Start a Recommerce Business

Recommerce or reverse commerce is the selling of previously owned, new or used products, mainly electronic devices or media such as books, through physical or online distribution channels to buyers who repair, if necessary, then reuse, recycle or resell them.

Recommerce is simply the selling of previously owned products to consumers (not B2B), what we would call a secondhand or used goods business but it is also equally a business model – and a buzzword driven by the sustainability movement and their reduce, reuse, recycle philosophies (which has become popular in recent times especially with people being influenced on social media).  In theory, it’s no different than a secondhand business but in my opinion, it makes you think differently about the secondhand market. Remember last time when I spoke of this market, we spoke about the supply, specifically securing a reliable and constant supply (I speak of this in the business model below). The “buy-in” infrastructure of places Cash Converters, Cash Crusaders have enormous overheads they are often situated in malls with astronomical rentals, then they have the staff costs. To set up an operation like that you need a lot of unencumbered cash. Here we focus firstly on the single entrepreneur and growing from there, if we think in terms of recommerce and look at international business models. There are models that the single entrepreneur can follow, yes you will still need some cash for stock, a vehicle with enough capacity to move stock and space to sort and do whatever else to the stock (clean, refurbish, photograph, etc.) but it’s far less than the capital required to set up a buy shop like the aforementioned franchises.

The local landscape
In the past, the most popular recommerce businesses in South Africa were electronics particularly “refurbished” computers, computers used to be very expensive, and used computers were imported from wealthy countries and cleaned (“refurbished”) up and resold. With computers losing their value we have seen this business model used with regards to higher value items like Apple products where we even see stores in malls selling refurbished Apple products with strict quality control (kind of what you see with “certified” used cars). We also see this trend with smartphones which now cost as much as a secondhand car. However, being about small business we will also examine the potential for lower value items.

I have spoken about the secondhand/used clothing business before, Buy and Sell Secondhand Clothing and Start a Preloved & Vintage Clothing Business. The latter business model has exploded in the recommerce industry to the point where people have been accused of buying up all charity shop stock to resell leaving nothing for poor people to buy. But that is a Western problem because in South Africa the poor buy Lacoste at Spitz. When you buy and sell and from a charity shop you are not only running an honest business but you are helping a charity raise funds.

In this model, people donate their clothing to charity or “thrift” stores that resell the clothing to raise money for a cause (like the Salvation Army or feeding scheme or animal rescue, etc.). Entrepreneurs then buy this clothing and resell it. Internationally a myriad of online sales channels have sprung up the most popular being Depop (others being threadUP, Poshmark, Vinted, Mercari etc.), there are some local shops as well (such as Yaga), but many people sell directly from their Instagram accounts. Now in this business 10x, 15x, even 20x margins are not unheard of that is because some items cost R5 and R10, and the cost is nothing to advertise: snap a photo and upload, and the item can sell for R100, R150 or even R200 for someone looking for a unique item.

Locally we’ve seen people sell used books on bidorbuy, flea markets, municipal stalls, and even some bricks and mortar stores. That is not the recommerce model that I’m talking about here. I prefer the World of Books model, where you buy unsold inventory or surplus by the kilo (or ton) and not individually, sort out the books that are sellable and recycle the rest (or recycle if a book does not sell after a certain time to keep space available and cashflow running), or resell in bulk to secondhand sellers. When you buy books by the kilo then you must get it for recycled paper price. Many of these places are sitting on books that have been there for years that will never sell and it takes up space and selling it in bulk to entrepreneurs even at a discount to their original price can raise funds and free up valuable space. That is the only book model I would do.

CD’s & DVD’s
What used to be a lucrative niche. With the popularity of online streaming, I reckon this category is largely dead with the exception of games (which is also going to decline due to online delivery platforms).  There are some people that operate in the vinyl record niche but whether that makes enough to live on is a mystery to me. Although vinyl records can be laser-cut to make unique clocks with (keeping in line with the sustainability or repurposing movement).

