All things resale

‍Karri: Hello and welcome to Recommerce Podcast, the podcast where we talk all things circular business and Recommerce. Today we are diving into the world of reselling, so selling used items and I’m here joined with Tuomo Laine, the CEO and co-founder of TwiceCommerce to talk about it. And maybe we can start by talking about the different business models inside reselling and selling secondhand items.

Tuomo: Sure, I think we can kind of do some of the split in terms of where do you look to make your margin because at the end of the day in business it’s all about making a margin. So there are models where you kind of still let’s say acquire cheaply and sell more expensively maybe. So maybe you’re trying to make a secondhand find and then just sell it with a margin due to I don’t know finding a more qualified buyer or something like that. I’m trying to figure out maybe those models are a bit rarer at scale but maybe that could be an extra shop for example might operate in that way. Then we have models where you kind of acquire cheap because you might get it for free but at the end of the day you’re kind of recovering losses so product returns is a major supply for many secondhand sales. So retailers might do things like turn their product returns to be sold in an outlet corner or similar in the retail environment. IKEA for example is doing this in quite many places. So inside IKEA you might find that kind of outlet corner. So these are kind of the models where you effectively just get an item and then you sell it as it is as secondhand. Now then there are other models where you kind of try to improve your margin or you make your margin by the fact that when you acquire the supply after the fact you might do some things with it you might refurbish it you might turn it into spare parts and then like rebuild, remanufacture things. So these models are for example refurbished phone businesses also usually work in this way. So you go to the market you acquire some supply from an aggregator or maybe from a consumer you might have a buyback trading or similar value proposition to kind of acquire the supply and after the fact you then do some refurbishing you change the screens and so on and then the combination of the spare parts the used item you’ve made it kind of as good as a new iPhone for example and then you sell it with a profit. So I think those are overall then you might say that there are also businesses in maybe recycling or remanufacturing but maybe they go a bit outside of reselling because there you kind of then well you don’t resell at least to the consumer in many cases you might resell the materials to another business in form of kind of recycling but yeah so that would be the cut that I have in my mind at least for the different business models.

Karri: What are the main challenges in the resale business like if you are operating a resale or re-commerce business where you are selling secondhand items either with or without refurbishing them like what is the main challenge that you are actually facing in your business?

Tuomo: I think with re-commerce and resale usually the main problem relates to supply. So it’s the supply of the good like either it’s like in the first place just acquiring the supply in small scale maybe less so but if you try to scale the business to be something bigger then acquiring supply in a forecastable systematic way can be a challenge. So it’s all about kind of where can you find the supply of the goods that you need in order to do one of those models to sell secondhand or to refurbish items and then to sell them forward. Of course if you’re a big existing retailer or brand you kind of usually have a supply of returning goods by default because depending on your industry you might have like five to even 20% product return rates and that is your supply for then reselling and all of these different models. Then there can be more mature markets like with electronics markets there tends to be also already aggregators operating in that market who are aggregating supply from various different sources and then kind of pulling it together and then selling it to a reseller. So for example with phones that is a quite established market. So that’s the first thing like where do I acquire my supply? As part of that then this again depends a bit on product verticals but one could say that a challenge might be the quality of the supply in terms of let’s say how good is the supplier in declaring what it is. So especially if you’re looking to acquire supply from consumers there tends to be like usually it ends up being so that the consumer needs to declare when they’re at home they’re looking at items setting it to you like what is this and consumers aren’t the best at recognizing or remembering whether this is an iPhone 13 or iPhone 14. So this might be a friction point if you’re running a resell model where you promise for example a cashback or some kind of discount dependent on the value of the good that you bring in.

Karri: That sounds like a potential issue for the end consumer if they are kind of promised a higher price and then they end up actually going down which I assume is usually that way around not usually that hey it’s actually iPhone 15 and here’s double the money.

Tuomo: I think those things where you have an item that tends to become more expensive than the original owner assumed tend to be news like hey someone learned that their painting that they thought was worthless ended up being super expensive and it’s kind of the same thing happening but maybe not in a different scale so in that club antique like you have that honest antique shopper who tells you the pawn shop situation where those are more like collectibles maybe rather than actually like used items.

