Recommerce Industry and its Risks

By Preksha Manchanda and Jayita Gulati

PGDRM July’21-22

What is a Re-Commerce Industry?

Image Source: Medium

The selling of previously owned, new or used products, mainly electronic devices or media such as books, through physical or online distribution channels to buyers who repair, if necessary, then reuse, recycle or resell them.”

Online and retail businesses liquidating excess inventory at a discount using alternative distribution channels and Consumer-to-consumer reselling of products, or Re-Commerce isn’t a new concept. According to ThredUp’s 2020 Fashion Resale Market Analysis, C2C Re-Commerce, and B2B ReCommerce are expected to hit $64 billion dollars by 2024, vs $28B a few years ago.

Why is it growing?

1. 1. Millennials’ adoption of the sharing economy: Younger consumers who are now entering prime earning potentials have proven to favor the concept of sharing over owning. Immensely successful companies such as Uber and Airbnb are only a few that comes to mind to illustrate how the sharing economy is here to stay.

1. 1. Consumer’s desire to access used goods at a discount: Bargain shoppers have the ability to easily shop overstock, out of seasons, or gently used products from trusted online stores without leaving their houses thereby having a FOMO Behavior.

1. 1. Powerful digital marketplaces (eBay, Craigslist, ThredUp, etc.): The proliferation of reliable, easy-to-use digital marketplaces that make it easy for consumers to market and sell used goods are plentiful today. They range from offering a large variety of content (eBay and Craigslist) to curated content targeted to nice segments ( RentTheRunway, TheRealReal).

1. The environmental consciousness of consumers and brands alike: Being able to resale used goods instead of throwing them away creates an environment where consumers can easily find an ethical outlet for the product and receive fair compensation. More concern towards sustainability and conscious consumption.

Why retailors are swearing on it?

Frugal millennial and Generation Z shoppers are driving the recommence market with a desire for high-quality designer items at a reasonable price, with a focus on sustainability.

Image Source: Medium

Image Source: Diib

Common Risks in Re-Commerce Industry

1. Identity theft of customers
2. Low search engine ranks or website traffic interruptions
3. Intellectual property violations
4. Weak authentication and transactions being prone to cyber attacks
5. Bad customer service/Poor customer experience
6. Customer disputes and chargebacks
7. Platform downtime
8. Non-compliance with government rules and regulations
9. Warehousing and Logistics

“Somebody’s waste can be a resource for someone else,” says Nakul Kumar, Co-founder of Cashify.

What does Cashify do?

✓ Cashify (Manak Waste Management Private Limited) is a re-commerce company that buys obsolete and undesired products, refurbishes them, and reintroduces them into the market.

✓ The marketplace is Cashify’s core business– which connects customers selling old devices with our partners who are looking to buy second-hand devices. It operates in both online and physical stores and kiosks.

✓ Main Focus –Product Lifetime Extension

✓ It has a set standard for pricing and has designed software to determine product prices based on set metrics like age, wear and tear and market demand.

Cashify-Future Plans

Image Source: timesnext

The company is aiming toward recycling mobiles. The project of recycling mobiles has already started. The goal was to allow the phone users to responsibly dispose of the old phone devices. Smartphones are the most used word in today’s world. The company paid a lot of attention to the e-waste problem. And it’s still doing so with every new mobile phone sold and shipped. Collaborated with Producer Responsibility Organisation (PRO) Karo Sambhav Private Limited. This is to ensure that the Extended Producer Responsibility compliances are met.

Risks faced by the company

❖ Lower sales as users might drop off at any stage before converting leading to minimal conversions, loss of buybacks, and funnel dropouts.

❖ Lack of proper assessment of the device can lead to incorrect calculation of the refurbishment charges.

❖ Improper valuation of the device at the time of pickup can lead to excess payments being made to customers leading to financial loss for the company.

❖ Final pricing may not be according to the market standards eventually losing out on customers.

❖ Lack of non-verification of device’s IMEI numbers can lead to stolen devices being sold to Cashify.

❖ Inaccurate testing and quality checks/inspection before reselling may lead to dissatisfied customers and disputes with the company.

❖ Lack of robust e-waste policies leads to the disposal of the same haphazardly into the natural environment.

❖ Delayed pickups either through own logistics team or third party logistics may lead to loss of customers/sales

❖ Lack of diversified products or hardware at the site may lead to a loss of opportunities for the company.

❖ Competition risks with companies like amazon as customers would prefer buying from them due to brand loyalty.

❖ The customers can also sell stolen phones can lead to reputational loss to the company if left unrecognized.

What does ThreadUpdo?

Image Source: PYMNTS

• ThredUp is an online sustainable fashion company founded by James Reinhart in 2009. Reinhart got the idea for ThredUp after realizing he had a closet full of clothes he did not want to wear and could not sell. The company has two methods: direct sales and consignment.

