RECOMMERCE IS CHANGING THE FACE OF GLOBAL FASHION RETAIL Case Study

Case Study

What is Recommerce?  

Recommerce refers to the practice of selling pre-owned goods via both physical and online platforms. It commonly involves organized take back, trade-in, or upcycling initiatives where consumers can return their gently used products and receive compensation in the form of money or store credit (Kohan, 2023).

Recommerce is one of the steps towards achieving circularity in the fashion industry. According to the Ellen MacArthur Foundation, circular economy is defined as a system in which materials are continuously circulated through “reuse, refurbishment, remanufacture, recycling and composting” preventing them from turning into waste (Ellen MacArthur Foundation, n.d.). This approach addresses environmental sustainability including “biodiversity loss, waste, and pollution” by discouraging the continuous usage of finite resources in economic activities (Ellen MacArthur Foundation, n.d.).  Guided by the concept of circular economy, the recommerce market has seen significant growth in recent years as a method of diverting waste from landfills.   

The global recommerce market is valued at $100 billion, experiencing growth at a rate that is 5 times faster than the rate of broader retail market (Ruben et. al, 2023). Currently, more than 120 brands are operating dedicated recommerce channels (Ruben, et. al., 2023).  It is expected to double this growth within the next five years with a projected growth representing 23% of all retail by 2030 (2023 Resale Report, 2023). Evidence shows that many retailers are already aware that their consumers are participating in recommerce, including thrifting or branded resale. A survey of 50 retailers in 2023 revealed that 86 % of retail executives believe that their consumers are turning to recommerce (2023 Resale Report, 2023).

History of the Resale Business Model and Recommerce

Birth of the Resale Stores

The practice of resale existed in the United States in the 1820s through charity fairs that evolved into rummage sales (Gordon, 1998, as cited in Le Zotte, 2017). Later in 1897, The Salvation Army, a Christian organization founded in 1865 in London (Winston, 1999, as cited in Le Zotte, 2013), established itself in New York in 1897 and raised money by purchasing secondhand goods from communities and reselling the products to salvage yards or directly to industries (McKinley and Strasser, 1986, as cited in Le Zotte, 2013). The Salvation Army was followed by the formation of Boston's Goodwill Industries in 1902, which employed people with economic disadvantages and physical disabilities to collect, prepare, and sell secondhand goods (Moore, 1952, as cited in Le Zotte, 2013). By 1919, these stores termed as “thrift shops” continued to grow and expand (Team thredUP, 2017, para 5). Thrift shops thrived in both times of prosperity and need with the Salvation Army expanding throughout the 1920s, and Goodwill opening 96 stores in the United States by 1935 (Le Zotte, 2017). To achieve broader acceptance from the public, thrift stores mimicked the structure and selection of department stores and positioned themselves as an economical alternative to traditional retailers (Le Zotte, 2017). By the Great Depression, thrift stores had become a common place for consumers to turn to as department store goods became harder to afford (Winston, 1999, as cited in Le Zotte, 2013).

Pop Culture and Secondhand Consumption in Fashion

By the 1960s, the landscape of secondhand consumption had changed significantly from the early 1900s, shedding much of its negative associations from the late 19th and early 20th centuries. By the sixties, garage sales and auctions became popular, and collecting and antiquing became a favorite pass time and outlet for self-expression (Le Zotte, 2017). Secondhand clothing had a new meaning by the late 1960s when it became associated with counterculture aesthetics. This perception shift occurred when the younger generation dissatisfied with an era of “growing social, political, and economic instability” adopted it into their wardrobes (Le Zotte, 2017, p. 172). Thus, secondhand clothing became a reflection of personal style and political beliefs. It is important to note that, despite its growing popularity, thrift shopping was still associated with “lower class necessity” and was far from reaching a large-scale audience in the 1970s (Dawkins, 2023, para 1). The secondhand retail evolved again in 1974, when the dedicated resale platform, Buffalo Exchange, was founded in Arizona with a “buy, sell, and trade” model that incentivized consumers to exchange their used clothing for cash or store credit (Dawkins, 2023, para 2). The “buy, sell, and trade” model differed from the thrift store model, which relied on donated merchandise. Therefore, the “buy, sell, and trade” model represented a new era of secondhand consumption and paved the way for future dedicated resale platforms.

In the following decades, thrifting received moments in the spotlight in popular culture. Thrifted clothing became part of a new counter-culture movement with the arrival of grunge in the late 1980s and early 1990s (Le Zotte, 2017). The 1990s also saw a growing interest in vintage fashion (Veenstra & Kuipers, 2013), collected for its uniqueness, rarity, or designer prestige (Palmer & Clark, 2005).

