Between eCommerce accelerating existing trends (penetration of online grocery) high street retailers relying on it as a mechanism to shift a mountain of inventory, or whether anything can stop Amazon on its inevitable rise to world domination, there is unprecedented attention being paid to how eCommerce stands to benefit from the lockdowns and shift in consumer behaviour. But there is a sub-category of eCommerce which has been quietly chugging along for the past decade and is poised to grow substantially in the post Covid-19 world: reCommerce (which enables the resale of previously owned goods) and is growing at 20x faster than the broader retail market 01 – investors should position themselves now to capture that upside.
reCommerce has true technology differentiation through the pricing engine which becomes more refined with each transaction and is essential to the business model (maximising the gross profit between the seller and the purchaser, whilst maintaining liquidity / reducing inventory risk). reCommerce are in essence AI companies, before the term became fashionable.
reCommerce often operates in product niches where purchasers are price sensitive and want verification by a reputable third party such as cars, watches and high-end electronics therefore consumers are reluctant to buy second hand directly from one another over a marketplace.
Covid-19 has created several tailwinds for reCommerce:
Weakened macro environment
- Sellers who have decluttered looking to extract value from unused / underused items without wasting time by listing an item on eBay or a classifieds website for a month
- Purchasers becoming more price sensitive and hence focusing on second-hand or rental items over new products (including for clothing as Rent the Runway has demonstrated)
- Precedent: the aftermath of the 2008 recession accelerated the then nascent flash sales business model (Groupon and Living Social founded in 2008 and 2007 respectively) – in contrast reCommerce has been quietly building for the past decade (see further below)
Increased environmental awareness / the circular economy
- The impact of electronic waste, fast fashion (driven in large part by traditional eCommerce) has become more prominent over recent years
There have been a couple of reCommerce companies who have demonstrated the success of the business model over the past decade:
- WeBuyAnyCar has grown to c.250k cars transacted per year and c.£25m of EBITDA (y/e March 19) and is a major component of its parent’s (BCA Marketplace) equity story
- Music Magpie grew to c.£25m of gross profit and c.£4m EBITDA (y/e May 2018) with minimal external capital and successfully navigating a pivot physical media (DVDs, CDs) to a focus on high end electronics
- Momox has grown to over €200m of revenue and 1,000 employees
- Chrono24 reportedly executed over €1.3bn of transactions in 2018 and raised c.$50m of growth equity during 2019
- Vinted has managed to attract 25m users to its platform and raised €128m of growth equity at €1bn valuation in November 2019
- Back Market raised $120m of growth equity funding during the lockdown in France
- Swappie grew net revenues 4x in 2019 to €35m, and accelerated growth during lockdown before raising a $40m Series B
With European fashion reCommerce estimated to be c.€13bn 02, and the smartphone resales market worth over $17bn in the US 03, we believe that the wider reCommerce sector in Europe is generating over c.€30bn of transactions per annum.
Given the aforementioned trends which have been accelerated by Covid-19, and the precedent of flash sales businesses such as Groupon and Zulily managing to grow from scratch to $1bn+ revenue businesses each in just 3 to 4 years following the Great Recession, we expect to see many more European reCommerce unicorns by 2025.
- 01 – https://www.practicalecommerce.com/recommerce-surges-as-retailers-brands-get-in-the-game
- 02 – https://www.forbes.com/sites/isabeltogoh/2019/11/28/a-used-clothing-marketplace-is-europes-newest-and-trendiest-tech-unicorn/#2ae350cd4d9e
- 03 – https://www2.deloitte.com/mk/en/pages/technology-media-and-telecommunications/articles/tmt-pred16-telecomm-used-smartphones-17-billion-market.html#full-report