In the world of retail, recommerce is on the rise. The market for used goods has expanded and businesses are rushing to fill that niche. To get the inside scoop on what’s going on with recommerce and where things might be headed from here, we sat down with Suresh Dakshina, President of Chargeback Gurus and expert in payments, fraud, and chargebacks.
At its core, recommerce is about selling a pre-owned product. And that idea has been around for a long time. Even if we’re talking about just e-commerce, we’ve seen used cars being sold online, used books, used electronics, etc. The reason recommerce is gaining momentum right now is that it’s expanding to other industries. For example, recommerce has become much more popular in the clothing, jewelry, and luxury goods industry.
One reason is that Millenials and Zillenials are very open to the idea of buying something used that’s in good condition in order to save money. Instead of spending thousands of dollars on designer clothing, they can get the exact same clothes used for a fraction of the price. Many of these consumers are also concerned about the environment and want to cut down on their carbon footprint by purchasing used products instead of new ones.
Another reason is the pandemic’s effect on the supply chain in many industries. During the lockdowns, there was a huge spike in demand for exercise equipment, and many retailers were sold out. Customers started looking at other options, including used products.
Recommerce also has some major advantages for retailers. When a product is returned after being opened, many retailers don’t have anything they can do with it other than throw it away or recycle it. Now they’re opening up new outlets to sell these items that previously would have been a total loss.
Fashion in general is a big one. There are limited edition shoes that might not even be available to buy new anymore, so businesses have popped up to sell pre-owned shoes in a more structured way than the typical eBay listings from unknown individuals.
Luxury watches are another example. Rolex has dramatically scaled down their production, so recommerce has become a way to get these watches that might not be available at retail stores.
There’s also a recommerce market for luxury cars that’s different from the normal used car market. For some of these luxury brands like Ferrari and Lamborghini, the waiting list to buy one is more than a year. So instead of waiting, buyers are paying a premium to buy these pre-owned cars.
One of the major risks I see is that more and more companies are getting into recommerce right now. For example, Levi’s has created its own recommerce site. And as recommerce becomes more popular, more fraudsters are going to become aware of it and target the industry.
One form of fraud I think will be prevalent in recommerce is first-party misuse. It’s easy for someone to call their bank and say, “I ordered this product, they said it would be in good condition, but it’s not in good condition.”
And when it’s a pre-owned product, the bank is likely to believe that and grant a chargeback. The fraudster gets their money back and keeps the product as well. Return fraud is also something that will be more common in recommerce. In order to make sure customers are confident in buying a used product, it’s often necessary for recommerce stores to have an especially generous return policy.
In some cases, they might refund the customer without asking for the product to be returned. Fraudsters can abuse that policy by purchasing items with the intention of getting a refund regardless of the actual quality. In other cases, they might claim they sent the product back without actually doing so. If the merchant doesn’t provide a refund, they can go to their bank and say they’re owed a refund and the merchant won’t give it to them.
Well, take the clothing industry, for example. We’re actually producing 100 billion items of clothing each year on a planet with less than 8 billion people. And most clothes last longer than a year, so there’s an enormous amount of waste there. Recommerce is one way to approach sustainability. If more and more people are using pre-owned items, the consumption of resources can be reduced.
Also, many unsold or returned clothing items end up in landfills, where synthetic fabrics can take decades if not centuries to decompose. With recommerce, those products can instead be sold to consumers.
Marketplaces specializing in luxury consignments are becoming popular. Stores like Real Real and StockX are making headway into the recommerce space where the consignments are sometimes validated by the stores prior to sale for authenticity. I also think this is going to be an extension of any retail store or any brand name out there. If you have a retail store, it’s almost inevitable that you’ll look into recommerce.
I see more brick-and-mortar stores and luxury brands entering the recommerce space, where returned items and products with minor defects can be sold to an audience that’s interested in paying less of a premium.
I think this is going to be a whole new avenue that will both compete with regular commerce and work alongside it to make businesses more profitable.
The core philosophy of Chargeback Gurus is that every dispute tells a story. Every time we go into a new industry, we learn a lot about that industry through our analytics. We collect a lot of data, and that data will be a huge benefit to the recommerce merchants we’re forming relationships with.
We can analyze and learn from buyer behavior, and identify the good and bad actors in the recommerce payment ecosystem. And we can take what we learn and use it to make this industry better. Right now, this is still an emerging industry, and there’s not a lot of data out there.
How are consumers reacting to this business model? How are fraudsters targeting it? How are customers trying to game the system? There isn’t much data available right now, and Chargeback Gurus is at the forefront of collecting this data and working with merchants to protect their businesses.
We believe businesses are successful when they can focus more on what they do best—we’ve built a platform and services to help them do just that.
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