The Growth of Internet and Resale Market in Fashion

In 1991, the World Wide Web came into fruition, and retailers began moving online (Team thredUP, 2017). In 1995, eBay and Craigslist became the first online flea markets, and were pivotal for the development of the digital resale economy (Kneese, & Palm, 2020). With an array of goods ranging from collectibles and automobiles to jewelry and electronics, eBay became a popular hub for secondhand goods and even offered live auctions (D'Andrea et al, 2004). These online peer to peer marketplaces paved the way for future online resale platforms. The Great Recession in 2008 marked another period of growth for resale business with resale stores receiving an average of 35% increase in sales (Team thredUP, 2017). Following the Great Recession, thredUP was founded as an online thrift store and quickly became the internet's largest thrift store platform carrying women's and children's clothing (Team thredUP, 2017). Other online platforms followed thredUP's lead, and in 2011, the peer-to-peer platforms Depop and Poshmark were launched in addition to the dedicated luxury resale platform, The RealReal (Pitcher, 2019).

Recommerce and the Covid-19 Pandemic

As the Covid-19 pandemic transformed daily life and travel habits, people turned to the internet as a source of comfort and entertainment. The Covid pandemic also led to a sharp increase in online shopping. The number of consumers making purchases through mobile websites rose by an average of 48% whereas mobile app-based purchases also saw an increase, rising by 45% globally (Chevalier, 2023). Consequently, Covid -19's impact on digital commerce extended into recommerce.

In this new period of economic uncertainty, consumers were enticed by the affordability of second-hand clothing. There has been a steady increase in the number of consumers interested in recommerce as indicated by the resale report published by thredUP each year. In 2020, four out of five respondents indicated that they either had or would consider shopping secondhand in times of economic stress, with 76%   of the respondents stating that they would like to spend more in secondhand clothing in the next five years (2020 Resale Report, 2020; 2021 Resale Report, 2021). In 2022, it was reported that around 272 million people were engaged in buying or selling secondhand goods (Kavilanz, 2022). It is important to note that worldwide, as many as 60% of respondents say they have made at least one second-hand purchase 2022, up from 49 % in 2019 (Fleck, 2023).  The most frequently purchased brands and items as ThreadUp reports are listed in the table below (2022 Resale Report, 2022, 2023 Resale Report, 2023).

Figure 1. The most frequently purchased second-hand items on threadUP in 2022 and 2023

*These data are collected from the 2022 Resale Report and 2023 Resale Report.

Recommerce Approach

Retailers have taken various approaches toward recommerce, with different business models existing in the current market. These recommerce models can be mapped on a grid defined by two continuums: 1) degree of ownership and control by the brand and 2) level of consumer engagement as a seller.

Due to the emerging sector of business that specializes in providing recommerce as a service, brands can have varied degrees of ownership and control over the recommerce process. At one end of this continuum, there are retailers that fully own the recommerce process, operating the resale market fully in house, from collecting, sorting, mending, and merchandising (e.g. Nike). At the other end of the continuum, there are recommerce models where third-party retailers dedicated to resale operate their platform independent of the brands (e.g. The RealReal). In between these two models, there are brands that partially own the process by partnering with recommerce service providers.  In these approaches, brands might own the resale channel, housing the resale platform on their website, yet outsource their resale operation to service management providers such as Trove, Recurate or thredUP.

The other dimension involves the consumer's role as a seller in recommerce business models. The traditional consumer-to-consumer platform such as eBay allows sellers to interact directly with the buyers, where the retailer plays a minimal, if any, role in merchandising and shipping the product. On the opposite end of the continuum, there are retailers such as Eileen Fisher where consumers have a minimal role in the selling process as their involvement ends when they return the used items to the store and are compensated with store credit. Figure 1 below provides an overview of several key business models in the current recommerce market. In the following section, we will further discuss specific cases from the retailers running their recommerce business using different models.

Marketplace for Secondhand Goods

The well-recognized approach within this sector includes peer-to-peer marketplace such as eBay, DePop and PoshMark. These platforms enable individuals to list and sell their used items directly to other consumers (i.e., Consumer-to-Consumer). The marketplace provides a platform for transactions and typically takes a commission or fee from each sale (2023 Resale Report, 2023).

These early Consumer-to-Consumer marketplaces led to the birth of a more specialized resale platforms (e.g., thredUP, The RealReal ) that were created to further enhance the recommerce experience and attract new consumers. These platforms offer more curated, well merchandised and/or higher-end product assortments (2023 Resale Report, 2023). They accept pre-owned items from individuals, handle the listing, marketing, and sale of these items, and ensure quality control and authentication. The consumer receives a portion of the sales after the transaction is complete but does not get involved in the process of merchandising once the items are sent into the retailer. These recommerce models are primarily, but not exclusively, online (2023 Resale Report, 2023).

