As they say in fashion, everything old becomes new again. Vintage clothes are hot commodities, and legacy brands such as Gucci, Balenciaga and Levi’s and startups like ThredUp, The RealReal and Vestiaire Collective are driving recommerce to new heights. Recommerce, the online selling of previously owned items to buyers who reuse, recycle or resell them, is growing 11 times faster than traditional retail and is expected to reach $84 billion by 2030. However, skeptics worry recommerce isn’t a profitable or scalable business model.
Most people agree that recommerce is good for sustainability. It reduces waste in landfills, saves resources, such as the large amounts of water involved with clothing production, cuts down greenhouse gas emissions and encourages responsible consumerism. And recommerce can help with a merchant’s ESG reporting, the statistical disclosure of environmental, social and corporate governance that can improve investor transparency and inspire other organizations.
This stats-backed documentation will allow recommerce players to show they are making changes, not just greenwashing. While that’s attractive marketing fodder for retail CMOs who want to appeal to environmentally minded consumers, CFOs will appreciate the potential profitability of selling an article of clothing not just once but twice or more in the circular economy.
Yet scaling recommerce comes with its own set of operational issues and inefficiencies. Here are four back-of-the-office challenges that can be turned into opportunities for achieving greater recommerce profitability.
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Opportunity #1: Cost-efficient inventory management.
When the amount of recommerce inventory grows, sourcing products can become a complex endeavor. The reason is that it requires an effective system to distinguish between sellable used clothing and unsellable items. Without an efficient process in place, a retailer may unintentionally offer undesirable items.
Levi’s probably doesn’t have that issue, as it has created a recommerce model that streamlines inventory management. The brand’s program lets customers turn in their worn jeans and jackets for gift cards or credit toward a future purchase via its Levi’s Secondhand online channel or its roughly 260 U.S. stores. Sellers of vintage denim that’s in good condition get up to $30-$35 in credit. For Levi’s products that are too worn out to be resold, the brand offers a $5 credit to encourage website and store traffic.
This simple program helps ensure the sellable items end up back in front of consumers while the other jeans and jackets get shipped to the recycling facility. Major retailers like Levis’s scan their vintage inventory with barcodes, so they have basic data that can be used not only for tracking sales but also for optimizing backend processes from end to end. For instance, retailers can operationalize sorting for clothing style, size and destination and optimize how storage bins are set up in the facility to create better efficiencies and deliver greater value.
Today’s recommerce players can also create a detailed map of the vintage inventory journey, from buy-backs and restocking to resales. And process mining, which applies data insights to discover, validate and improve operations, can help them identify areas where every process needs to be more cost-efficient.
Opportunity #2: Better demand forecasting.
Accurate demand forecasting is crucial for all merchants — recommerce players included. Brands are still in the early days of predicting vintage clothing demand, utilizing a combination of data analysis, market research and industry trends. In other words, there’s still guesswork involved with their demand forecasting process, which isn’t ideal: McKinsey concluded recommerce players’ profitability will mostly be impacted by operational inefficiencies.
Inaccurate forecasting can result in costly excess inventory. To improve forecasting accuracy and timeliness, retailers can use process mining to identify issues such as delays in data collection or manual data entry errors that throw off forecasts. The recommerce players with accurate forecasting data will have a considerable leg up on the competition.
With the right data platform, recommerce players can also accurately analyze customer behavior, including brand preferences and purchasing patterns. Understanding what customers are looking for and how they make purchasing decisions will generate more accurate demand forecasts and, as a result, greater profits.
Opportunity #3: A new set of global customers.
Due to the international popularity of resale websites such as eBay and Etsy, recommerce players have the opportunity to build relationships with online customers around the globe.People everywhere are looking for classic clothing, vintage knickknacks or other used items.
Global retailers can most profitably leverage recommerce by identifying high-value items for resale with big enough margins to make shipping across borders profitable. They need to eliminate process inefficiencies that impede locating valuable vintage merchandise in the supply chain while improving profitability. Further, a minimum order size for global shipping should also be established, regularly tweaked and optimized for profitability as emerging cost data comes in from international, national and regional carriers.
Opportunity #4: Smarter pricing.
Pricing of used items can be challenging whether a brand sells used jeans, handbags or electronics, as there may not be a standardized price range for certain pre-owned products. Pricing can also be affected by the item’s condition, which can be difficult to judge.
Retailers can use sales data and trends insights to determine whether a popular item should be priced higher or a slow-moving product should be made less expensive. Further, with the right data, process intelligence and action, retailers can optimize their recommerce pricing in real time, maximizing profitability and revving the circular engine of the company.
As brands such as Gucci, Balenciaga, Levi’s and other notables enter recommerce, the retailers that master backend processes will win in an increasingly competitive field. Further, the four opportunities listed above — if taken advantage of — can help retailers hit the recommerce ground running with a profitable strategy.
Lindsey Peters is Retail and Consumer Goods Industry Lead at Celonis.
