GOAT before the buyer, adding logistical complexity, delivery time, and cost to a purchase and eroding gross margins for retailers. sales. While marketplaces like Trove take advantage of physical stores from brand partners as collection/authentication points, this minimizes costs but still adds unwanted complexity.
How to proceed:
Those who find ways to optimize product authentication will have a competitive advantage real. We will likely see white-label marketplaces begin to connect directly with the brand's OMS to extract and match product data to individual customers for verification, allowing products to be shipped to customers without the need for authentication in person. Leveraging machine vision to identify products based on user images will also become more common (although there is still a lot of work to be done). For now, frictionless product authentication with an effective marginal cost of $0 remains a white whale.
Trade in new industries
Clothes, shoes and products consumer electronics have dominated the trade retail (and most finance), but we're starting to see early signs of how it can be applied outside of these core verticals.
FloorFound is a great example, focusing on the furniture trade. What about returns from D2C brands like Casper or Burrow that offer a 100 day return policy? It's an expensive exercise for the brand in charge of collecting and (probably) destroying the item. Like a better alternative for the brand (and the environment), FloorFound picks up the returned item, inspects it, and resells it in each brand's FloorFound-sponsored marketplace. This can become a powerful channel to make products more accessible based on the costs and reduce the risk of trying a new brand (a critical factor in D2C).
Another case for re-commerce in non-core sectors is Queen of Raw, an E2E supply chain that tracks SaaS products for textiles and fabrics and a resale marketplace for the brand's dead-stock fabrics and textiles (instead of stockpiling or burning them). ). The beauty of an end-market approach, such as raw materials and textiles, is its applicability to numerous industries, from recycling cans and bottles at a sporting event to repurposing leftover leather from a car manufacturer.
How to proceed:
You have to let your imagination run wild! Everyone scoffed at the idea of brand-sponsored recommerce about 10 years ago, but now it's a hot and growing market. If you can offer a smooth shopping experience, clear quality communication, and an attractive price, then there may be real business.
While recommerce is not a new concept, it has only recently become a priority for brands. Thanks to new emerging and innovative companies, in the form of marketplaces, enablement tools or new industry applications, is becoming the new norm as we change to a more sustainability-oriented culture.