As these resale models grow, partnerships between the brands, retailers and resale platforms have emerged as well. For example, Neiman Marcus has partnered with Fashionphile, a dedicated resale platform for luxury goods, allowing consumers to drop off their used items at select Neiman Marcus store for an immediate price quote and payment. The items are then merchandised and sold through Fashionphile.
 

Figure 1. Recommerce business models.

Brand Operated Resale

Some retail brands operate the resale platform fully in-house. Nike is one of the retailers that manage their online resale channel where they sell their sample, damaged and unsold inventory. Their model does not allow any consumer take backs, meaning consumers are unable to resell their used Nike shoes through the brand's resale channel.

Urban Outfitters take a unique approach to resale. They launched a separate platform allowing consumers to resell products from any brand, not limited to Urban Outfitters. On this consumer-to-consumer model, sellers have the option to earn profit from the sale in cash or redeem them as Nuuly Cash that can be used at Nuuly Thrift and other Urban Outfitters brands (Roshitsh, 2021). Both Nuuly and Urban Outfitters are owned by URBN, which is also the parent company of Anthropologie and Free People.    

Retail Brands partnering with Managed Service Programs 

In this approach, a third-party manages resale logistics and consumer experience for the retailers. The service provided includes website design, inventory sourcing, processing, photography, customer care, order fulfillment, storage, payouts, and returns (2023 Resale Report, 2023). In 2023, 9 out of 10 retailers were using the managed service model (2023 Resale Report, 2023), partnering with recommerce providers such as Trove, Recurate and thredUP. Andy Ruben, founder and executive chair of Trove, explains:

“From the brands' side, using the resale program enables them to have quality control- they know what type of products are being sold, control pricing, and authenticate the product. From the customers' side, they can get a heavy discount…With the brand operated resale program, every item in the customers' closet can become a brand asset.”

When partnering with the recommerce providers, retail brands can choose to operate their resale channels with varying degrees of consumer engagement as a seller.  For example, Eileen Fisher partners with Trove for their well-recognized take back program called “Renew”.  Through their program, Eileen Fisher takes back old clothes from their customers in exchange for store credit. The retail brand then refurbishes and resells these garments in their Renew store both online and offline (Rifkin at al., 2021). At the back end, Trove manages the resale process including trade-ins, quality assessment, merchandising, packaging and trade-in credit. Trove implements a reverse logistics process using proprietary technology to route, identify, price and list items as they “stack” the items with similar conditions with a single SKU (Ruben et. al, 2023).

Through its partnership with thredUP, Madewell takes a slightly different approach. Madewell's resale program, “Madewell Forever” engages consumers in their take back program for their jeans but also let the consumers become a seller through the thredUP webpage. This approach combines multiple avenues of reselling, in which the brand buys back the brand's secondhand item in exchange of store credit but also encourages consumers to sell any pre-owned items on their own through a resale platform. They leave it up to individual consumers to decide which is more convenient or valuable for themselves. From the brand's perspective, Madewell has greater potential control over the consumers' brand experience when the consumer returns products directly to the company. With the consumer-to-consumer resale approach, consumers control the experience.

Frye partnered with Trove to operate “The Frye Exchange”, a Consumer-to-Consumer recommerce platform, on their website. Unlike Eileen Fisher or Madewell, Frye allows consumers to sell their secondhand Frye items directly to other consumers on its own Frye- branded platform (Ruben et. al., 2023). Sellers upload photos and offer detailed information or narratives about the items they are selling. After the item is sold, Frye offers compensation in the form of gift cards that can be used for purchases of both new and pre-owned items through the Frye exchange (Ruben et. al., 2023)

Why is Recommerce Growing?

The growth of recommerce can be attributed to many factors. From the company perspective, the motivations can be broadly divided into three categories. First are ethical motivations, as retailers value the positive environmental impact the program would bring. Second are the stakeholder- driven motivations as businesses respond to stakeholder interest and demands when formulating strategies. Third are the economic motivations that align with companies' financial goals such as operational efficiency and increased sales. Often, these motivations are interlinked, and companies demonstrate mixed motivation when making the decision to launch their recommerce model.

Sustainable Value as a Driver

On average, 17 million tons of textile waste are generated annually in the US while only 14-15% discarded items are recovered (McCauley & Jestratijevic, 2023). The culture of disposable fashion and the tendency to discard clothing after just 7 or 8 uses further perpetuate the environmental problems (Berg et. al, 2020). This behavior not only amplifies the generation of textile waste but also contributes to overproduction. Fashion industry estimates indicate that around 70% of the industry's greenhouse gas emissions come from textile and apparel production processes (Berget. al, 2020).

