We buy a lot of things. We throw away a lot of things. In honor of Earth Day, let's celebrate the fact that the secondary goods market is getting an upgrade. 

Whether inspired by shopping at a discount or conserving resources, startups and consumers across the country are turning a frustrating and fragmented ordeal into a simple and satisfying way to buy and sell quality used goods time and time again.

In this evaluation, we dig into:

  • Why a secondary goods market is important to economic growth
  • What it means to redefine "ownership"
  • Problems behind buying and selling used through current means
  • Solutions being tested by startups in the clothing, furniture, and automobile sectors
  • The substantial waste problem these companies are trying to solve 

Buying and selling used is good for the economy and the planet

Consumption is a natural part of our every day, supplying us with what we need to survive and lead comfortable and enjoyable lives. Food, beverage, clothing, shelter, transportation--if you can name it, you can probably buy it. 

Does that mean that we should generally consume more, or rather consume more thoughtfully and carefully? Are we supposed to think short-term or long-term, micro or macro? Are we consuming now at the expense of future economic gain?

Imagine a world where it's as easy and popular to buy used goods as it is new. You can have that new (to you) shirt, sofa, or sedan with the click of a button and trade yours in with minimal transaction costs.

Short-term satisfaction and long-term sustainable growth are not at odds, but new systems must be put into place for the secondary goods market to properly compete with the primary market for an individual's attention and wallet.

Creating a strong secondary market is beneficial for long-term economic gain because it allows us to:

  • Use and reuse products until the end of their useful lifetimes,
  • Meet a larger portion of consumer demand with existing supply,
  • Reallocate capital and labor more efficiently to build products we need,
  • Reduce natural resource and energy consumption through reallocated production, and
  • Reduce landfill waste and better utilize space for progressive purposes

Now, am I saying that we should halt all clothing, furniture, or automobile manufacturing? Of course not, but I am suggesting that we should build things to last and use them until they break, rather than throw them away for something new.

Redefining ownership: from buying and selling to sharing

The current mode of thinking is to buy things, use them until they are no longer useful or stylish, and then throw them away, leave them on the curb or make a relatively painless donation.

In some circumstances, the item still retains enough value to be worth the hassle of trying to resell. But why isn't it always "worth it" to sell something that is still useful to someone? Because it isn't easy. It isn't worth the time and the hassle.

And shouldn't buying something that already exists be cheaper and easier to acquire than something we have to build from scratch? Prices of some manufactured products are going down, not necessarily because we are producing them more efficiently but often because declining material quality is to blame. 

To mirror millennial buying behavior, the new generation of goods is designed to be disposed of within 1-2 years of purchase. Of course they are cheaper; they have to be in order to compete with the secondary goods market.

If we can redefine ownership to be one of sharing assets rather than owning them, then a used good with remaining utility will always win against something brand new built to satisfy that same need. 

First, sellers must be convinced that they can dispose of unwanted goods in a way that makes it "worth it." Most often, this means that they can find a buyer without too much effort or time wasted. More quality supply then leads to a better buying experience.

Second, customers must see the value in buying used. Again, it's about lowering the activation energy and meeting the value equation. Companies like Move Loot in furniture and Twice in clothing are changing this customer perception, creating full-service marketplaces that resemble traditional e-commerce more than they do Craigslist.

Third, the exchange of used goods between buyer and seller becomes so fluid and routine that customers associate the transaction more with sharing than with buying and selling. 

How do we change the value equation?

People value different things when making buying and selling decisions: time, money, style, quality... the list goes on. These are the factors that customers use to evaluate how and where to shop. 

When buying, secondary marketplaces are going head-to-head with new goods as well as used good incumbents like eBay and Craigslist. 

When selling, the competition includes the curb or the trashcan.

I describe this as the activation energy required to make a transaction, or the value equation needed to match a buyer with a seller.

