6 Reasons Why Recommerce Is Here to Stay in 2023
- Recommerce saw a boom in 2022 that is expected to continue in 2023
- Brands from a variety of industries including apparel, furniture, appliances, fitness, and retail are launching recommerce programs to capture lost revenue from returns
- Consumer appetite for secondhand items has also seen considerable growth, as nearly 70% of consumers purchase resale items, according to a recent FloorFound study
Recommerce grew tremendously in 2022 with big-name brands such as Rolex, Peloton, and Lululemon (to name just a few) launching recommerce programs. Consumer appetite for secondhand items was also red-hot, with companies like Poshmark, ThredUp, and FloorFound seeing increased buying activity throughout the year. FloorFound’s 2022 Recommerce Report, which explores the growing consumer demand for resale, noted that 7 in 10 shoppers surveyed purchased secondhand items. In 2023, the resale market is expected to continue growing, both in the number of brands offering resale as well as the number of consumers purchasing resale. Here are the top 6 factors we believe are driving the massive growth in recommerce.
#1 - The year of the frugal customer
2023 has been dubbed by many retail experts as “the year of the frugal customer”. This is based on early consumer spending reports showing a decline in overall purchasing behavior combined with macroeconomic trends placing pressure on consumers to tighten their financial belts. A recent report published on CNBC showed that consumers have been on a shopping spree since 2020 that is already beginning to show signs of slowing down.
One indicator of slowing consumer spend is the high level of credit card debt held by most Americans today. NPR reported that the average American’s credit card balance is up 13% from 2021, with nearly half of Americans carrying that balance for multiple months. On top of that, credit card interest rates have soared to nearly 20%, leaving consumers with hefty credit card bills. Of course, in the background of all of this is record high inflation and talks of a pending recession.
So what does this mean for brands and recommerce? It means now may be the most optimal time for brands who have yet to embrace recommerce to begin working on a plan. As consumers tighten their finances, they will be more likely to turn to resale outlets such as FloorFound.store, Poshmark, AptDeco, and others which offer recommerced items at a substantial discount. The price point for recommerced goods offers brands a new way to acquire new customers, increase LTV, and boost bottom-line growth. Brands utilizing recommerce are already cashing in on the shifting consumer trends, raking in more money than ever before from their returns.
#2 - Bottom line matters now more than ever
As the economy shifts from the 2020-2022 boom to the 2023 uncertainty and instability, companies are placing more importance on their bottom lines and ability to do more with less. In order to weather the economic storms, businesses are making difficult decisions while also searching for ways to make their businesses run more efficiently in an effort to eke out more profit.
This is why more and more brands are turning to recommerce. It not only increases operational efficiency, but also drives bottom line growth by netting higher revenue recovery, increasing customer acquisition, and improving LTVs. FloorFound, for example, is able to consistently deliver 3-4x liquidation and other returns alternatives for our partners while also taking on the full burden of managing the reverse logistics process and warehousing. With the need to drive more bottom-line growth in this economic environment, brands simply cannot afford to pass on no-brainer opportunities like recommerce that deliver 300% more profit from returns.
#3 - Increasing rate of returns
Operations teams experienced record-high returns piling up in their warehouses as the rate of customer returns skyrocketed in 2022. In fact, the rate of returns officially outpaced the rate of revenue growth for the average retailer last year, according to a study released by Chain Store Age. The cost of warehouse space also grew to astronomical levels last year, meaning that those piled up returns were taking up valuable real estate that should be used for prime inventory.
Business Insider predicts that a ‘returns tsunami’ is expected to hit this year as consumers return items they purchased during the holiday season at record rates. UPS is also prepping for high levels of returns, as much as 70M just from the holiday season alone. This volume of returns will have damaging effects on supply chains that now have to store those returns, sort them, inspect them, and intelligently arrange them either for resale or disposal.
Brands that utilize recommerce solutions will be able to keep these products in circulation and out of their warehouses. This significantly reduces the burden returns place on operations teams, allowing them to focus on moving prime inventory. This, in turn, decreases OPEX related to returns.
#4 - The increasing complexity of returns
Returns are complex for a variety of reasons ranging from operational complexity to pricing and resale complexity. All of these challenges combined, create a difficult landscape for brands to navigate by themselves and ranges far outside of their core competencies.