Reusing and selling secondhand fashion, instead of producing new, extends the life of clothes and prevents good quality textiles ending up on the local landfill. Refocusing and enhancing the existing reverse logistics network to bring unused and unneeded clothing back into circulation has been acknowledged as one of the important ways to reduce the negative impact on the environment. As a result, retailers are challenged to leave behind linear “cradle-to-grave” philosophy where products are produced, used, and permanently discarded, and to switch to “cradle-to-cradle” principles where products are used and reused (Ellen MacArthur Foundation, n.d.).

Table 1. Environmental impact avoidance per apparel item in case when secondhand item replaces new one.

*Table was adapted from https://cf-assets-tup.thredup.com/about/pwa/thredUP-Clothing-Lifecycle-Study.pdf

*Estimated saving in the case of 100% replacement rate

Several reports assessed the environmental savings of the resale model. During the holiday season of 2023, the resale market is expected to contribute to the prevention of 32 billion pounds of waste from ending up in landfills (Schwartz, 2023). Furthermore, reducing the production of one new item for each secondhand item could result in a nearly 8% reduction in overall production by 2027 (2023 Resale Report, 2023). By the year 2040, the implementation of resale initiatives could result in a reduction of annual carbon emissions by approximately 15-16% (Siefel et. al., 2023).  Re-use adds potentially 2.2 years to each item's lifespan, reducing as much as 73% of water, carbon and waste footprints compared to the new garment production (Morrison et. al., 2019). For example, if a second-hand dress fully replaces a new one, the environmental savings can include 8.4 kg CO2, 61.3 MJ Energy, and 91.9 Liters of water that would be otherwise needed to manufacture a new dress (see Table 1). 

Stakeholder's Interest in Circularity

Stakeholders such as governments, industry organizations and consumers are increasingly acknowledging the importance of circularity in the fashion industry. The United Nations Sustainable Development Goals (SDGs) provide a framework of actionable items that fashion retailers can use to prioritize their circularity efforts. One of the United Nation's 17 SDGs focuses on sustainable consumption and production patterns (SDG 12). There are increased expectations from consumers and investors to embed circularity and sustainable consumption solutions as a prerequisite for identifying as successful and responsible business (Thakker  & Sun, 2023). From that standpoint, reselling pre-owned clothing represents a potentially ideal solution for retailers.

Governments as stakeholders also encourage businesses to adopt circular practices through regulations and policies. Extended Producer Responsibility (EPR) legislation, for example, aims to increase waste recovery and recycling efforts (Hilton et al. 2019). Specifically, EPR attempts to make producers and retailers both financially and operationally responsible for products they have created (Pacifici, 2022). These policies incentivize producers to design their products to be circular (e.g., recyclable, compostable, reusable) and incentivize retailers to collect and manage their products from consumers after the post-consumer stage of a product's life cycle (Cano & Osman, 2023).

It is important to note that consumers are more open to adopting sustainable lifestyles including recycling products, reducing waste, and reconsidering how they shop and consume (What Consumers Are, 2023). Likewise, a report in 2021 indicated that 77% of Americans expressed concern regarding the environmental consequences of their purchases (GreenPrint, 2021). While Generation Z and millennials lead with their beliefs about sustainability (54% and 57% respectively), even Gen X (52%) and baby boomers (45%) indicated that sustainability was a key issue when purchasing goods and services (Jain & Hagenbeek, 2022). Given strong consumer interest, retailers are responding and transforming their business models to generate both profits and environmental benefits. Recommerce is one of the strategies they are deploying (S. Case, personal communication, October 31, 2023).

Economic Motivations as a Driver

Profitability is one of the key drivers for the growth of recommerce business models. Industry experts agree that in the current state of industry shift, it is critical to have an entrepreneurial mindset that seeks new economic opportunities by identifying market need (A. Siegel, personal communication, October 9, 2023). Investing in resale represents a strategic step to achieve business long-term goals such as expanding the target market, fostering engagement, and nurturing brand love (Participant A, personal communication, September 11, 2023).  Findings from consumer surveys reveal that 75% would remain more loyal to the brands with options to resell and 47% indicated that they would return within a month to shop again (Recurate & BBMG, 2023). Carmen Gama, Director of Circular Design at Eileen Fisher adds:

  “[The resale program] at EF is consistently profitable. Our focus is on increasing unit sales, aiming to sell more garments while determining the right consumer incentives to secure take-back supplies.”

