India Vs China: Factors Driving ReCommerce And The Road Ahead

Growing up, I was a fan of the Back to the Future movie series and found the concept of time travel quite fascinating. Recently I had the opportunity to visit China with a startup delegation and see first hand the evolution of the Chinese Internet sector. It was as if I had travelled into the future and seen how widespread use of technology has become part of the day to day lives of one billion people.

From self-service staffless supermarkets using facial recognition and artificial intelligence to self-driving mobile vending machines using facial recognition for payments, I could see what the future looked like first hand.

I saw companies such as Alibaba & JD.com each do more business in one day (11/11 Single’s Day) than the entire Indian consumer ecommerce market in one year. At ~$500 Bn market size, China accounts for almost half of global consumer ecommerce sales. The Indian consumer ecommerce sector is merely at $20 Bn market size.

ReCommerce In China

In China, the ReCommerce (Reverse Commerce) sector of used goods, especially electronic gadgets is much more advanced than in India. As per a 2017 Fung Global Retail & Tech study, the Chinese ReCommerce market is currently $60 Bn. ReCommerce is bigger than ride sharing in China, with some organised players worth over $0.5Bn.

Developed markets like the US and Europe are primarily sourcing markets and there is not much demand for used gadgets. Many of the second-hand gadgets from western markets get resold in developing countries. However, there is a regulatory restriction in importing used electronics in India. Both China and India have a huge supply and demand and thus are self-contained markets.

The (Unorganized) Indian Market

The second-hand goods market in India especially used electronics is primarily unorganized with no company having even 1% market share in this multi-billion dollar sector. The churn, especially in smartphones is extraordinarily high as these are being replaced every 15 months.

Every smartphone is expected to go through three change of hands before reaching the end of its product lifecycle. As per a Deloitte report, the growth rate of the used smartphone market is forecast to be 4-5 times higher than the overall smartphone market

On one hand, there is a huge untapped supply of used smartphones which are getting replaced. On the other, since India is an extremely value-conscious market, there is a huge unmet demand for devices in good condition at lower price points, from a trusted source, with quality assurance.

Currently, there is no established brand in India which has been able to create a mindspace amongst consumers in this segment.

The secondary transactions primarily happen through unorganized offline dealers spread across the country. There is a huge market in the hinterland, especially in tier 2 and 3 cities. Every metro has a second-hand gray market which deals with second-hand electronics. Most of these are notorious for stolen goods. Apart from these, there are online classified ad sites which are primarily C2C (consumer to consumer).

Few websites are directly dealing with buying and selling of used/refurbished devices. Ecommerce marketplaces like Amazon and Flipkart are offering exchange options. Some marketplaces are also offering refurbished devices for sale. These are still relatively nascent though.

What Is Driving ReCommerce?

The aspirational nature of the Indian consumer is what recommerce appeals to. ‘Statusphere’ – the feeling of status elevation by using a better quality/brand product or better features at a similar price point is what is helping this segment grow. This is already happening in the used cars sector where consumers have access to bigger used car at the same budget as a brand new smaller car.

Evolution of technology with new features and higher specifications ensure that consumers keep wanting to change their gadgets often. The vast number of first-time buyers who are upgrading from a feature phone to a smartphone find great value in refurbished smartphones. Students and technophiles who like to keep changing their gadgets also find more bang for the buck by choosing refurbished over new gadgets.

Current Challenges

The primary challenge for the recommerce sector is that it is mostly unorganized. The concept of refurbished gadgets is still quite new and a layman is not even aware of the term ‘refurbished’. Most people in India have been used to dealing with the unorganized players where there is a lack of transparency, limited selection, and availability, no quality assurance or warranty and absence of clarity about the genuinity of the gadget. It is common for fake or stolen devices being sold to unwary customers.

The fragmented supply chain and reverse logistics have been another hindrance for the growth of this sector so far. However, this is changing now with the growth of organized retail and ecommerce.

Investor’s Dilemma

Investments in this sector have been limited so far considering the market size and prevalent opportunity. The primary reason for this is the signaling mechanism which investors in India look at. The venture capital sector in India is also in the startup stage. Most of them look at comparable models in the west and replicate it in the Indian market.

With time they are realising that the Indian market is unique and the opportunities and problems cannot be addressed by copy-paste models from the west.

If anything, they should be looking east at China, which has more parallels with the Indian market than developed markets like the US.

Growth Opportunities

The growth of the entire ecosystem in India makes it inevitable for this unorganized sector to be disrupted. The most important attribute required to avail this opportunity is focused execution. Operational efficiency, partnerships across the ecosystem and optimal use of technology to converge trust, convenience and value for money to consumers is what is required to succeed in this sector.

Considering the enormous growth of the recommerce sector in India going forward, it seems inevitable that pure recommerce brand(s) would emerge which would be identified with second hand and refurbished gadgets. We are already seeing this happening in the used cars segment. Brands which are focused on new products would find it difficult to create the same impact since their primary attention would be on the new products.

The Road Ahead

India is today the world’s fastest-growing smartphone market. Out of almost a billion mobile phone users, only 300 Mn users are currently using smartphones. The estimated size of smartphone recommerce market in India is over 100 Mn devices. ReCommerce will undoubtedly be a catalyst in bridging this digital divide of 700 Mn.

We are living in extraordinary times. Anyone with a smartphone and Internet connection has access to more information than the President of the US had 20 years ago. Information is power. What change will we experience when one billion people in India have this power?

Technology is radically transforming education, healthcare, financial services & utilities. The primary medium through which this technology is going to be accessed by millions will be the Smartphone – the catalyst for creating change. ReCommerce has the potential to bridge this digital divide in India between people who have access to technology and those who don’t. At the same time, reduce e-waste and help save the environment.

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This article has been co-written by recommerce startup Budli’s co-founders Rohit Bagaria, and Kavita Joshi, Director (Operations).