Second-hand : The Fullstack Model
Emerging trends in retail and new commerce.
As you may have read in our previous editions, we have been closely following the second-hand market for some time now. Even though the space is still largely dominated by major marketplaces, there are good reasons to believe that sellers’ and buyers’ expectations have changed since the early days of marketplaces (I know it hurts but yes, Vinted is 14 years old, LeBonCoin is 16 years old and eBay is 27 years old). Adapting to consumers’ higher expectations requires creating new models as traditional marketplaces start to show their limits…
♻️Enters the Fullstack Second-Hand Model.
We like to think about this fullstack model as an orchestra composed of 3 core blocks: SUPPLY (how to source products), OPERATIONS (how to re-cycle products), and DISTRIBUTION (how to sell products).
Operating this trio is surely not new for any first-hand commerce, but is completely game-changer for second-hand commerce, as there are much more complexity and specifics to address on all three fronts : how do you access product supply at scale while dealing with individuals, which product should you be ready to buy and at what price, how do you run re-cycling operations for mass-market products while being profitable, where do you find the cash to build an inventory that has no value for bankers, how do you process single-SKU products at scale, how do you provide the seller a first-hand experience with second-hand products, how do you manage pricing for unique products, etc…
The list is long but you get the point: THIS IS HARD. So hard that any company trying to operate such a model has to reach excellence on the 3 fronts to win.
So, what does it take to start building a fullstack second-hand operator?
👚 Proprietary supply. Access to proprietary supply is the start of everything, the fuel of the model. The job here is to convince individuals to sell their clothes in batches (>15 products) by paying them with cash. The incentive is quite appealing for sellers: they receive cash and they don’t have to go through the hassle of taking pictures, writing a description, negotiating the price with multiple buyers, and packing the items to finally ship products. In exchange, they agree to sell at a discount. In order to scale, a company can make online acquisitions but can also build a network of “ambassadors” (freelance paid on commission) responsible for marketing the offer to local communities while bringing additional services (picking, sorting). What’s even more interesting with the fullstack model is the ability to secure partnerships with brands as they are eager to offer a second-hand model to their customers. For a brand, working with a fullstack second-hand operator guarantees that the service is operated professionally in terms of buying capabilities, operational efficiencies, and ability to protect everything about the brand’s image, from merchandising to customer experience.
📟 Pricing model and data. As there are no barcodes on clothing, a fullstack second-hand operator must be able to work on a real-time database to identify, categorize and price each clothing item that they can buy. The dataset must include millions of unique items across thousands of brands. The company must also work on data, both own and public, to improve its sales prediction model. They can thus optimize economic decisions, such as pricing, seller payouts, item acceptance, merchandising, and sell-through.
📦 Operational excellence. A fullstack operator has no other choice than to reach excellence at operating centers that collect, re-cycle, store, pack, and ship items. An unprecedented challenging part is that the entire flow is composed of single-SKU products that are not fungible. That is why a company must build the entire logistics flow from the ground up: single-SKU tracking, sorting products, running re-cycling operations, taking product pictures, creating product pages, finding the right pricing, building single-SKU inventory,… Reaching excellence means optimizing every single touchpoint, product move, so that the entire flow takes less than a few minutes from the moment the item is received until it is ready to be shipped.
🖥️ Second-hand native technology. Operational excellence cannot realistically be reached without technology. There are no off-the-shelf software solutions. Therefore an operator has to design its own suite of custom-built applications from the WMS to the CMS that are specifically designed for running second-hand facilities: identifying a product among millions, creating thousands of unique product pages per day, evaluating the right pricing to optimize margin and sell-through, and lean integration of the single-SKU specifics into the CMS, OMS, and WMS.
What are the unique benefits of running such a complex fullstack model compared to any other traditional models?
▶️ Delivering a first-hand customer experience. Being able to address the complexity and specifics of second-hand allows operators to offer a first-hand experience to buyers: product quality, professional pictures, personalized product description, homogenous product offering, beautiful packaging, dedicated customer service, fast and professional delivery, and most importantly a brand that deeply cares about its customers with its reputation at stake.
▶️ Offering a unique alignment between Price, Environment, and Experience. When shopping, buyers usually have to choose between expensive eco-friendly products or cheaper products that come with a poor experience. A fullstack second-hand operator can offer products at a decent price as they are sold at a fraction of their original value, a responsible consumer path, while delivering an outstanding purchase experience. Having this combination is unique in the market and is everything today’s customers are asking for.
▶️ Achieving strong unit economics. The recurring problem of second-hand is that the value of each item is very low by design as products are sold at a fraction of their original value. For the past 15 years, startups have tried to address this economic issue by being either a “don’t-touch-the-product” marketplace like Vinted or a “high value-added-product” marketplace like Vestiaire Collective. We believe the fullstack model is opening a third economic path by solving the paradox of selling mass-market second-hand products at a low price while still achieving strong unit economics. In that model, the margin is the consequence of the value created both for the seller and the buyer. The sellers receive cash and aren’t required to do anything, therefore they agree to sell at a discount. Conversely, the buyers are being offered an outstanding experience and are ready to pay a premium. Consequently, while marketplaces’ commission rates now typically range from 5% to 20% (with a strong downward pressure due to marketplace commoditization and increased competition), a fullstack second-hand operator can generate 50%+ gross margin, leaving enough value to run outstanding operations and distribution while making a healthy profit.
▶️ Cracking the working-capital issue. As with any distribution-like model, one of the critical issues of building and scaling physical product inventory is cash. An efficient fullstack second-hand operator can reach negative working capital by optimizing the buying process, reducing the duration of the recycling process to minutes and making sure the inventory has the fastest sell-through possible. Even better, some operators are using a system of “credits” (with an additional incentive) on the sellers’ accounts, which is both a great way to incentive sellers to become buyers and an additional working-capital improvement.
📌 For all these reasons, we are proud to back Il Etait Plusieurs Fois, the first fullstack second-hand operator dedicated to children’s clothing by leading their €4M Series A round. In addition to its amazing team led by Aude Viaud and Caroline Laycock and their unique fullstack second-hand model, we were convinced by the specific market addressed by the company. Indeed, we do not think that the second-hand model is adapted for all product verticals. Children’s clothing has great properties that are empowering the fullstack second-hand model like a high repeat rate, products that are of very good quality when they become second-hand as they have not been used for a long time, almost no return as sizing is way more simple than for adults, and higher buyer’s expectations in terms of experience.
Read more in the press here (Le Figaro), here (Challenge), and here (LSA).
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Spring Invest is a European investment fund dedicated to companies that are shaping the future of commerce. We champion doers who build innovative companies making commerce better, from enabling technologies to new commerce models and everything in between. More info about our investment thesis 👉 here.