Further, resale provides an opportunity for brands to attract a consumer base that would otherwise not be interested in or capable of purchasing the brand's products. Especially for premium brands, selling pre-owned goods offers a means to attract price-sensitive shoppers. Once these consumers have experienced the product, they are more likely to be converted into regular, full price consumers (Ginsburg, 2023). Research shows that economic motivations such as fair and/or discounted prices represent a critical driver to buy second-hand goods for consumers (Ek Styvén & Mariani, 2020). Due to inflation and economic uncertainty, a significant number of consumers have been cutting back on their expenses (2023 Resale Report, 2023). Therefore, retail prices are often described as “prohibitive”, especially in the luxury sector, motivating consumers to utilize recommerce platforms to find high-quality, more affordable goods (Amatulli, et. Al., 2018). For example, data collected from threadUP online resale platform shows a significant disparity between the resale prices and the retail pricing of the clothing. As an illustration, the initial retail value of a pair of Gucci trousers was documented at $980. However, the subsequent resale value observed on threadUp amounted to $178.99 (see Table 2).

Table 2. Cost savings Resale versus Retail Price
 

*These data are collected from the threadUp webpage.

Retailers also have an opportunity to resell the same item to multiple consumers through the recommerce platform, rather than producing the same product multiple times for individual consumers. This approach reduces manufacturing and environmental costs while potentially maximizing the revenue generated by each individual item. In addition, recommerce business model can be an avenue to sell returned items, damaged inventory, samples, and items from past season. This can benefit the retailers to remove unwanted inventory from their warehouse and stores and earn profit by selling it through their recommerce channel (A. Siegel, personal communication, October 9, 2023). As any unsold items represent a cost, companies have an opportunity to reduce the expenses through the resale system by selling items that might otherwise remain unsold (S. Case, personal communication, October 31, 2023).

Operating a resale channel on a digital platform may be an economically efficient model as well. Gen Z fashion style seekers are less likely to visit the mall to purchase the apparel items that everyone else has and instead more likely to use digital recommerce to hunt for unique finds at a reasonable price (Petro, 2022). Digital platforms streamline the recommerce process, providing more efficient means of buying and selling used goods. Through automation, broader reach, and reduced operational costs, retailers can often achieve higher profits and improved cost-effectiveness in the recommerce sector. Adam Siegel, co-founder of Recurate notes:

“The digital platform can bring profit as it [functions] more like a service provider. [Compared to the brick-and-mortar resellers], the operational costs are low, and the scalability is extremely high. The operational costs on a unit basis are very little.”

Measure of Success

Although approaches to recommerce among retailers might differ, retailers commonly emphasize that achieving both revenue and sustainability is important. While the traditional profit assessments (e.g., percent of resold products, resale prices, and margins) are widely used to gauge recommerce success, many retailers adopt a more holistic approach considering both financial, and non-financial sustainability metrices (e.g. replacement rates, waste reduction, reduced carbon emissions, and water and energy savings).

For example, Carmen Gama at Eileen Fisher explains that the success of their circularity program is evaluated using Return on Sustainability Investment (ROSI) methodology (NYU Stern, n.d). This approach identifies and monetizes the tangible and intangible benefits that fashion retailers can gain through strategic investments in sustainable business practices (NYU Stern, n.d). The ROSI assessment indicated that Eileen Fisher's Renew program generated a total net benefit of $1.8 million in 2019 (Rifkin & Raman, 2021).

Circulytics, a comprehensive evaluation tool developed by Ellen MacArthur Foundation, guides retailers through the shift towards the circular economy. In addition to assessing the product and material level circularity efforts, this tool provides a company level evaluation taking into consideration the entire operation process that includes “strategy (i.e., have you placed circularity in the heart of your strategy?)”, “systems, processes and infrastructure (i.e., have you invested sufficiently to support the transition?)” and “people and skills (i.e. have you employed the skills and people required to transition to a circular economy business model?)” (Ellen MacArthur Foundation, 2020, January 14). While Circulytics is no longer accepting evaluation submission as of August 2023, it has informed and provided support for the European Sustainability Reporting Standards (ESRS) and remains as a guideline for achieving circularity through the established key indicators.

ESRS is a mandatory reporting standard for large- mid- and small- size companies within the European Union (EU) and for companies that have substantial operations within the EU, effective January 2023 (KPMG, n.d.). While not specifically for circularity, ESRS regards circularity as one of the key indicators and includes both “impact materiality (i.e. those that related to actual and potential impact of on social and environmental sustainability)” and “financial materiality (i.e. those that related to the financial risks and opportunities by undertaking sustainable initiatives)” (EFRAG, 2n.d.).

Boston's Consulting Group's CIRCelligence is an assessment developed to measure circular economy performance accounting for comprehensive combination of indicators such as “product design”, “production”, “business model and usage”, “end of life” and “input” (BCG, n.d.). It provides the benefits of the circularity initiatives on both environmental impact and company financial performance through a comprehensive analysis of the circularity business model (BCG, n.d.).

