Five Reasons Re-Commerce is Good for Business
A common concern of brands who are considering re-commerce is that doing so will hurt new product sales. This is understandable given that nearly all businesses use new sales as the metric to measure the health of their businesses. The basic argument is that consumers have a limited amount of money to spend, and that if they spend more of that money buying secondhand products, then they will have less to spend on new products. Therefore, providing consumers with the option to purchase secondhand is harmful to the business.
At first blush, the conclusion seems logical. However, when we consider recent survey data of shopper preferences and consumption habits, we find five reasons that not only disprove this conclusion, but in fact, support the opposite conclusion.
Shoppers prefer to buy from sustainable brands
Shoppers care about sustainability, and they are proving it by actively seeking out sustainable brands. A 2019 study by First Insight found that 62% of Gen Z and Millennial shoppers prefer to buy from sustainable brands. This study also found that 72% of Gen Z and 70% of Millennial shoppers make purchase decision based on values that are personal, social, and environmental. These studies indicate that a shift to doing business more sustainably, including by offering re-commerce as an option to extend the life of an item, is key to attracting shoppers from these generations (whose combined spending power is $165 billion, by the way).1
Shoppers are willing to pay more for sustainable products
In addition to preferring to buy from sustainable brands, shoppers are also willing to pay more for sustainable products. A 2021 study conducted by Simon-Kucher & Partners found that 34% of shoppers are willing to pay more for sustainable products or services, and those willing to pay more would accept a 25% premium on average. Similarly, a First Insight survey of Gen Z and Millennial shoppers found that 73% of Gen Z and 68% of Millennial shoppers are willing to pay more for sustainable products, with more than half willing to pay 10% or more. The conclusion to be drawn from this data is that transitioning to manufacturing sustainable products allows for significant price increases of new products. And since shoppers use the lifespan or durability of a product as a proxy for sustainability of consumer goods, according to the Simon-Kucher study, it stands to reason that offering re-commerce signals the durability of the product.
Sellers want to spend resale proceeds with the brands
The concern that new sales will be cannibalized by secondhand sales also seems to be refuted by recent survey data. A 2021 study conducted by First Insight examined shopping habits in the resale market. That study found broad adoption of resale among shoppers — 84% bought secondhand. Among sellers specifically, it found that 45% prefer to redeem sales proceeds in the form of brand credits or loyalty rewards. In other words, nearly half of sellers prefer to spend the money that they earn through resale to purchase new products from the brand that offered the resale marketplace. On top of spending their proceeds to buy new products from the brand, on average, they will overspend the value of their credit by $59.2 The only conclusion to be drawn from this data is that offering re-commerce does not cannibalize new sales, and in all likelihood it encourages new product sales.
Diversify revenue streams
When a brand focuses solely on a linear production model, any disruption to that model can have a devastating effect on its business. We are living through two such disruptions — pandemic-driven supply chain constraints, and changes in consumption preferences to favor sustainability. While the former will ease eventually, the latter appears to be permanent according to the First Insight surveys. Brands must therefore diversify their revenue sources to replace the losses that result from these disruptions.
Re-commerce is an excellent option for brands looking to diversify. Brands will generate revenue from every transaction that occurs in their re-commerce marketplaces and they will benefit from the use of resale proceeds to purchase new products as we discussed above. Urban Outfitters, which offers rental and resale through its Nuuly program, provides an excellent case study in support of this conclusion. Urban Outfitters reported net sales for Nuuly of approximately $50M for the fiscal year ending on January 31, 2022.3 While this figure currently represents about 1.1% of the company’s overall, it is one that is growing and the only business line that grew during the pandemic.
It is also worth noting that re-commerce marketplaces offer an alternative channel through which to sell returns, overstock, or discontinued items. Selling through these marketplaces — even at a discount — will surely fetch a higher return than selling the items in bulk to liquidators, or worse, discarding the items or incinerating them.
Employees are searching for companies that share their personal values
Another important consideration for all business, but one that might not get the same level of attention as sales is attracting talent. All companies are constantly fighting for top talent, and that battle has dramatically intensified as a result of the pandemic and the Great Resignation. Tomorrow’s employee is very different from today’s employee. As Millennials and Gen Z mature into the largest segment of the workforce, employers have to consider how to attract the best talent from these groups.
It turns out, these employees want to work for companies that share their personal values. A survey of Gen Zs conducted by Deloitte found that 49% make career choices based on their personal ethics. Combine this data with the studies we reviewed earlier that highlighted the importance of sustainability and protecting the environment is to these generations, companies that align their businesses with these values will attract better talent.
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