- Operational Complexity: Returns require unique, category-specific SOPs related to inspection, product data mapping and enrichment, replacement parts and refurb, repackaging, and resale. Take a sofa for example. Once a customer requests a return, the item must be picked up from the customer’s home and brought back to the nearest facility (easier said than done). At this point, a team needs to thoroughly inspect the item, looking for any missing pieces and any signs of damage. All data points related to the inspection process need to be documented so a potential customer looking to repurchase this item online has sufficient data to make their buying decision. After inspection is done, specific replacement parts may need to be ordered and/or repairs may need to be made. Next, a team needs to repackage the item specifically based on its size, dimension, make, build, materials, etc. so that it can travel safely to a new home. The sofa then needs to be stored while the merchandising takes place. Finally, the sofa needs to be sold and delivered to a new home with a great customer experience that mirrors a brand’s first-purchase experience. Now… imagine doing that at scale for tens, hundreds, or even thousands of items per month.
- Pricing & Resale Complexity: There are unique challenges surrounding what to do with each item (resell, liquidate, donate, or dispose), how much to sell them for, and where to sell them - all of which need to be done with a data-backed approach and intelligent pricing models. This takes an entire team to do properly and the results speak for themselves. Recommerce beats pure liquidation by 3-4x.
In short, returns are becoming increasingly complex to handle in a way that maximizes ROI, hence why so many brands are turning to recommerce and will continue to throughout 2023.
#5 - The resale market is growing
Brands from nearly every industry are breaking into recommerce. Rolex, Peleton, Bed Bath & Beyond, and Lululemon are just a few names in a sea of brands that are turning to resale in hopes of capitalizing on what is expected to be a roughly $300B industry by 2027. Even Amazon has partnered with UPS and Khol’s to allow returns to be brought back. A recent article by Alpaca VC highlighted that the rate of returns for e-commerce brands is nearly 30%, versus 9% for in-store purchases. With the unprecedented rate and volume of returns, it’s no surprise brands are turning to resale in order to recoup lost revenue and mitigate increased warehouse OPEX.
Consumer appetite for resale is growing too, along with that of brands. FloorFound’s recently published Recommerce Report found that not only have 7 in 10 U.S. consumers (72%) bought second-hand goods online in any category before, but 89% of those shoppers have opted for oversized items such as furniture, appliances or gym equipment. The report also found that while resale resonates with consumers across age and income demographics, affluent shoppers making more than $175,000 are leading the charge. Nearly 9 in 10 of these affluent shoppers (86%) have previously bought a resale item.
#6 - The proof of ROI for recommerce is in
Recommerce solutions are proving profitable for brands looking to drive greater business efficiency amid looming economic uncertainty. FloorFound’s revenue recovery from returns is 3-4x pure liquidation and other alternatives. There are a few key reasons for this significant boost in ROI. First, recommerce brands like FloorFound incorporate intelligent sorting capabilities combined with data-backed pricing models for every returned item in order to maximize ROI. When returns are collected and brought back to a recommerce center, some will be in the right condition and of the right category for resale, others need to be liquidated or donated quickly in order to recoup the maximum return. Knowing which products will sell at a higher price point via resale and which ones instead need to be liquidated requires intelligent sorting capabilities and integration with multiple resale channels.
Dynamic pricing models are another key to increased recovery rates. FloorFound’s resale pricing models take in a multitude of data points including condition, product category, seasonality, etc. to price items. The data points are derived from a mix of intelligence based on past inventory performance, along with data points about each specific item that are aggregated via the full time FloorFound teams that manage reverse logistics and item inspections in our Recommerce Processing Centers. This allows FloorFound to set prices that will drive a quick sale while maximizing sale price.
All of this results in a highly efficient system designed specifically for brands to maximize their revenue recovery on returns and resale items.
Returns are complicated, but brands are required to offer them in order to remain competitive. Couple that with the fact that the rate of returns is continuing to grow, and sprinkle in a hefty dash of economic uncertainty, and it’s clear that recommerce has emerged as a go-to solution for brands. Those that invest in recommerce today will not only be better positioned to weather the potential short-term economic downturns, but will also reap the benefits for the foreseeable future after the economy restabilizes. For these reasons, along with the 6 above, we believe recommerce is very much here to stay in 2023… and beyond.
Interested in learning more about what a recommerce program would look like for your brand? Our team is always happy to walk you through the solution, just click here for a free demo.
Or, check out our solutions page to see the step-by-step process of how we generate 3-4x liquidation and other alternatives for our partners.