Challenges

Underdeveloped and Fragmented Post-Consumer Supply Chain

Organizing the reverse logistics network for a company represents a daunting task, especially when not all operations are in-house. For this reason, Carmen Gama from Eileen Fisher argues that “running a successful recommerce channel is still an expensive adventure that not every business can afford”. Recommerce costs are high due to the labor-intensive processes that inevitably involve numerous steps (e.g. product intake, inspection, authentication, storage, distribution, sorting, cleaning, repairing, upcycling, pricing, photographing, merchandising, packaging, shipping), which might be run by one, two or numerous independent business partners. Hence, she concludes that a strong post-consumer supply chain is needed to support recommerce front-end operations.

“Resale as a service, refers to front-end service, however we need to support back- end operations as well.  We need to have a post-consumer supply chain, collectors, cleaning facilities, sorters, as we need all these operations.”

Further, working with an external service partner can be challenging for various reasons. Recommerce retailers may encounter delays in processing and issues in quality control. Carmen adds:

“If those partners take too much time to process the items, or if they invest minimal effort in cleaning, and repairing garments; and instead, as acquired they directly ship them to customers than the quality of service provided does hinder optimal [resale] potential.”

Similarly, sourcing second-hand items from international suppliers often delays resale operations as working with suppliers in different countries may cause shipping and handling issues. Emily Erkel, co-founder and CEO of LePrix, a wholesale company that specializes in pre-owned and pre-authenticated luxury, explains that her job often entails international sourcing and buying trips where she visits smaller international suppliers to hand-pick inventory as the products are not available for preview online.

Obtaining pre-owned goods from consumers can be a challenging task as well. Sometimes consumers let their unworn clothing clutter their closets, and they often move it to the basement or even rent a storage unit for their clothes (Robertson, 2023). Thus, recommerce retailers need to make their resale programs attractive enough to motivate their consumers to change their behavior in ways that support more sustainable retail solutions like resale. For recommerce to succeed, consumers need to get unneeded items out of their closets and storage units and into circulation where someone else can use. The active participation of consumers in take-back programs, and their engagement in purchasing and selling used apparel is crucial in driving the adoption and advancement of circular fashion (D'Itria & Aus, 2023). In fact, Mardi Ditze, Country Sustainability Manager for Ikea, argues that a successful recommerce program depends on consumers bringing their unneeded items back to the retailer.  She sees financial incentives and store credits as good business tactics to stimulate return.  

“Both retailers and consumers should treat the product as a brand asset even after it's sold. Under ideal circumstances, using technology retailers would be able to track their products after purchase, and acquire them again preventing consumers to prematurely discard items to the landfill.”

Andy Ruben from Trove agrees that the ability to track all merchandise sold would enable brands to manage it like an inventory. In this way, not only would inventory become more predictable, but also waste generation would be significantly reduced.

Additionally, concerns have been raised regarding the post-consumer supply chain, with the ways retailers might manage unsold garments and the possibility of fraudulent or unethical behavior within the second-hand market. Some express reservations as they argue that clothing is often downcycled, destroyed, burned, discarded and/or exported to developing countries perpetuating environmental degradation (Mohr et al., 2022).

Varying Levels of Sustainability Awareness and Policies

Retailers commonly note the differences in the understanding of sustainability and the implementation of related policies across different contexts. Sustainability awareness and policies may vary significantly between countries, states, and regions. Depending on the geographic location, the extent to which government prioritize and enforce environmental policies can differ, impacting sustainability practices within their jurisdiction.

These variations in expectations can lead to multiple adjustment in the retailer's sustainability approaches, posing significant challenges to a streamlined operation. Therefore, some leading sustainability-focused retail executives advocate for a more proactive approach, suggesting that companies should embrace circular strategies even when legislation lags (Participant A, personal communication, September 11, 2023).

Concerns on Consumption Patterns

Consumers in different demographic groups may exhibit varying levels of awareness and attitude regarding sustainability issues. For example, extracting value from worn products is still widely regarded as a complex endeavor, particularly when juxtaposed with the prevailing popularity of cheap fast fashion. These factors subsequently influence their purchasing behavior and demands for sustainable products and services.

Further, there is a debate about the extent to which second-hand clothing helps sustainability or it further perpetuates excessive consumption (Fashion Revolution, 2023). Some retail executives express concern that the availability of inexpensive second-hand items might encourage consumers to buy more. The lower cost of second-hand items might lead to a mindset of disposability, where consumers view clothing as temporary and easily replaceable.

