Pre-loved, pre-owned, gently used, or secondhand – every product sold under a recommerce business model is part of a retail revolution that began brewing long before the pandemic. But as global crises in the economy, environment, and supply chain continue, well-established brands are redirecting their attention to the sustainability-focused approach.
The growing value of secondhand and resale apparel is a prime example of recommerce’s recent rise. Starting with an estimated worth of US$96 billion in 2021, the retail segment is projected to double in size within the next three years, reaching $218 billion by 2026. Similar growth levels are also reflected in other retail categories, including electronics, fashion accessories, and oversized goods such as furniture.
However, innovating this business model is more than just an exercise of responding to consumer demand, regulatory pressure, and expectations for prolonged product life. It’s also an opportunity to enter markets that are otherwise inaccessible due to price sensitivity, supply chain barriers, provenance uncertainty, and monopolization of recommerce-native startups running on customer-to-customer (C2C) platforms.
Recommerce’s Potential Goes Beyond Sustainability
While the rules of creating, implementing, and operating a recommerce business model are similar to those for other innovation initiatives, the scope of change is much more wide-reaching.
Business model innovation is traditionally consumer-centric and mainly focused on the buying experience in the retail sector. However, in the case of recommerce, the seller and buyer are equally considered “consumers.” Therefore, frictionless processes are essential whether sellers send their used goods to the retailer and receive in-kind payment or buyers browse the commerce site, complete their purchase, and return an item.
Compared to competing startups, larger retailers and brands could have a considerable edge in creating seller and buyer experiences that are fast, transparent, and responsive. Organizations can achieve these characteristics by further advancing existing technology infrastructure to help ensure immediate payout for every item sold, optimize inventory turnover and control, streamline logistics, and prevent fraudulent transactions.
True Value Emerges with Expertise and Guidance
Capturing the total value of a recommerce business model can be easier said than done – especially within the confines of traditionally slim margins and under the watchful eyes of consumers, industry auditors, and government regulators. However, access to industry, process, and technology expertise allows retailers to create an authentic model that meets consumer needs and expectations while optimizing profitability and sustainability performance.
For businesses within the retail industry, Resell Engine from SAP can help fulfill that promise with an intelligent algorithm. The software can evaluate a wide database of secondhand items and calculate a buy-back and competitive resale price. In addition, recommerce managers can set rules for different markdowns to help tailor the price determination to their needs.
Furthermore, with the support of SAP Advisory Services, businesses can blend their established Resell Engine with existing applications to draw on the latest SAP innovations, broad leadership in industry expertise, and a global innovator ecosystem. In return, executable strategies are shaped to help optimize operations, business models, and revenue streams while driving change with less risk, increased speed, and exceptional outcomes.
Suppose your retail organization wanted to automate the pricing of received goods. You could give sellers optimal payback for their items, yield the high-quality inventory that consumers demand, and expand margins for your company by using Resell Engine.
The first step is automating analysis and price-setting consistently across sales channels. The algorithm of the Resell Engine software can evaluate a comprehensive database of secondhand items to help calculate a buyback and competitive resale price based on authentication and condition. You can then adapt pricing strategies – such as markdowns – to optimize the profitability of every transaction and seize market demand effectively.
But pricing is only one area where big losses can take place in a recommerce business model. Margins are also susceptible because the 24/7 pace of your e-commerce business model can challenge the balance between pricing, sustainability, and profitability.
Extending Resell Engine across your business can help facilitate that equilibrium by complementing your brand’s strategic vision and meeting consumer expectations. You can also implement, deploy, and roll out new capabilities of Resell Engine necessary to support the business model – pivoting processes to help address emerging business needs and realize expected outcomes.
Based on extensive industry, process, and technology research, Resell Engine can enable you to explore the impact and value of your price determinations while aligning requirements and objectives with the business model. In return, you can increase secondhand good sales with a higher sell-through rate, double your operational efficiency, attract more customers with fair pricing, and promote experiences that your customers and sellers will love.
But more importantly, you can build a business model that helps ensure your costs do not outweigh the benefits of recommerce. Resell Engine can provide the insights needed to undergo an accurate cost-benefit analysis of your recommerce scenario, including risk assessment and mitigation.
A More Sustainable and Profitable Future Is Ahead
Retailers that invest in recommerce today will position themselves to weather economic downturns and reap the benefits of becoming a more sustainable brand. But they must take the proper steps by designing a highly efficient system that provides the greatest possible value to their buyers and sellers while maximizing revenue recovery on returns and resale items.
This is where Resell Engine from SAP comes in. Through the software’s guidance, insights, and enablement, retailers can set a clear vision, create a best-practice design, and drive a strategic plan that can reveal a more sustainable and profitable future through a recommerce business model.
Maximilian Schmid is an entrepreneur in residence (Resell Engine from SAP) and a BTS management consultant for SAP Germany.
Benedikt Scheuermann is an entrepreneur in residence (Resell Engine from SAP) and a BTS management consultant for SAP Germany.