For secondhand goods to be competitive with new goods, the experience needs to be as easy as shopping on Amazon or at IKEA. It needs to have a selection that matches varying customer needs and price points, and it needs to offer a secure payment platform and pickup/delivery experience. 

The goals of every secondhand goods marketplace are to make the experience simple and convenient, improve the inventory selection to match your target user demand, and offer security and quality control to build trust with the user

One of the biggest hurdles is managing pickup and delivery. To match the growing customer desire for on-demand, in-home services, these used-goods marketplaces are developing supply chains of their own.

For most e-commerce companies, managing small parcel shipping in the United States is the easy part. FedEx, UPS, and USPS have nearly complete coverage and incredible system and scale efficiencies that bring costs down for the end customer.

Shipping anything that doesn't fit into a small box or bag is a different story. 

First, the seller must freight the inventory across the country. As long as the seller is shipping enough product, bulk pricing can be relatively reasonable. However, you can see how this would break down if an individual in California was trying to ship a couch to an individual in New York. One-off transactions yield zero scale efficiencies, and the pricing will reflect that.

Second, the last-mile cost - actually getting the item from a local warehouse to your door - is the most fragmented and likely expensive part of the process. Unlike FedEx or UPS, which can have one driver per truck, this requires a two-person team and additional carry insurance. For automobiles, it is often left at a car lot for you to drive the last mile yourself or, in a more convenient (but more expensive) scenario, have the vehicle driven to you. Having that driver then return to his or her home base is another incremental expense. 

So what are people doing about it?

Over the last several years, curious minds have realized the opportunity to rationalize the fragmentation in all of these industries, focusing on individual verticals within Craigslist and eBay to create stand-alone brands with specialized services optimizing for that type of used good.  

The most important step to building these marketplaces is understanding the problem you're trying to solve. It sounds obvious, but it's critical to determine early on how you are going to acquire a good, price that good, market it and deliver it.

Several models have emerged:

  • Peer-to-peer: allowing buyer and seller to transact directly, leaving the item in the owner's possession, often with shipping or local pickup option
  • Consignment: items acquired, stored, and delivered by the marketplace; the seller is paid once the item sells
  • Outright buy: items acquired and purchased upfront by the marketplace to be resold for a higher price to an eventual buyer

Startups in the clothing, furniture, and automobile industries (among others) are reimagining these traditional business models to provide the ideal user experience for their target customer. The three clearest determinants for choosing one model over another are:

Marketplace liquidity: the likelihood that an item will sell within a given amount of time for a certain price. In this, cars and clothes are most often branded with well-known resale values. Furniture is largely unbranded (custom, vintage, antique, or just unknown to the seller), which means that confidence in price setting to meet demand initially leaves more room for error. If you know what your inventory will sell for, then you're more likely to buy it upfront with predictable margins.

Value of item: within a vertical, the value of the inventory may define marketing and service offerings. Typically, you will see an s-curve on turnover time vs price, with lower priced items selling faster than higher priced items. There will likely be a divergence in how a marketplace treats mass-market vs high-end inventory because the buyers and sellers of each prioritize different services and features.

Size of item: the size of an item defines the delivery and storage requirements. Some clothing companies are providing easy, print-at-home labels to leverage FedEx and UPS for cross-country shipping. Move Loot built an in-house last mile delivery team whereas Viyet and Chairish integrated with large parcel shipping carriers. Beepi and Shift will drive cars to you to test drive and purchase, where as Carlypso leaves the logistics management to the end user.

How is this innovation helping out planet Earth?

These businesses are not only creating a new way for people to buy and sell, but they are also diverting incredible amounts of waste from landfills. 

Twice (left) and Move Loot (right) communicate the positive environmental impact of their businesses by showing pounds of product saved from landfills. Of course, this number isn't perfect, but it shows directionally how companies are combatting an ever-growing environmental problem.

We, as consumers, don't have to sacrifice short-term wants and needs to act with long-term sustainability in mind. The answer: buy and sell secondhand.

Published on: Apr 22, 2015