• Minte - Point of Views

Re-commerce Industry

Refurbished phones business is increasing at a great pace. Previously the second-hand mobiles business was almost completely unorganized and there were too many reasons for it. Firstly, there are lesser number of customers using a phone and even fewer people who are willing to buy a second-hand phone. So, there were no major players in the market. But slowly due the increase in the affordability of phones and a phone becoming a necessity rather than a statement, the number of phones in usage has increased exponentially. Slowly organized players started entering the market. When e-commerce companies wanted to increase their sales, one of the things they wanted to do was to make buying a device more affordable and for it they have started exchange programs. This allowed for more customers to buy more and exchange their old devices at the same time. Once the e-commerce companies procured the exchanged devices, they started liquidating these phones which led to the growth of organized second-hand market. This work by the e-commerce companies led to the offline retail stores to start the exchange process to meet the demand from customers.

Slowly the organized players wanted to give the customers the best experience with their phone, so they repaired and refurbished the phones which were not functioning properly. With the increased number of phones coming in the second-hand market the number of phones increased and the need for refurbishment also increased. Since the customer needs a certain amount of trust in buying a second-hand device more and more players started providing warranties for 6 to 12 months on the device.

Even today the market is dominated by local players and slowly organized players have started to gain market share. Consumers trust in the used device increased as they are getting value for money and also get warranty on the device. But still there are issues in this industry. First and foremost, repair and refurbishment of the used device is difficult due to shortage of quality spares and skilled labor. Also new devices have affordability programs designed by the brands in conjunction with the financial companies like cashbacks, no cost EMI etc. It’s also difficult to insure a used device.

The need of the hour is to have a structured and stable used devices industry. It’s still a nascent field and as any new field it has its problems and opportunities. But the importance of the industry cannot be understated. It helps in reuse, repair and recycling of unwanted electronics, allows customers to get value for their devices. Even with all the problems one thing is certain. Re-commerce industry is here to stay for a long time and will continue to grow at a great pace.

- Point of View by Rama Krishna, Head - Analytics & Products, Ikon Technologies India Pvt Ltd. Published on 06-Nov-2020

e- Waste : Biggest concern in this interconnected world

Electronic waste or e-waste is described as any unwanted electrical or electronic device. In a world where we are surrounded by electronics, e-waste is increasing every year. The problem with this number raising is that most of these devices would also have certain harmful substances used while producing them. And once they are discarded without proper recycling, they create a lot of issues to environment, health & safety of humans and living creatures. For instance, if the e-waste gets accumulated at a land fill or a dumpster, slowly the metals which are present in the devices start to affect the earth and over a period of time create a scenario where not even a blade of grass can grow. Sometimes this e-waste is discarded in the seas and oceans and it affects the marine life which has adverse effects on the overall ecological balance of the area.

Mobile phones and computers are among the most used electronic devices in the world and hence form a major part of the e-waste. With the companies innovating daily and bringing out better products, increase in purchasing power of consumers and affordability programs, we are buying mobile at an increased rate. The average life of a product after purchase has significantly reduced. Many of the old devices are discarded and eventually reach a land fill or end up in the hands of unorganized players who try to extract metals from the phones. Since the unorganized sector doesn’t have the necessary tools to recycle the devices and extract the metals, usually there are still a lot of metals remain on the device and also it harms the workers who are involved in the process. Presently only a fifth of the waste generated gets recycled properly.

To improve handling of the used electronics, use of a process called R3 (Reuse, Repair, Recycle) is needed. Instead of leaving old electronics at home and selling off to people in the unorganized sector its better to sell the device to organized players who have a means of selling usable devices and a proper way to repair or recycle the unusable devices. We have laws which make it mandatory for the producers of these electronics to recycle the devices. These laws need to be implemented more strictly and in doing so it can make the business of recycling profitable which will allow more and more companies to enter into the sector and will increase the capacity to recycle and allow us to slowly reverse all the adverse effects that have been caused due to e-waste.

- Point of View by Rama Krishna, Head - Analytics & Products, Ikon Technologies India Pvt Ltd. Published on 06-Nov-2020

Online sales of used phones to end customers is a game of visibility and sales - not a profitable business at the moment

Used phone market players sell through 2 channels

  • 1. Offline: Example - We buy / source from end customers and sell to wholesalers. Wholesalers then sell to retailers and retailers in turn to end customers

  • 2. Online: Example - We buy / source from end customers and sell to another end customer through online platforms

In here, we are focussing on the sales through Online channel by a seller. We arrive at our point of view basis the below key impacting factors:

1. Payment time: Pre-paid or Cash on delivery. If customer pays for the product at the time of ordering, it can be assumed that customer has resources to complete the purchase and also that his intent is good - just means customer is not window shopping. There are many instances where cash on delivery products are not considered important and a sizeable items on COD never get accepted by customers in the used mobile phones space.

2. No questions asked return back period. Any established e-commerce player has to provide this option or else get the phone repaired at a place nearby customer. since the 2nd option is practically not possible, all online operators provide no questions asked return back timelines). Since this option exists, some customers send back the device after few days of usage / trial.

3. Time for a product to come back to seller and ready for resale (this includes onward delivery period, 3 attempts if not accepted / not available and finally return to origin). When a customer sends back, for whatever reason, we can assume that it will take 20 days on average to resell this device.

