The Rise of Second-hand: Exploring the Opportunities of Re-commerce
The fashion resale market is booming. By 2029, it is forecasted to reach a value of $80 billion, doubling the size of fast fashion. As used clothing is taking over our wardrobes, we have decided to explore the phenomenon of resale from a business model perspective – and investigate how it can be applied to other industries.
Definition – What is a re-commerce business model?
Resale is the retail of used items. While a few years ago, second-hand items used to be traded mainly on flea markets and in thrift shops, today much of the trading has shifted to online platforms. The fashion industry has been pioneering resale models, but non-fashion businesses are catching on. For example, the furniture retailer IKEA has recently launched a take-back offering as well as a pilot second-hand pop-up store.
Consumer trends – Why do consumers buy (and sell) used products?
Buying second-hand products is no longer considered taboo – in fact, recent studies show that especially young people are proud to buy second-hand. This development is driven by a multitude of factors. Most of them are linked to two key drivers:
- It’s cheaper.
- It’s greener.
Second-hand items can often be purchased for a fraction of the retail price. This does not mean that all resale models sit in low price segments. Recent years have seen an unprecedented rise in luxury fashion resale. Brands like Burberry or Gucci are partnering with consignment services like the RealReal to collect and resell their pre-owned products. On platforms such as Vestiaire Collective, consumers can directly sell used luxury goods to their peers. Like buyers, private sellers, too, are often driven by financial motives – the opportunity of making a few extra bucks while cleaning out their closets.
Giving used items a second or third life is not just good for the consumers’ wallets. Extending a product’s life cycle also has environmental benefits, reducing the economy’s draw on natural resources and delaying the creation of waste. As consumers become more aware of how wasteful fast fashion is, they are increasingly looking for more sustainable alternatives. This trend is not just evident in the fashion industry but also applies to other product categories, such as consumer electronics or furniture.
“Resale is here to stay,” said James Reinhart, co-founder, and CEO of thredUp, a leading online marketplace of used clothing. “The next question is who wins and who loses.” To better understand how companies can implement resale business models, it is worth looking at our close neighbor France, where second-hand has boomed in the past year.
Push for Second-hand in France
On sale at your local supermarket: a Zara dress for 8 euros. In France, this is already a reality – the hypermarket chain Auchan, which is among the country’s largest food retailers, has recently started installing second-hand clothing departments in its stores. Supplied by the e-commerce platform Patatam from its 3,500 m2 warehouse in Hastingues, in the Landes region of France, the dresses, pants, and other second-hand clothes are already on sale in five Auchan hypermarkets. "By the spring of 2021, we’re expecting to deliver to more than 120 Auchan hypermarkets, “explains Eric Gagnaire, president and founder of Patatam. Other supermarkets, such as Super U, Carrefour, Leclerc, and Cora are soon to follow
When La Redoute, a French retailer of apparel and home textiles, learned that half of their customers sell or buy second-hand products, they were quick to launch La Reboucle. On the online platform, customers can buy and sell used goods, including second-hand products from other brands. Sellers can decide whether they want to be paid in cash or receive vouchers with a 25% discount. This way, La Redoute aims to capture the money that circulates on this new platform and get customers to spend it on their own website. As the fashion market has already become very competitive, La Redoute intends to distinguish itself by focusing on home decoration, hoping to attract new customers.
Second-hand and COVID-19 – What is the impact of the pandemic?
When the pandemic hit, some experts worried that consumers might withdraw from buying used items for hygienic reasons. However, the numbers indicate just the opposite. Vinted, an online platform for second-hand clothing with over 12.5 million users in France, has grown significantly during the containment measures adopted in France to combat the Covid-19 pandemic between March and May. Recent consumer studies explain why: globally, individuals found the time to clean out their wardrobes twice as often as before the pandemic. With customers continuing to declutter their homes and seek bargains online, web-based fashion resale is projected to grow by 69% in 2021 compared to 2019, while the broader retail sector is expected to shrink by 15%.
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Business opportunity – Why do companies engage in re-commerce business models?
In 2019, fashion resale grew 25 times faster than the broader fashion retail sector. Naturally, retailers want to be a part of this promising new market segment. But second-hand is not simply about the business potential of reselling used products. By building circular business models around second-hand offerings, businesses can create new value for their customers – and the planet.
These are some of the most important motivations for companies to engage in resale:
- Need to respond to shifting customer demands.
- Improved environmental performance.
- Opportunity to build stronger customer relationships.
- Incentive to produce better products.
- Pre-empting regulations.
Second-hand and sustainability
With planetary crises, such as climate change, pollution, and loss of biodiversity, rising to the top of consumers’ agendas, companies are expected to adapt their business models. Despite the increased emissions due to the logistics of circulating used products among new owners, resale models outperform traditional ‘take, make, waste’ models on most environmental metrics.
Strengthening consumer relationships
Responding to shifting consumer demands with more sustainable offerings can both attract new customers and improve customer loyalty. Resale business models can, for example, create a so-called lock-in pattern: in exchange for used products, some companies offer their customers vouchers that can only be used in-store. Thus, the customer gains new value from used assets and the sales loop stays closed within the retailer business ecosystem, generating new revenue streams for the reseller.
Resale and circular design
Lastly, resale models incentivize businesses to design more long-lasting products. Durable products are a necessary pre-condition for resale models. The longer a product’s lifecycle, the more often it can be resold to a new owner. This new goal has implications for product design: to last longer, clothes have to be made of durable garments, electronics should follow a modular design, which allows the reselling business to easily repair and replace components. Focusing on design for resale thus can foster innovation and lead to better product quality.
In France, new anti-waste regulations aim to encourage design for circularity with an Extended Producer Responsibility (EPR) scheme for clothing: companies producing or selling clothing in the country have to pay a fee covering the management and treatment of the end-of-life of their products. This fee increases significantly when low-quality, less durable garments are being used. The new anti-waste law is considered a prime example of a financial reward/penalty system and is expected to be expanded to other countries and sectors soon.
How can businesses implement resale business models?
Many of the traditional companies which started engaging in resale business models have launched pilots and spin-off solutions that keep the main business separate but allow the company to have lighthouse projects where they learn how to cope with such a different business model. Both H&M and Zalando have introduced independent platforms for selling quality-controlled pre-owned fashion – H&M’s Sellpy and Zalando’s Zirkle.
For more examples of businesses that successfully innovated their business models, please take a look at our Business Model Navigator. If you are interested in circular business models, you can order our Circular Economy Pattern Cards here.
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Richard Stechow
Food for thought
- Where else do you see these patterns popping up?
- What do you think these new business models will lead to?
- Are there opportunities for your company?
- Could your company take back used products and sell them second-hand?
- What would be the benefits of you doing so?
- Could you attract new customers?
- Could you increase customer loyalty?
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