Business Model
There are a few “types” of recommerce business models, I spoke of buying charity donations from an NGO shop. But there are a few ways to source large volumes of stock.

Informal Market: Where you buy and sell from people. I spoke about this before, as stated previously with regards to recommerce it is not a model that I favour but it is still used for high-value items. As mentioned in the previous page on secondhand goods you need to keep a registry of what you are buying in and make copies of people’s ID’s as stolen goods are a big problem in a crime-infested country like South Africa.

Trade-In & Recommerce Services:  These are companies that purchase used goods, refurbish them, and resell them. I spoke of this before with regard to high-value electronics. In general, I am not a fan of dealing with many individuals (vs few suppliers) due to the work involved.

Buy Back & Trade-In Offers by Vendors of new Products: In this case, the supplier and even the retailer offer incentives for people to “trade-in” their “old” goods for an incentive. Now, this isn’t like a car trade-in because most of the time it is a small incentive like a small discount voucher. Now you have to remember one thing: Whether it’s the manufacturer or retailer they don’t have the infrastructure to deal with used goods and there is always a provider who takes it off their hands. If you look at Apple or Makro what are they going to do with the used goods? Someone else has to take it off their hands whether it’s a recycler or a refurbisher. That is where the opportunity comes in for the entrepreneur. Tip: join an industry body for more credibility.  Then you can say “I am a member of eWASA (e-Waste Association of South Africa)” and certified this and that and it makes you look more credible.

South African specific models
One way to source large volumes of items in SA is to set up a specific type of recycling operation. Now in South Africa, there are industries, particularly e-waste where this is popular. Where items are fixed and sold back into the market. We also see this in the paper waste industry, dated (but new condition) magazines end up in secondhand stores. This is often the case with imported magazines that cost over R100 each current but dated can be bought for R10 each and in many cases, this is great value. I have often bought design-related magazines this way. Now as I have said many times before to set up what SA calls a “recycling” business is not that expensive for the simple fact that 99% of them are simply collection points that sell the items further down the chain (for a profit) and do no recycling whatsoever (except bailing the goods for easy transportation) so there is no need for expensive equipment.

Another way to source goods is a junk collection service. You can read all about that here: Start a “Junk” Collection Service and the sales channel: Open a Junk Shop.

In fact the bulk model mentioned above is the only model I would do. I cannot see myself dealing with individuals. You need to deal with organisations that already have existing collection infrastructure, and be able to buy bulk on the same no bickering (no sorting) basis of a junk shop.

Luxury Model
Besides the low-cost model that I prefer there is a luxury (and vintage) model of the resale of secondhand goods like leathers and handbags. Often times the shops sell on a consignment model (they probably cannot afford to buy and hold lots of stock of luxury items). I don’t know enough about the luxury market to give an opinion. I do know that the vast majority of the clothing buyers are female. I don’t think males are big into it. But I might be wrong (although I would not wear clothing that was worn by a stranger before).

Legal Structure

Now we have spoken about getting stock from third parties, but the question is can this type of business be turned into a social enterprise that donates profits to a good cause within the South African context?

Let’s say you set up a book operation, you say to the public, donate books to me for free and with half of the profits I make those little mini-libraries (its a fancy book shelf) and donate it to community organisations in poor areas. So you build these things and you put in there children books that you collected and you donate them.

The problem comes here with a corporate structure, South Africa does not have a legal form that suits a social enterprise, there is Pty Ltd. (high taxes) and people don’t like donating to businesses or NGO (rules does not suit an entrepreneur, although you can draw a high salary as most NGO directors do). In certain countries, you have B Corporation certification. This is a certification of “social and environmental performance” is a private certification of for-profit companies. You are still a private company with a profit motive and shareholders but the work you are doing says that you have a social aspect, and I’m not talking about “social responsibility” I’m talking about the social enterprise business model basically balancing profit and purpose. In certain states in the US you also get a social purpose corporation which is a for-profit entity for corporations that have a positive social or environmental impact. Which is what you are doing here.