Why More Companies Are Getting in on the Resale Game

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

You know the feeling, you buy something you think is going to work for you and then for whatever reason you don’t use it. You can sell it online, put it in a donation bin, throw it away, or just leave it in the back of a closet. One estimate is that the average U.S. household has a trove of reusable goods worth more than $4,000. There’s a similar pattern internationally.

There has always been a strong resale market for used goods, but usually the companies that originally sold those items new have ignored resale. Until now, thanks to a generational shift that is prioritizing sustainability and reuse, companies that once saw product resale as a substitute or competition, now see it as a strategic opportunity. And big brands like Apple, Nike, and Rolex have gotten into the resale game themselves.

Joining us to talk about this is Tom Robertson, a marketing professor and former dean at the Wharton School. He’s the author of the HBR article “The Resale Revolution.” Hi Tom, welcome.

TOM ROBERTSON: Well, thank you. It’s great to be here.

CURT NICKISCH: Let’s start with the catalyst here. I mean, the title of your article is Resale Revolution. What is the revolution? What’s the force that’s driving this big change?

TOM ROBERTSON: I think as you mentioned, resale’s been with us for a very long time, whether at thrift stores or garage sales. I think what has changed, probably three things. One is technology. You now have the ability to reach people nationwide, worldwide, with various sites and using various apps.

The focus on sustainability has changed not only among young people, but among major segments of more mature audiences as well. And in particular, Gen Zs have come along and they’re more interested in sustainability and more interested in the values that companies hold. Now, I’m not going to oversell that because I know that very often they say these things and then the question is, do they really always act that way?

I’ve been teaching undergrads for a couple of years. The average age of my students is about 20. They’re either sophomores or juniors, and they do think about things a little bit differently. They think in terms of sustainability. One of the things that they talked about was thrift hauls. They go out and buy things used and then they display them on TikTok or Instagram. I found that to be a fascinating form of reverse conspicuous consumption. So if I ask my students, “Do you buy used products?” “Yes.” And then I’ll say, “Do you buy products in fast fashion?” And they’ll say, “Yes.” So there are some contradictions going on, but I think things have changed and companies are now recognizing this.

CURT NICKISCH: How have companies normally seen this space before? What traditionally has been their view of resale of the goods that they make?

TOM ROBERTSON: They’ve either ignored resale as a possibility or they have thought it was too much trouble to engage in resale. More recently, some third-party apps have come along to help companies who will help design their resale websites or actually do the transaction for the company with consumers. So companies are finally saying, “Yeah, we could do this.” There’s also an important point, Curt, if they don’t do it, someone else is going to do it for them.

CURT NICKISCH: Right, consumers are already doing it.

TOM ROBERTSON: Consumers are already doing it, and some of these third party apps are already doing it. So if, for example, Rolex, it took them a while to get into the business of reselling their own watches. And so they were giving up all the revenue profit potential of other third party vendors out there selling Rolex watches. They were also not able to authenticate if someone else was doing it. So the advantage of doing it yourself is, “Hey, we can authenticate. We can make some money on this.” So I think companies are waking up to that.

CURT NICKISCH: Rolex makes a lot of sense. Those are high value items, and so that can be worth the trouble for the company and has these added brand benefits to doing it. Is that a common theme where you’ve seen companies move into this market, they’ve done it because they’re trying to capture value?

TOM ROBERTSON: Yeah, they’re trying to capture value. There is profit potential and the easiest place to go is high value items. But I think companies are also under pressure to attest to their sustainability credentials and resale is one way to do that. Now, if you’re Patagonia and your whole positioning in the market is about sustainability and being a very principled company, you have to do resale. But I think other companies are doing it as well now because they realize that consumers want to know what’s happening to these products when they’re no longer in use.

CURT NICKISCH: Now, a big worry for a lot of companies has got to be cannibalization. If they put used products up cheaper right next to the new ones on their website, that’s just going to pull demand away from their main business, selling new items. What do you say to that?

TOM ROBERTSON: Well, I think there is some risk of that for some percentage of cases. However, often you are reaching a different market segments and you’re reaching people who couldn’t necessarily afford to buy the original item. And so you’re reaching future consumers, people who want to buy an Hermès bag or whatever and can’t afford to buy the original, but are going to buy the used bag. And in a sense, they’re getting on the ladder for that brand. And that’s an advantage to the brand. If I get consumers, younger consumers buying my product, even if it is used, there’s the potential that they will then buy the original as we go further ahead in their lives or in their careers.