Future of Recommerce

One Size Does Not Fit All

Depending on the size of the organization, the product type, and resources available, there can exist various approaches for recommerce. Scot Case, Vice President for sustainability at National Retail Federation (NRF) explains:

“It's an incredibly diverse industry. We have small retailers. We have large retailers. We have global retailers, and we have regional retailers. There are so many segments of it that every retailer will ultimately be forced to come up with their own unique solution…There are 4.2 million retailers in the United States, there's 4.2 million different business ideas on how to run a good retail company. And I think we're going to see the same kinds of thing in circularity, there will be common themes and common challenges and common opportunities, but ultimately every retailer will have to solve the circularity equation for themselves.”

The resale industry is not uniformly lucrative. The best economics can be found in the luxury sector, where profits remain positive even when items are discounted by 10% or more from their original selling price (Morrison et al., 2019). Emily Erkel from Le Prix argues that profitability is highest in the second-hand luxury sector due to higher profit margins that are justified with higher brand value, product durability, and quality. Likely, publicly available data shows that luxury resale platforms such as Vestiaire Collective and The RealReal generated a higher profit in 2022 ($376 million and $589 million respectively) than ThreadUp ($280 million). Further, other reports find that reselling stands as a significant decarbonization strategy for luxury and outdoor retailers compared to other types of retail brands such as mid-tier apparel and athleisure (Siefel et. al, 2023). Premium and outdoor retailers are expected to achieve their annual revenue growth goals while decreasing the new product manufacturing by 26-35%. However, mass-market, and mid-tier retailers face greater challenges in substituting new production and revenue with lower carbon resale products (Siefel, et. al., 2023).

However, Scot notes that, as demand for second-hand goods rises and resale infrastructure improves, it is possible that circular business models will be profitable outside of the market for premium products. “Retailers are also aware that not everyone has the ability to pay for significantly advanced quality”. Premium goods cost more for multiple reasons, including higher quality. Hence, he argues “it is critical to find the right equation somewhere on the intersection between financial value, user value, and evident environmental benefits that resale embraces. Unsurprisingly, different retailers are solving this equation differently”. Profitability in all forms of recommerce depends critically on keeping logistics expenses to a minimum (Morrison et. al.2019).

Partnerships and Infrastructure Support

Retailers alone cannot transition to a circular model without the co-evolvement of the practices of the various other entities, as the retail industry is a dynamic system of interconnected networks comprising various independent actors (S. Case, personal communication, October 31, 2023). The system includes manufacturers, suppliers, recyclers, and logistic providers, among others (Case, 2023). The active involvement of and partnership among these entities is essential for the success of the circular systems (Case, 2023).  

Partnership with suppliers and logistics companies help build a smooth and efficient supply chain, vital in ensuring diverse and appealing inventory of pre-owned goods for customers. From the supplier side, Emily Erkel from Leprix notes:

"The skill set is obviously relationship development. [LePrix] acts as a partner for the retailers to launch their pre-owned [business]. That includes a lot of product knowledge, project management, working cross-functionally with different teams to make sure that our team can support this business's launch. Let's say it's a large retailer with over 300 locations, and we're helping them source and curate for each of those locations. How do we curate and help them do that? From a merchandising standpoint, how do we help them replenish? How do we meet their fulfillment and operations and invoicing kind of guidelines? And so there is a lot of work that goes into helping these retails launch their pre-owned business on the marketing side.”

From the brand's perspective, Carmen Gama at Eileen Fisher shares a similar outlook.

“Service providers for front and back end should be more accessible to brands. So, brands have more opportunity to be part of the circular economy. It's not feasible to do it in-house. We need to have a post-consumer supply chain of sortation partners, pre-processors, collectors, and cleaning facilities. [For example, in the case of Eileen Fisher,] it's so hard to find industrial cleaners that will work with us. We need to have that supply chain that supports that operation. In 10 years, I see a lot more businesses supporting these operations, so more companies can have a take back program. In 10 years more, I expect to see a cross functional, very well-established post-consumer supply chain.”

Partnerships with robust digital platforms and online marketplaces are essential for recommerce businesses to reach a wider audience. Infrastructure support in terms of marketing, and analytics can aid in reaching the target audience and optimizing promotional efforts. As Andy Ruben at Trove explains, a seamless and user-friendly digital infrastructure encourages customer engagement and transactions.

“We provide brands with a single SKU technology called Trove ID, a technology that sits at the brand warehouses. When a used product comes in, the product condition is scanned using the computer vision technology that replaces the intensive labor needed to inspect the garments. Then the products can be “stacked” to show similar items on the website- for example, black yoga pants, with similar condition will be stacked to be viewed on the webpage, so the consumers do not have to go through thousands of similar items.”

Strategic partnerships and infrastructure support contribute to the scalability of the recommerce business that facilitates efficient operations, ensures product quality, and enhances the overall customer experience.