Karri: I think there are a few larger retailers who then for their product category and the way how they operate it might make more sense instead of promising cash back you kind of promise a discount from a next purchase.

Tuomo: Yeah definitely and I think that’s something that I believe that over time will scale even more because then we’ve now discussed the idea that you acquire back a product that you can sell as it is or repair refurbish it and then sell it but in some for some players it might even be just acquiring back the material if they are highly integrated in their manufacturing chain then they can kind of use that as a material to re-manufacture for example I don’t know fabrics and so on.

Karri: That sounds like quite a logical way even for linear retailers to actually jump into circular commerce if the incentive is kind of aligned with their current business.

Tuomo: Yeah definitely like my gut feeling is that if you’re an existing retailer or maybe direct to consumer brand cashback probably isn’t the way how to start resale. It should be this kind of a discount towards your next purchase or some other loyal credit points or whatever your kind of loyalty system is.

Karri: Maybe also a couple words about the logistics side so reverse logic so actually getting that used item from the consumer to your business I assume there is some challenges in that as well.

Tuomo: Yeah definitely. I would say that it all starts from the fact that again how valuable is the item. So it’s harder to get a five euro item back to you from a consumer to you as a single piece because it’s so thin the margin that you almost kind of lose all of that to the logistics cost. Now let’s say that if you make 40 bucks for the item—well then you can start maybe investing a bit more in ways of getting that item from the consumer. Technically at scale you might even be able to actually just collect the stuff from the people’s homes.

Karri: That’s probably the reason why there are more iPhone refurbished businesses than TV refurbished businesses—because it’s a lot of value in a small box that is quite cheap to actually ship.

Tuomo: Exactly, and there’s also the question of how well does the item hold its shelf value. If you are making your business in selling it second hand or maybe refurbishing it and then selling it—how quickly can you sell it out?

Karri: So at the end of the day I guess this is where it becomes even more important for anyone doing these kind of business models to have a software setup that follows their inventory quite closely.

Tuomo: You need to know each one of your items individually. Once you’ve done the heavy lifting of checking the declaration, inspecting it, doing the grading and conditioning, pricing the value—you need to follow your inventory on a single article level.

Karri: Maybe now diving into the more positive side of things—how do you see the role of software and ideally what is the software helping them to do?

Tuomo: If I have a digital software, my inventory is empty. Now I go to the world and say I’m in the market of getting stuff back or buying them from you. People engage and say I have stuff to send you. The question is: how good are we at digitizing that item? The declaration of what things are is becoming easier thanks to AI. It becomes as easy as snapping a photo. Then the software is the place where you record the information—every item needs to have a ledger of what has happened to it.

Karri: And after you have an inventory full of unique items, for example in TwiceCommerce, what happens then when you have these individual items and now you have to start selling them?

Tuomo: It becomes the art of selling. It’s a different thing what something actually is and what you sell. Your inventory is the truth; your catalog is the story you tell. How you group and present it depends on your customers.

Karri: And it sounds like the flexibility is very important there. If you are already forced into categories when you are receiving it, it might actually be difficult if you later want to change the logic or the grouping.

Tuomo: Absolutely. In a world where AI is facilitating a lot, the granularity and understandability of your data becomes even more important.

Karri: Maybe as a final step—how to step into this world if you are a new entrepreneur or existing retailer?

Tuomo: If you’re a new entrepreneur, make sure there’s demand in the market. Set up a website or Facebook group and start selling. Then figure out supply. If you’re an existing retailer, the easiest way is to start turning your product returns into resales—maybe an outlet section on your online store or physical store. If you already offer repair services, you’re in a great spot to start buying items and selling refurbished versions.

Karri: Companies that are currently operating in maintenance might actually be in a really good place to expand into recommerce.

Tuomo: Absolutely. You have the supply coming in, the repair know-how, and maybe even a customer already on the spot.

Karri: Hey, thank you for your time and a really good discussion about this—very interesting stuff.

Tuomo: Thank you.