CURT NICKISCH: So you’ve mentioned a few companies. What firm do you think is the best reseller out there? Or what are the ones that, companies that are interested in doing this should really be looking at?

TOM ROBERTSON: Well, you always have to admire Apple. I buy a new Apple iPhone, and the next thing they want to know is, would you like to trade in your old one? And they do just a masterful job of getting people to trade in phones. And this is over a 50 billion international market for used smartphones. So I have to admire Apple and how well they do. I also actually admire Michael Kors for a somewhat  different reason, and that is that they tie it into their loyalty program. And so people who have bought from Michael Kors are in their systems, and so in a sense, they’re already authenticated and they then have the ability to sell on Michael Kors type websites. So I think that’s kind of an interesting way to go about this. You always have Walmart doing interesting things, and especially in appliances and electronics, they’ve been doing a very good job of having products restored and putting them up for sale sometimes on adjacent websites. And of course Amazon does that as well.

CURT NICKISCH: Yeah, you stop and think about it and you realize just how prevalent it is because Amazon sells used items for everything. If someone returns something, they will often resell it. When you buy something like that it arrives and has a sticker like, “thanks for giving this item a second life.”

So if a company realizes that this is an area that they really need to think hard about or that they want to get into, what hurdles are there for them to clear? If they want to start a successful resale business for themselves, what’s the process for them to do that?

TOM ROBERTSON: Well, the simplest part of the process or the simplest way to do it would be to go through a third-party to do it for you. The market has evolved, a tremendous number of third-party companies out there now, which will help original brands to resell. They may design the website for the company on its resale. They may do the analytics behind it, and they may do the actual sale or acquisition and sale of the product.

There are multiple vendors out there: Trove or RealReal, thredUP, FASHIONPHILE, Rebag. All of which are performing a very useful function in the marketplace. And it may be that for a major brand, I don’t want to reinvent the wheel, I don’t want to do it myself, and I’d rather turn to a specialized third party who’s already doing this and can tell me how to do it.

I think it’s also very important that it has to be simple for the consumer. It has to be friction-free. And so on the acquisition side, Best Buy, for example, sends out a box and you fill the box and send it back to them, and maybe it will be of value and they’ll resell some of it. Or thredUP, which is very big in this market, they also send you a box and they will then tell you how much it’s worth after they get the materials and you get a percentage of the sales price. So you definitely can go through third party players who are in this market now, many of which are becoming quite important.

CURT NICKISCH: I can see how that could be very attractive. So a lot of companies would say, “We haven’t done this yet at all. We’ve let other people do this, have deemed it below us for a long time, and now we feel like we need to get into it. It’s not what we do well, and so let’s partner with somebody who really does this well and can help us protect the brand and do what we need to do and help us capture some value, serve our customers better.” And there’s a real benefit there.

But if you’re saying that this is a 21st century reality and that this is a generational shift in consumption, I wonder if that’s really a smart long-term strategy or if companies really need to understand this so that they can understand how their business works in the future.

TOM ROBERTSON: I suppose what you’re leading to is they should do it themselves. And that’s entirely possible. Right. I think particularly for high value items, yes, it might be reasonably easy to, not easy, but straightforward to do it yourself.

CURT NICKISCH: There’s more margin for error. Yeah.

TOM ROBERTSON: There’s more margin for error. So there are things that are just totally no-brainers, whether it’s watches or expensive handbags or very expensive garments. You can do it yourself. Maybe you should do it yourself, and you also have a better ability to authenticate. One of the things that companies worry about – you mentioned the idea of cannibalization.

Another difficulty is if you let others do it, there’s the possibility that it’s not really a Chanel bag, it’s not really, whatever, a Rolex watch and that you may have the best ability to authenticate. I think companies are getting very serious about that now and finding other ways to go about authentication because authentication’s an expensive process. How can you do it cost effectively? And so it may be you’re sending in pictures and the company doesn’t want to physically have the bag in their possession until they’re reasonably sure from the pictures that it is indeed their bag. And then the authentication becomes a lot more straightforward because you’re looking at perhaps a lower percentage of items that would be in your possession.

CURT NICKISCH: It depends on your business, I suppose. If you have to worry about warehousing, shipping, supply chain issues, just for starters. Are there key questions that companies can ask themselves to help them know whether it’s something that they should go with an external vendor for or whether they want to try to do it in-house?