The Role of Leadership

The importance of leadership in building a recommerce business cannot be overstated.  Effective leadership plays a pivotal role in shaping the vision, strategy, and culture of the business. First, it is crucial for the executive of the organization to recognize its potential for generating profits (A. Ruben, personal communication, August 28, 2023). For a successful recommerce program, leaders should be actively involved in the decision-making process and provide a long-term vision that aligns with the company's core values and strategic goals. A holistic approach defined with a clear purpose, goals, and long-term direction will serve as a roadmap for the organization that helps guide decision-making (A. Ruben, personal communication, August 28, 2023).

Further, leaders should articulate how the recommerce channel aligns with and enhances the cultural values of the company (Case, 2023). If the retailer only sees the program as an “add on” or “have a toe in the water”, it won't fully integrate into their business model (A. Ruben, personal communication, August 28, 2023).  Building a corporate culture around how employees perceive and approach recommerce initiatives is critical as well, as Scot Case at NRF notes:

“What one can look for in a well-run circularity program is an acknowledgement of the challenges and clarity around exactly what they are doing so that they are defining the scope of their [circularity] efforts very explicitly. And it would be a program that involves every aspect of the business. The retailers that are doing it well are embedding circularity and broader sustainability issues into every decision that's made in the company. Those that are doing it just kind of as a side project might be a good way to begin exploring but are not an indicator of strong leadership.”

Once the leadership sees the value, investment in talent and strategic resource management should follow. Building a skilled, passionate, and motivated team is the responsibility of leadership. Attracting and developing talent ensures that the organization has the expertise and capabilities needed to excel in the recommerce market. As evidenced in many successful recommerce initiatives, hiring VP level program managers who have passion and a career pathway that aligns with sustainability is critical. For example, Director of Sustainability at Company A carries a rich background in social enterprise, fair practices, and sustainability at the brand level. Director of Circularity at Company B has developed a career through working at non-profits and research institutes and establishing sustainability programs for brands. Further, a key organizational structure observed within the companies that carry a well-developed recommerce programs is the direct communication between the leadership and the involved teams. Carmen Gama at Eileen Fisher explains:

“I report directly to Eileen… I work with the product development team who supports pattern, making sample, making production of the goods that we do in house. I work with the logistics and compliance for shipping goods around the United States and internationally. I literally touch every team for all of the rest of the operations.”

Moving Forward

Industry experts agree that recommerce can be considered as a new, viable channel that brings a forward-thinking approach to industry shifts, like what e-commerce has brought to the industry 25 year ago (A. Ruben, personal communication, August 28, 2023).  Director of Circularity at Company B adds:

“20 years ago, e-commerce was like [a paradigm shift]. You started to see one company doing it, and then another, and then it just proliferated. My hope is that re-commerce becomes just another one of those channels. Every brand has to think about the omni-channel approach to getting their product to customer, and hope [recommerce] becomes just one more of those ways that we engage with customers.”

In order to achieve a successful model of circularity in the fashion industry, some retail executives believe legislation must play an active role. Legislation can establish and enforce environmental standards and mandate waste reduction, responsible sourcing of materials, and Extended Producer Responsibility (EPR) programs, holding fashion brands, manufacturers, retailers, and consumers accountable for the entire lifecycle of the products. This incentivizes companies to design products with reuse and recyclability in mind to further support recommerce retail models. Director of Circularity at Company B says:

“there's already an active discussion here in California around Extended Producer Responsibility (EPR) for textiles, so I wouldn't be surprised if the US, in 5 or 10 years, has at least a couple of States that have State level textile EPR initiative. It's already happening in packaging. So, textiles are probably the next thing to happen.”

She further adds:

“I don't think policy is the enemy of what brands need to do at all. Brands are looking for a level playing field, and they want predictability and knowing how policy is going to affect their decision making. So hopefully, we get to a place where we see what's coming, and we can design into it and have a proactive approach.”

Further, legislation can facilitate collaboration between the government, industry stakeholders, consumers, and environmental organizations (M. Ditze, personal communication, September 26, 2023). Governments and organizations can support initiatives aimed at educating consumers about sustainable and circular fashion choices. This can involve labeling requirements that provide information about a product's environmental impact, helping consumers make informed decisions. This collaboration can lead to the development of comprehensive strategies and policies that support the transition to a circular fashion economy.

In the entire process, the awareness of consumers is crucial. The increased consumer awareness prompts questions about the end-of-life aspects of the purchase, including the option to resell. The two critical factors, consumer awareness and legislation, are interdependent. On one hand, policies and regulations play a crucial role in spreading consumer awareness. Meanwhile, legislators may find it challenging to enact policies significantly beyond public support (Participant B, personal communication, September 29, 2023). Therefore, eventually, the government, consumers and industry must co-evolve (Participant B, personal communication, September 29, 2023).

Acknowledgement

This case study is based on the analysis of the interview conducted with 8 industry experts.

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