• Both companies have a related market focus, albeit different approaches to selling used goods. Poshmark allows users to sell clothing items through its app. ThredUp, in contrast, acquires goods from users and sells them itself.

• A most innovative feature of ThredUPis its recent “Resale-As-A-Service” (RaaS) platform that allows brands and retailers to plug into the marketplace through a loyalty program, online collaboration, and in-store pop-ups. Through the loyalty program UPCycle, sellers receive payment in the form of a credit to spend with a brand partner (such as Reformation, a sustainable clothing brand and amour vert) creating value for the brand partner in the form of customer acquisition and retention and drives brand loyalty. It creates incremental value for sellers when the brand partner offers a bonus (an additional 15%-20% on top of what ThredUP pays).

ThreadUp Revenue Generation

• ThredUp makes money by charging a commission on every piece of clothing sold on its platform. The exact commission depends on the listing price, which the company determines by analyzing the brand, size, seasonality, quality, and age of the item.

• ThredUp also charges customers a fee if they want to have their old clothing items processed by the company within a week.

• Commission rates are based on the listing price and are set by a team of company pricing specialists. Pricing is based on seasonality, item age, quality, style, and existing inventory levels in the same size or brand.

• In general, ThredUp collects a higher commission on lower-priced items than it does on more premium items.

• Customers can order Clean Out Bags from ThredUp when they want to sell or donate unloved clothing items.

• A standard Clean Out Bag is free, but the company does charge $16 for consumers who want the bag of clothes they send back to be processed within a week.

About CARS24

➢ Cars24 belongs to the automotive e-commerce sector, incorporated on 12 August 2015

➢ The registered office of the company is in Gurugram.

➢ Have a presence in more than 161 branches across 134+ major cities in India.

➢ In 2021, the company expanded operations internationally in several countries, including the United Arab Emirates and Australia.

➢ Cars24 platform facilitates the transaction and has an offline presence.

➢ Apart from selling used cars, the company’s services include resale paperwork and providing loans against cars.

➢ Generated revenue of $371 billion in FY21.

Business Model of CARS24

CARS24 is primarily a business for the resale of used cars with a view to organizing the vastly unorganized used car industry in India. The platform’s business model is based on the criteria of purchasing a car from its owner at the most suitable price and competent price in comparison with the other alternate services for car resale around the neighborhood.

Customer to Business

• Purchases cars from users and in turn sell them to the dealers.
• Cars24 facilitates end-to-end transactions, charging a commission for every deal.

Customer to Customer

• For purchasing a car, the user has to choose the car of their choice from the platform’s website or offline branch in order to assess the car and test it.
• The car is then delivered to the buyer following the payment in less than an hour.

Product Solution Fit

Following is how CARS24 made the journey easy, quick, and effective and created value for their customers:

Image Source: Teja Kancherla

Value Proposition to Customer

Risks faced by Cars24

Seasonal business: Does not have substantial profit and is often idle during non-season.

Competition risk: Pre-owned car market is an attractive market. So many people now have noticed how potential this environment is. With the help of technology, new competitors can easily be involved in this field. Besides, expenses to change business are low.

Improper valuation: Improper valuation of cars may lead to incorrect pricing of cars leading to dissatisfaction among buyers and sellers leading to reputational loss.

Environmental policies: Strict standards for cars as per environmental policies may lead to huge investment in cars by car selling platforms if they want to have cars that can meet environmental requirements.

Bids getting canceled/cars being returned: Bids getting canceled or cars being returned leads to an increase in inventory of used cars thus leading to huge inventory costs.

Condition of Cars: The condition of an old car is not guaranteed which may hinder a customer from purchasing a used car.

Decline in demand for certain types of vehicles:

•Introduction of innovative technologies for new cars, such as autonomous driving systems.

•Manufacturer/dealers offering discounts or attractive financing, or lower prices for new cars.

Breach of technology platform:

•Hardware/software malfunctions, and third-party security breaches leading to interruption in operation.

•Unauthorized use or inappropriate access to networks leading to failure to protect data.

Fraudulent behavior by seller and purchaser:

•Vehicles offered through our platforms have been stolen.

•Stolen vehicles sold through the platform, may be subject to legal proceedings.

Failing to maintain or increase the base of customers and business, the results of operations, cash flows, and financial condition would be adversely affected.

•Used vehicles stored, maybe stolen, damaged, or destroyed before they can be sold.

•Vehicles stored or parked or owned may be used without authorization for illegal activities leading to negative publicity.

CARS24 Future plan

• Expand across India and give customers a hassle-free selling experience.
• Investing in technology to make it more robust as well as convenient and frictionless so that car owners can sell their car at a great price in less than an hour by driving down to the nearest CARS24 branch.
• Increase their network of partners to more than 20,000 by 2022.
• Launching operations in tier 2 and tier 3 cities.

Get the full research study here: Recommerce Industry by Preksha & Jayita

Disclaimer

This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.

GRMI or its students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

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