TOM ROBERTSON: Yeah, I’d be looking at their supply chain and where it’s coming from and is it a long supply chain coming from Asia or a short one that’s in the United States? I think there are a lot of different scenarios for all of this. I also think that this is a market that is evolving. It’s going to change. It hasn’t by any means gotten up to scale yet.

And reverse supply chains are difficult. I think you mentioned returns. Let’s say with Amazon, you mentioned, returns are a big part of resale and yet handling returns in and of itself is, for some companies, is a difficult process. Does it go back on the rack? Is it resold somehow? Or does it go to a consolidator and go to some second or third tier retailer or unfortunately sometimes go into a dump?

So I think what’s going to happen in the future, there are going to be more and more business models that are going to be looking at resale and looking at issues such as returns. I noticed there are a number of startups in the return area. UPS has bought one. FedEx is, I believe they bought one a year or two ago. So FedEx, UPS are getting serious about returns as a profit opportunity. And then these returns are going to have to fit into a resale paradigm.

So they’re going to be new business models. I think there’s going to be consolidation. I think a number of these, especially third-party vendors, they lack scale. And so as they get up to scale, this may make the market more cost effective.

I think we’re going to have to integrate new and used. And you see a few little signs of that. For example, Neiman Marcus has an equity position in a company called FASHIONPHILE, which is in the luxury handbag, accessory part of the market. And they are using the Neiman market stores for people to get a price on something that they might want to sell on FASHIONPHILE. And there is the potential that you could in Neiman Marcus stores actually sell used FASHIONPHILE merchandise that they have acquired.

CURT NICKISCH: Yes, it’s interesting. Some companies integrate that on their website where it’s all together. Others have a sort of a separate brand or like an outlet brand for used gear. Patagonia actually has a store where it’s all secondhand.

TOM ROBERTSON: They have a store that’s all secondhand and it’s right next to the store that’s all firsthand. So I don’t think they’ve ever put the two totally together. And a lot of people think this is coming.

CURT NICKISCH: Can any company do this?

TOM ROBERTSON: I think so. I should be thinking of the ones that are doing it such as H&M. You think, oh, their merchandise is not all that expensive, but they’ve been doing resale. And even Zara, I don’t have the details on that, but they’ve experimented with doing resale. So I think, yeah, there’s lots of potential for doing this. And I think, Curt, that there’s also a pressure. If you’re in a fast fashion business, people are very concerned about how much of that is winding up in dumps. So if you can show that you are doing something about that, that you are engaged in sourcing and reselling fast fashion items, that will be very much to your advantage in terms of your positioning on sustainability. Now, I think that’s difficult, but they may not have a choice.

CURT NICKISCH: Have you seen any companies try to do this and it kind of flopped? Any lessons from failures?

TOM ROBERTSON: Well, that’s a tough question. Actually, no, I haven’t. When I was interviewing companies, I was looking at successes and not failures. I’m sure there must be failures out there that companies didn’t realize how complicated it was, how difficult reverse supply chains were.

CURT NICKISCH: In your view, it sounds like the failure is that not more companies are doing this.

TOM ROBERTSON: Yeah, I think so. If you don’t do it, someone else is going to do it for you. So you’re going to miss out on potential revenue and profitability, and you’re going to miss out on the ability to authenticate so that you don’t have fake items floating around.

CURT NICKISCH: Right, which ends up hurting your brand.

TOM ROBERTSON: Which ends up hurting your brand. And you’re going to miss out on potentially the younger consumers. Not everyone can afford expensive bags or jewelry or whatever, watches, but they can potentially afford reused products and you would hope that they would stay with you that they would then trade up to original or new items in the future from the same brand.

CURT NICKISCH: Yeah, that’s really interesting. So you could get more customer lifetime value because you get consumers sooner potentially, or you grow your consumer base by doing this.

TOM ROBERTSON: Right.

CURT NICKISCH: So if I’m a consumer of a company and I bought something, didn’t use it, stuck it in my garage or my basement, and now have this nagging guilt that I spent good money for something, I’m not really using it, I don’t want to throw it away, what value is there for companies to solve that problem for me, especially the company that I bought it from?

TOM ROBERTSON: I guess it goes back to if it’s in good shape, can the company resell it and make money on it, and does it wind up with a happier original consumer and therefore is everyone better off, the company and the consumer? I think people have a psychological reluctance very often to give up on things, and they sit on these things even when they’re not using them.