4. Quality of the product coming back if not accepted by customer (handling & logistics). We can fairly assume that there is a degradation of quality of the product or the package coming back. This can be due to logistics where package gets tossed up. Also there can be remote instances where there’s a display body damage. This is because, used phone always won’t necessarily carry the same packing like new devices.

5. Cost of cash on delivery. A 2% cost of cash deposit is usually charged by logistics partner in COD model. This intern gets applied as part of commission by the platform or by logistics partner if sold through own online sites.

6. Depreciation cost of used mobile phone when return to origin and reattempted to sell. Used goods, are always depreciating assets, unless there’s a regulatory intervention. A 20 days old product can carry lesser value than compared to a 1 day old product.

7. Cost of loss in transit - not everything is covered by insurance. Most logistics companies have a fixed amount ranging from 1500 - 4000 per lost item. If the product’s value is upwards of this specified value, either this has to be separately claimed or to be absorbed as cost of business.

8. Fraudulent means and inability to take action on customer or inability to trace customer in the first place. During the course of doing business for over 6 years, we encountered instances where the new device is replaced with a non working device. There have also been instances of display change and some where internal components are replaced. The device received without integrity is a serious loss for the seller. We still believe that these get missed reporting as no legal framework exists today

9. Cost of e-commerce platform operations or commission charged by online operators. Since there is a significant risk, most e-commerce players don’t directly deal in buy and sell of used products. They engage sellers and sellers end up paying upto about 10% on sale value as commission to e-commerce operators. Some e-commerce players even charge a part of commission for returned products.

10. Time to deliver a product (from the date of order placement by end customer). End customers usually want used phones delivered within 2 days. The used phones business is such that they are picked from a single warehouse in India usually. This means the delivery can even happen in 10 or 15 days. More the delay, more the chance of returns.

11. Replacement options available to customer during the time of transit - either through new product inducement or through specific offers. While the intensity of new phones launch came down significantly in India, the order to delivery completion delays can still provide replacement options to customer. Affordability, specifications, warranty and time to deliver can move a customer from opting from used to new phone.

Finally, every customer wants to see the used mobile phone that he is about to purchase. Issue being, each phone is used in a particular way and hence their looks or performance. While a new phone is commodity, we believe used mobile phone is a unique piece. The same is true for a used car purchase. Maturity of the market is still a long way for used phone channel to replicate that of a new phone.

we derive from the above that selling a used phone through online channel should carry a margin upwards of 20% consistently to breakeven. Since this margin is aspirational, we believe that selling through online is a long term model which requires deep pocked to burn money for every sale and not a sustainable option for many players.

- Point of View by Ramana Reddy, Co-founder & Director, Ikon Technologies India Pvt Ltd. Published on 30-Oct-2020

Businesses in reverse commerce - A commercial venture or a responsibility ?

Having done reverse commerce for over 6 years, we evaluated all possible options to making profits. In this write-up, we wish to elaborate on various avenues to making money / business models

1. Difference between Sell Price and Buy Price of a used phone is the gross profit. The profit thus made has to compensate for the manpower expense, cost of money, depreciated cost of assets used, warehouse, logistics & packings costs, other operational expense, 18% GST and Income tax. The balance available money is the net profit after doing business. The buy-sell typically has the risk of unsellable inventory which could hold up working capital or the risk of product value reduction. More the number of units sold and more the sale price of a phone indicates more profit and better business.

2. Money earned through repair and service costs including money made through sale of spares. Typical costs for a service, repair and refurbishment include manpower costs, depreciated cost of assets used, warehouse, logistics & packing costs, other operational expense, GST and Income tax. The balance available money is the net profit after doing business. It is important to optimize the fixed costs involved in providing service - these include doing more repairs in the existing time, having adequate work and ensuring people are not idle, assurance on quality of repair through warranty costs and most importantly the ability to commoditise work. The need to have SKU / product level work load gets extremely important.

3. Cross sell other products through the existing channel and earn margins. There are a host of things reverse commerce companies can do just by virtue of its usual operations; these include

  • 1. Cross sell commission by selling new phones and new mobile accessories

  • 2. Promote e-commerce platforms for the customers visiting own site

  • 3. Earn from offline retail players by promoting them during transaction

  • 4. Sell technology on cost per activity basis to other players in the business

  • 5. Sell technology to other related businesses in reverse commerce on cost per activity basis

4. Monetise through customer data. While this is unethical and done without the knowledge of end customer, we understand there are certain areas of monetisation that include;

  • 1. Sell the product at loss and get customer data

  • 2. Complete the transaction for exchange and acquire customer data for further commercial purpose

  • 3. Other areas, through digital medium, of capturing and monetisation of customer infoEarn from offline retail players by promoting them during transaction

Of the available above means, the most sustainable and valuable channels remain the first and second. However, third and fourth are being deployed by few players. We feel that there is a 5th avenue to making money and sustainability. This is largely by bringing in the concept of responsibility - we may have a detailed point of view on the same subsequently. The business of reverse commerce in mobile phones should ideally be interlinked to the responsibility towards environment.

- Point of View by Ramana Reddy, Co-founder & Director, Ikon Technologies India Pvt Ltd. Published on 30-Oct-2020