The Rise of Brand-Led “Recommerce”

Secondhand shopping is on the rise. Once largely the domain of vintage fashion lovers and bargain hunters, it’s now part of a fast-emerging global phenomenon known as “recommerce.”

While recommerce has so far been dominated by third-party online marketplaces like eBay, Poshmark and Rent the Runway, brands themselves are beginning to take note. Though ostensibly a potential threat to brands’ mainline sales, we at Citi Ventures believe recommerce actually creates new opportunities for brands to drive those sales, acquire new customers and increase the lifetime value of their products and customers.

Read on for an overview of the recommerce landscape and how brands can capture the opportunities it presents.

What Is Recommerce?

Short for “reverse commerce,” recommerce refers to extending the lifecycle and lifetime value of products through resale or rental. It’s part of a larger global movement called the “circular economy,” which is disrupting the classic linear economic model (raw material –> processing –> consumption –> waste) by recapturing “waste” for additional consumption.

Recommerce isn’t new, but was largely a niche market until it exploded into the mainstream economy a few years ago: the global recommerce market saw record 15% growth in 2021, and is expected to more than double to $289 billion by 2027. Clothing currently predominates the space, with the global recommerce market for apparel expected to grow 127% by 2026 — 3x faster than the overall global apparel market – but recommerce also includes a variety of consumer goods from furniture to collectibles.

What’s Driving Recommerce Growth?

Several factors are behind the momentum in the recommerce space:

• The Shopping Habits of Generation Z

  Younger consumers are the primary force behind the recent surge in recommerce and the popularization of shopping secondhand overall. Per a 2021 eBay survey, 80% of Gen Zers said they buy secondhand goods while nearly 1 in 3 began selling secondhand goods that year (compared to 12% of people overall).

• The Rise of Online Marketplaces

  Peer-to-peer (P2P) online secondary marketplaces like eBay, Etsy and Craigslist have made it easy to buy and sell used products, kicking off the recommerce phenomenon and paving the way for mobile-first marketplaces such as Poshmark and Mercari to rise.

• COVID-19 and Inflation

  As has been well documented, the COVID-19 pandemic rapidly accelerated e-commerce growth, including online recommerce. Given the current rate of inflation, that growth is likely to continue or increase moving forward — per the 2022 thredUP Resale Report, 63% of consumers who shop secondhand do so to save money.

The Recommerce Landscape

Recommerce players can be categorized into three basic models:

• P2P Marketplaces

  P2P recommerce marketplaces allow consumers to directly connect with one another to sell and buy secondhand products. They can be generalist or sit within niche verticals such as artisanal crafts. Examples: Etsy, Depop, eBay

• Managed Marketplaces

  Also known as “end-to-end” marketplaces, these platforms take a hands-on approach to recommerce by implementing brand authentication processes, taking on inventory, overseeing product shipping and offering different buying options such as subscription memberships and rentals. Examples: Kaiyo, Rent the Runway, thredUP

• Recommerce Enablers for Brands

  Recommerce enablers range from P2P recommerce software providers to platforms that help brands liquidate excess inventory, end-to-end services that manage the entire resale or rental journey and even “recommerce-as-a-service” (RaaS) firms that provide integrated white-label solutions brands can use to create and manage their own branded recommerce channels. Examples: Trove, CaaStle, Max Retail, Ghost

Source: Citi Ventures

How Brands Can Win in Recommerce

While consumers have led the first phase of recommerce, we believe the next phase will belong to brands.

The recommerce market offers significant potential benefits for brands: Not only can it increase the lifetime value of an item, but it can also help brands secure new customers and increase the lifetime value of the customers they already have. Per RaaS provider Trove, 50-65% of resale customers are new to the brand — demonstrating that consumers who’ve been hesitant about trying a brand might be more willing to do so at a lower price point. And, according to the 2022 Recurate Resale Report, consumers would prefer to buy directly from brands than from other users on P2P platforms.

Brands have begun to recognize recommerce’s potential and are asserting themselves as key players in the market. Many have embraced recommerce in their sell strategy via:

• Partnering with Managed Marketplaces

  In this model, brands may provide items for a third-party recommerce platform to sell or invite their customers to sell items to the platform in exchange for store credit. For example, managed marketplace Rent the Runway offers several brand partnership programs — including “Share by RTR,” a consignment program in which brands provide pieces for zero or low upfront cost in exchange for a share of the revenue — and partners with brands to create exclusive designs for the platform.

  Partnerships like these can help brands reach new and different customers, control product quality and gather data and insights around customer demand and item-level feedback. Brands may also partner with excess inventory liquidation platforms like Max Retail and Ghost to monetize returned or unsold merchandise.

• Leveraging RaaS Providers

  RaaS providers offer brands two primary services:

  1) Logistics management: Managing a recommerce channel requires figuring out complicated processes like reverse logistics and product authentication. Several RaaS firms including Trove have thus emerged to provide brands with white-label logistics solutions that allow consumers to trade in their clothing for a gift card and help the brand inspect and resell the traded-in clothing. Trove reports that its clients, including Lululemon and REI, see a 50% lift on gift cards issued — 31% of which are redeemed within the same day.

  2) Rental programs: Some RaaS providers, like CaaStle, enable brands to offer their customers a seamless rental experience that is fully integrated into the brand’s e-commerce website. This can help brands attract new customers who may be more inclined to try their products without a commitment and allow existing customers to experience more products. Rental subscriptions also help brands improve garment monetization and attain a predictable, recurring revenue stream.

Ultimately, we at Citi Ventures believe the recommerce market will rise not in competition with brands but as an asset to them. As evidenced above, recommerce has the potential to dramatically increase brands’ topline revenue and promote loyalty — and brands are well-positioned to win in this market thanks to their strong, loyal customer bases. Whether through resale or rental, we see engaging in recommerce as a compelling strategy for brands to drive mainline sales, acquire new customers and increase the lifetime value of their products and customers.

If you are building and investing in the future of commerce, we look forward to chatting with you!