CURT NICKISCH: Well, that idea of reselling and integrating that with a loyalty program is really intriguing because that’s got to be a way to keep consumers in your ecosystem longer. Or maybe just to get them into the pipeline, like how luxury fashion brands get a lot of revenue from perfume and lipstick over more expensive items.

TOM ROBERTSON: I think that’s right. My most compelling example of that was with Michael Kors where they explained to me how their loyalty customers can sell on Michael Kors website. It’s only available to their loyalty customers. And so that encourages people to go into the loyalty program, and it protects Michael Kors because they know it’s authentic, because they’ve got the information that they bought it from Michael Kors. So it serves the authenticity purpose, and gives a benefit to consumers for being in a loyalty program and encourages consumers to go into the loyalty program.

CURT NICKISCH: So if any company can do this, what’s the thought process for deciding whether this is going to be good for you?

TOM ROBERTSON: I think you run the analysis for sure and come up with some results, and then you say, “Do we have to be here anyhow to prove our sustainability credentials? Do we have to be here anyhow to reach younger segments of the market?”

And so yes, I think the starting point is could we do this cost effectively? And if not, are there other reasons that we would do this? It also depends on product category. When I interviewed at Dick’s, the point was made, it’s a lot easier to do this for what they called hard goods. I guess that means skis and tennis rackets and things like that, than for soft goods, which meant Nike shirts or whatever. And so at least for them, they were saying, “Hey, parts of this that are easy and parts of this that are more difficult.”

CURT NICKISCH: Let me ask a little bit of a philosophical question. Is this reselling journey part of a sustainability journey for companies, or is this still part of a, sell lots of goods and capture all the value out of what you make sort of motivation? Is this –

TOM ROBERTSON: Yeah. I mean, I don’t see the contradiction between espousing sustainability and making all the money you can out of selling used products.

CURT NICKISCH: No, no, I don’t think so. I think it’s more of a, if this is where consumers are going, is this enough of a move in that direction, I guess?

TOM ROBERTSON: Yeah. I’ve been discussing Gen Z, generation Z, and I do believe they have a disproportionate influence. That’s 20% of the population incidentally. And I do believe they have a disproportionate influence on the rest of the population. They are not necessarily the ones with all the money, but they do have a lot of opinions and they vocalize these opinions.

Also, some of my peers will say to me, “Well, they’re just this way when they’re young and will they change? And within a few years, will they just look like everyone else and not really care about sustainability or not really care about the values of companies?”

It’s a good question, and you can never quite guarantee that they won’t change, move to the suburbs and have kids or whatever you’re supposed to do in a traditional sense. But it seems very real to me that these consumers, these younger consumers, and to some extent it spills over into millennials as well, that they’re not just suddenly going to give up on sustainability and looking at the values of companies. I think this is for real. I think it will last. It doesn’t mean that all consumers are moving in this direction, but they are sort of a leading-edge indicator of many things that are going on in the marketplace.

CURT NICKISCH: Bottom line, if I’m an organizational leader, what should I be asking myself now about creating a resale vertical at my company?

TOM ROBERTSON: Well, I think it’s two threefold. Hey, can I make money on it? Can I bring in new consumer segments? And is this a way to display my sustainability credentials? It’s hard to prove sustainability. Supply chains are very involved, and if I go back to manufacturing and so forth, it’s harder to monitor. I know now with blockchain and so forth, you can monitor where it’s coming from and a test that it’s not child labor or whatever. But an easier way, and it’s not easy, but an easier way to show your credentials on sustainability is resale. It’s straightforward. People understand it. You get credit for it, and I think that companies may move toward resale, one of the primary motives being to prove they’re interested in sustainability and they’re doing something about it.

CURT NICKISCH: Well, Tom, this has been great. Thanks so much for coming on the show to talk about this big change in the marketplace.

TOM ROBERTSON: Thanks, Curt. It’s good to be with you.

CURT NICKISCH: That’s Tom Robertson, Professor of Marketing at the Wharton School. He wrote the HBR article “The Resale Revolution.” You can find it at hbr.org.

And we have more episodes and more podcasts to help you manage your team, your organization, and your career. Find them at hbr.org/podcasts or search HBR, an Apple Podcast, Spotify, or wherever you listen.

Thanks to our team: senior producer, Mary Dooe, associate producer, Hannah Bates, audio product manager, Ian Fox and senior production specialist, Rob Eckhardt. And thanks for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Curt Nickisch.