India’s Recommerce Renaissance

This week, second-hand electronic reseller Cashify raised $12MM to strengthen its resale network and technology stack.

Cashify has already raised $19MM in total to take on the likes of re-commerce giants such as Quikr and Olx, and other upstarts Budli and Overcart.

The competition in this market doesn’t end here, India’s electronic e-commerce leader Flipkart entered last Diwali with an intent to win. All these players are focusing strongly on the smartphone segment, and there is a strong reason to do so.

Most of India’s re-commerce renaissance is happening in smartphones – they are valuable, easy to price and logistically cost effective to manage.

Indian smartphone sales in 2017 were pegged at 124 million units, which in itself is a huge market.

The surprising statistic here is that smartphone resale was pegged at 12 million units, more than every smartphone maker barring Samsung and Xiaomi.

The other surprising statistic is that the growth in smartphone re-commerce globally is found to be growing 4-5x faster than actual smartphones.

It is no wonder that Deloitte published a report called the “$17 billion market you may have never heard of”. The global macro trend driving this is slowing innovation in phones and accelerated switching of phones.

A premium smartphone owner wanting to switch will sell her phone to a willing second-hand phone buyer looking for a feature-laden premium at a bargain. This kind of behaviour is found to be higher in markets with lower average incomes, especially in a frugal country like India.

India is both aspirational and value conscious – and thus a strong market for second-hand products.

The market is also highly disorganized, with grey markets existing for decades in Mumbai’s Heera Panna, Delhi’s Gaffar Market and Kolkata’s Fancy Market. As the startup trope goes – a sizable, growing and disorganized market is ripe for “disruption”.

The Indian offline second-hand market was first brought online by Quikr in 2008, and Olx followed suit in 2011 seeing its growth. Both these companies, though, followed the incredibly scalable but ad-driven listing business model.

India’s limited, but growing, online population required these companies to be horizontals in order to scale. But there is a story from the other side of the planet that tells us the troubles of being a horizontal.

That story is the birth of Uber, Airbnb and many other internet vertical giants from craigslist.

Listings are great for discovery, but leave a lot of work to the buyer and seller. All “coordination costs” are borne by the buyer+seller i.e. exchanging the product.

Every middle class Indian who has sold/bought a second hand has gone through the troubles of coordination even after finding a buyer for their product. It is out of this inconvenience that vertically focused re-commerce players such as Cashify were born.

They manage everything, right from pricing your device, picking it up and paying you. The devices are then sold to a reseller, who sells it back into the market.

This model is also lucrative, with margins as high as 40% – something even OEMs would be proud of. From an LTV/CAC perspective (definitions here), a phone sold at INR 5K nets 2K to the re-commerce company.

Post-delivery, the company could net close to 1K – a healthy business if CAC is at an achievable 300. All this is possible because of the powerful customer relationship, something I had observed for Swiggy’s doorstep battle.

Once a company owns this customer relationship, the possibilities are endless because device resale becomes just one stage of the relationship.

The company could become a device life cycle manager, involved in insuring the phone when it is bought, to repairing it when defective, to managing its resale and final refurbishment.

Each of these 4 stages by themselves are sizable markets, with the ability to move forwards or backwards in the lifecycle management. Companies like Yaantra, JustLikeNew and OnSiteGo are growing rapidly in the repair and refurbishing space. It would only be natural for them to extend to resale. 

While everybody keeps looking at e-commerce, you might find a re-commerce giant “appear” at your doorstep.