Senior Client Partner
Retailers: To Resell or Not to Resell?
After years of media pummeling about poor impact on the environment, the company finally took action: a repair and resell service, to allow customers to repair or trade in their used wares. It was a complicated venture, but worth it, executives thought.
They weren’t alone. Executives across tech, fashion and outdoor apparel are increasingly dipping their toes into resell and refurbish businesses for their used products. Leaders say that resell options drive employee and consumer loyalty while supporting the environment. But experts say that adopting a two-tiered product line is risky, especially for lower-margin items. “It’s a double-edged sword,” says retail expert Craig Rowley, senior client partner at Korn Ferry, because resell business present logistical and budgetary challenges, and can damage brand images.
For years, auto companies and firms like Apple and Patagonia have offered refurbish and trade-in programs. In retail, the services are historically offered by high-but-not-top-end brands, because higher price points mean bigger margins. (Luxury companies often avoid the practice, because their brand narratives typically center around “new” and “aspirational”, which clash with the concept of resell.) Now the practice is coming down to mass market product lines like H&M, Shein and Zara, with mail-in and store drop-off options for used goods, and often, little expectation of profit.
Behind the scenes, some of the popularity is due to changing regulatory environments, such as the upcoming sustainable-textile legislation soon to be adopted by the European Union. For companies facing both regulation and environmental challenges, continuing business as usual is growing untenable. “They need to do something,” says Juan Pablo Gonzalez, sector leader for professional services at Korn Ferry.
The key to successful resell businesses, say experts, is to keep costs in check. Customer communications around these programs are notoriously expensive, such as telling a customer that her sweater won’t be accepted, or handling a customer who received a stained and stretched out skirt. “The question is, what do you have to do to make sure you’re not burning through that profit margin quickly?” says Rowley.
Commentators have correctly wondered whether these used businesses will siphon away full-paying customers. Experts agree that the primary business will get mildly cannibalized, and that’s okay. Yes, a shopper might buy a $40 skirt instead of a $60 skirt, but she’ll also return four times this year to sell other items and find new purchases each time. The goal is to create a closed loop that keeps customers returning to the mother ship over and over, constantly functioning within the brand ecosystem. “The bottom line is that if you do it well, it enhances brand loyalty,” says David Vied, global sector leader for medical devices and diagnostics at Korn Ferry.
The marketing around refurbished product lines is complex, says Zach Peikon, principal in the marketing officers practice at Korn Ferry, as companies try to drive demand for both full-price and discounted lines. The surrounding marketing messaging walks a narrow line, beginning with targeting the right customers. The new customer pool will likely include many shoppers who have been previously priced out of the brand. When done astutely, he says, the used business will expand the customer market, while also freeing up customer money to purchase the next new product. Getting it wrong can alienate clientele. “Many existing customers won’t want to be the second person to wear that shirt,” he says.