Re-trade is a concept As old as commerce itself. Everyone knows thrift stores or has bought a used product before – it’s not a new concept. Today, however, it has become one of the hottest topics for consumers, brands, and investors alike, with $6 billion of VC funding injected into re-branding companies in 2021 and the market expected to reach $250 billion+ by 2027. This is five times faster growth than the general retail market.
Why the sudden return of trade?
This is largely due to the changing cultural and societal value placed on sustainability. We waste a lot of… everything. Within apparel and textiles alone, billions of dollars worth of products are destroyed, discarded, or stockpiled each year because brands are over-produced or the item goes unsold. Industry analysts estimate that the global fashion industry contributes up to 10% of all greenhouse gas emissions each year. We can do better.
To understand how, look to Generation Z’s deep focus on ethical consumption. Generation Z has nearly $150 billion in purchasing power in the United States and is expected to make up 40% of global consumers by early 2020. With Generation Z entering the workforce, they have begun to showcase their increased purchasing power through compatible brands. Value and sustainability oriented. This was demonstrated in a recent IBM survey where Gen Z indicated they were willing to pay nearly a 49% price premium for a basic white cotton shirt that was sustainably sourced and made.
Recommerce enters the boards of directors of large brands
Historically, brands have been poorly visible in the flea market. Without the ability to measure the impact on the bottom line, re-trade has not been at the forefront of board discussions. However, the proliferation of successful third-party resale marketplaces such as PoshMark, RealReal, and StockX has generated hundreds of millions in revenue and valuations in excess of a billion.
With greater clarity in the economics of reselling, along with a shift in consumer sentiment towards sustainability, re-merchandising is now a priority. Patagonia, one of the most progressive consumer companies of our time, has stated that it wants approximately 10% of revenue to come from resale in the coming years, which is more than $100 million (based on an estimated $1 billion in annual revenue). .
This makes sense if you think about what re-commerce offers brands: the ability to sell the same item multiple times with costs related only to re-purchase and product logistics. Because brands can control the price you pay for a good, it provides a compelling way to boost both top line growth and net income margin with little labor/production cost.
3 areas that attract venture capital investment
There are three primary areas of re-commerce that drive venture investors: (1) managed markets, (2) enabling tools and programs, and (3) the application of re-commerce to new consumer-facing industries. We’ll explore each below, along with some material to consider for founders building startups in this (re)startup space.
markets
There are two basic types of re-trade markets: (1) brands (eg, StockX) or (2) white label where the startup runs the operation for a brand (eg, Trove). Re-merchandising companies manage the majority (or all) of the reselling experience – from product handling and endorsement to merchandising and shipping. Platforms usually have a small SaaS fee, but most of the revenue is generated through a take rate on goods sold, ranging from 10% to 25%.
The type of market largely depends on the vertical. For example, brand-name markets are well positioned for consumer electronics due to the higher price and slower rate of innovation in new phone models – which creates less of a culture spirit around owning the latest phone. It also comes with a high level of diligence and a complex logistical process to ensure quality, which is less of an appeal to existing hardware makers who would rather invest in research, development and marketing for the next release. This is one of the reasons we’re seeing consumer electronics resale markets like Reebelo in the US and Singapore (an investment our company has made) and Back Market ($5 billion+) take off.
It’s a different story in fashion. White-label resale marketplaces give brands control over their used supply, adding unique inventory that attracts new customers and purchases. There is a strong psychological component as well with C2C markets that have long suffered from the need to commoditize trust (while established brands benefit from an implicit degree of consumer trust).
How to proceed: