Re-commerce: The age of the circular economy

By Alex Stickelberger | VP BORN

We are all familiar with the linear economy: Natural resources are turned into products, which are sold, consumed, and then thrown away without regard to reuse or recycling. However, the linear economy is clearly less and less viable in today’s world when waste and the other byproducts of production and consumption pose an existential threat to our world.

Today’s enterprises focus more on sustainability in the broad sense, and one way to pursue sustainability is by embracing the circular economy. Instead of the take, make, waste dynamic of the linear economy, the circular economy encourages recycling, reuse, and repurposing in an effort to minimize waste through the entire value chain of a product. In a circular economy, all stakeholders benefit: companies and consumers as well as society as a whole through the obvious benefit of greater sustainability.

The term “circular economy” may not yet have the widespread currency of “sustainability,” but examples are all around us. More and more companies support re-commerce, a new-ish term for the age-old practice of buying and selling used products. Online platforms have amplified and magnified this business tremendously for every imaginable good (think Poshmark for clothes and Amazon and eBay for virtually every category).

Another example of the circular economy is the growing trend of “product as a service.” Aircraft engines, to cite just one example, are often sold as a service: Instead of buying a jet engine outright, an airline can essentially rent one on a per-hour basis. With this model, manufacturers take on the responsibility for product maintenance and recycling, and sometimes even outcomes; users of the service save in terms of capital expense and ongoing maintenance. Product as a service is becoming more common with the renewed interest in the circular economy, but it also has old roots. For decades, printers and copiers have been leased and contracted on a usage model instead of being purchased outright.

Contemporary enterprises engaged in the circular economy rely heavily on digital platforms. This is obvious for online marketplaces in which trading and marketplace platforms do the heavy lifting of onboarding, listing, discovery, transactions, and fulfillment logistics. Digital platforms also enable physical stores to manage similar functionalities with more efficiency. And in B2B marketplaces, digital platforms enable companies to trade or sell unused resources, such as raw materials or equipment, fostering greater efficiency in terms of production and distribution.

One of the key benefits of a circular economic approach is efficiency. But trade-in programs, automated and seamless recycling, and an intelligent customer experience can create a more sustainable consumption model and deepen customer engagement.

We believe it’s clear that the transition from a linear economy to a circular economy is accelerating. Here are some opportunities for rethinking business models and finding new opportunities to make your enterprise more sustainable, create new revenue streams, and deliver more value to your customers:

Offer to lease: Consider building a platform that enables users to rent or lease products instead of selling them outright.
Embrace re-commerce: Create an aftermarket platform where people can buy, sell, and trade products. This is a powerful way to deliver value to customers and improve sustainability. A good example here is Poshmark for clothes.
Make recycling a seamless component of the customer experience: Design a value chain that makes recycling of products and components as straightforward as buying or using them. Apple makes this easy to do with any Apple product and will even accept non-Apple products.
Facilitate efficient returns: Customer returns are inevitable and typically costly, so you can greatly improve sustainability and embrace the circular economy with a platform solution that makes returns as efficient as possible (which may involve working hard to avoid the necessity of returns).

Broadly speaking, you have two possible routes for platform design and development in pursuing circular economy business models: platform-agnostic or using SAP, which has a pre-built re-commerce solution and includes other functionalities that can improve sustainability. We work with clients to help them take the best route by evaluating their current landscape and technology stacks, by creating customized business cases (including ROI), and designing a proof of concept. Each approach has a different set of pros and cons, of course, but either should help you lean into the circular economy.

Finally, when you do embrace the circular economy with these kinds of initiatives, make sure your customers understand the what and the why of your strategies. Showcase the fact that you’re eco-friendly, committed to sustainability, and willing to try new things or change strategies. Promote your initiatives for reuse, recycling, and upcycling. Encourage your suppliers and competitors to join you on the journey. You could, for example, create your own “Green Report Card” and display it prominently on your digital channels.

Sustainability and the circular economy represent one of the best examples of a “win-win” strategy. Creating or adopting new business models that reflect this evolving approach can reduce your overall environmental impact, improve business performance, and deepen customer engagement and trust.

Recommerce: Exploring Reselling Within eCommerce

The resale market is getting a makeover. Companies are finding ways to take back used consumer goods and repurpose or resell them to interested customers. Recommerce refers to the buying and selling of previously owned items and is set to grow at a rate of 11x that of regular retail.¹Consumers are keen on the idea of recycling and repurposing and have been increasingly buying secondhand goods. In response, the number of online resellers has exploded to keep up with consumer demand for affordable and sustainable alternatives to buying new. While the concept of reselling goods is nothing new, the way that consumers and sellers are coming together is currently evolving.² Recommerce platforms have enabled peer-to-peer transactions to increase. Even high-profile brands recognize the opportunity resale has to offer, and have created their own recommerce marketplaces. Recommerce is more than just a cost effective way to achieve sustainability; it is a business opportunity rooted in circular economic principles.

The World of Recommerce is Changing

Once confined to brick and mortar stores, sites like eBay and Etsy now provide a platform that allows buyers and sellers to purchase and sell items in a thrift-like marketplace. However, a plethora of online startup recommerce brands like Poshmark, Mercari, Tradesy, ThredUP, and The RealReal have allowed the industry to grow to new heights.³ While eBay and Etsy allowed for sellers to list just about anything for sale, these newer sites have boosted transactions by building online communities and using data to learn which brands are currently trending. Poshmark’s annual report revealed consumer buying habits depend greatly on generation. Baby Boomers favored well-known, higher-end brands, like Coach and Michael Kors, while Generation X preferred more mid-priced goods like Tory Burch, Kate Spade and Patagonia. Millennials are most likely to purchase goods from brands that would typically be found in an American mall, like Nike and Antrhopologie, and Gen Z purchased secondhand items from across the spectrum. Their top Poshmark brands are Gucci, Adidas, and Brandy Melville.⁴

Recognizing the success of recommerce among peer-to-peer platforms, large companies, particularly clothing retailers, are seizing the opportunity to connect with consumers like never before. For example, buy-back campaigns create incentives for recycling and strengthen the relationship with consumers by offering a way to address concerns over sustainability.⁵ In moving towards a circular economy, companies can generate profits and eliminate waste by keeping materials in use for as long as possible. The cost effectiveness of recommerce combined with the ability to strengthen the bond between retailer and consumer makes it an appealing strategy for businesses.

Recommerce is Gaining Traction

An emphasis on conscious consumption has grown in the past few years, but changes in attitudes and actions have increased significantly in response to the pandemic. Consumers are concerned about the effects of their purchases and are re-evaluating their priorities and choices. By changing their buying habits, consumers can continue to shop while still caring about sustainability, and resellers can earn extra money, save space and avoid waste.⁶

Already gaining popularity pre-pandemic, recommerce websites received a huge boost when COVID-19 forced many stores to close their doors and individuals to tighten budgets.⁷ With more free time, reliable internet (5G), and a desire to escape the pandemic, shoppers discovered an endless aisle of secondhand goods to browse on the internet. Despite decreased disposable income, retail therapy continued to thrive as recommerce websites connected shoppers with affordable goods without ever leaving home. To make the situation even more appealing, apps like Poshmark accept almost every form of payment including credit or debit cards, Affirm, Apple Pay, Google Pay, PayPal, and Venmo.⁸ All of these factors encourage shoppers to visit recommerce marketplaces and contribute to the growing recommerce economy.

Benefits of Recommerce

Both individuals and large companies can benefit from recommerce. While individuals have much to gain from peer-to-peer platforms that allow for an easy exchange of goods, large companies are finding different ways to capitalize on the recommerce industry. Consumers are concerned about the negative impact of their purchases on the environment and are looking for ways to reduce their consumption. In response, retailers are developing creative solutions to source and reuse materials for new products so that consumers can feel better about buying their products.

Upcycling, the act of converting a used product into something new,⁹ is a concept that is being adopted by many notable companies such as Timberland, Adidas, Zara, and Patagonia to name a few. Timberland is reusing rubber from used tires for the soles of many of its boots. Similarly, Adidas has produced nearly 6 million pairs of shoes using recycled ocean plastics, and Zara is producing a line of denim made exclusively from recycled denim waste.¹⁰ Programs that provide customers with incentives for recycling such as Patagonia’s Worn Wear initiative encourage customers to return used goods to be refurbished and sold in exchange for credits towards future purchases once received.¹¹ All of these measures are cost effective means of sourcing materials.

Recommerce is Here to Stay

Many notable companies are embracing the concept of recommerce as a way to reconnect with customers. There is a changing consumer mindset regarding ethical and environmental issues. Younger consumers care deeply about the environment and will continue to demand accountability from companies.¹¹ According to a study conducted this year by Green Print, an environmental technology company, 75% of Millennials and 63% of Generation Z are willing to pay more for an environmentally sustainable product.¹³ In many cases, younger consumers prefer secondhand products because they are more affordable and better for the environment.

Recommerce offers an avenue for retailers to acquire new customers who might not have previously purchased full-price items in the past. For example, Levi created a buy-back and resale program where customers return their used denim in exchange for a gift card. Levi then sells the used clothing at a fraction of their original cost on the store’s website. This allows Levi to reclaim and authenticate its goods at a low cost to them, and turn a profit on an item that they have already sold once. This is a win-win as shoppers know they have made a sustainable purchasing decision, and Levi can earn additional profits, protect the authenticity of their brand, and strengthen the relationship they have with their customers.¹⁴

There is real consumer demand for sustainable recommerce models. Consumers will seek products from brands that align with their values and will expect retailers to offer transparency regarding how they source materials and manufacture goods. Through the implementation of recommerce initiatives companies can save resources, restore value to used items, improve brand image and generate profits. With increased pressure on the retail sector to act more socially and environmentally responsible, recommerce offers an opportunity for businesses to succeed in the post-pandemic world.