What’s the biggest challenge in running a resale or recommerce business? It’s not sales—it’s supply.
In this clip from the ReCommerce Podcast, Tuomo Laine (CEO of TWICE Commerce) explains why acquiring secondhand goods at scale is the toughest part of growing a resale operation. From inconsistent consumer input to quality issues and forecastability, supply is the key constraint most founders don’t think about early enough.
We cover:
- Why supply is harder than sales in resale
- The difference between small-scale sourcing and large-scale operations
- How returns, aggregators, and consumer declarations shape your inventory
- The software and ops tools that can help close the gap
Karri: What are the main challenges in the resale business, like if you are operating a resale or re-commerce business where you are selling second-hand items, either with or without refurbishing them, like what is the main challenge that you are actually facing in your business?
Tuomo: I think with re-commerce and resale usually the main problem relates to supply. So it’s the supply of the goods, like either it’s like in the first place it’s acquiring the supply. In small scale, maybe less so, but if you try to scale the business to be something bigger then acquiring supply in a forecastable systematic way can be a challenge. So it’s all about kind of where can you find the supply of the goods that you need in order to do one of those models to sell second hand or to refurbish items and then to sell them forward.
Of course if you are a big existing retailer or brand, you kind of usually have a supply of returning goods by default because depending on your industry you might have like 5 to even 20% product return rates and that is your supply for then reselling and all of these different models.
Then there can be more mature markets like with electronics markets, there tends to be also already aggregators operating in that market who are aggregating supply from various different sources and then kind of pooling it together and then selling it to a reseller. So for example with phones that is a quite established market.
So that’s the first thing, like where do I acquire my supply?
As part of that then this again depends a bit on product verticals but one could say that a challenge might be the quality of the supply in terms of let’s say how good is the supplier in declaring what it is. So especially if you’re looking to acquire supply from consumers, there tends to be like usually it ends up being so that the consumer needs to declare when they’re at home, they’re looking at items, setting it to you like what is this and consumers aren’t the best at recognizing or remembering whether this is an iPhone 13 or iPhone 14.
So this might be a friction point if you’re running a resell model where you promise for example a cashback or some kind of discount dependent on the value of the good that you bring in. So that might be one of the things that you need to, you need to figure out either you invest a bit in software or other solutions to improve the quality of the declaration in general or then you might kind of mitigate this with your overall proposition that you promise to revisit or you’re going to say that we’re going to revisit the for example value, valuation of the item once you get it. So your initial promise of $100 of buyback value can go down to 20 when you learn that it’s actually wasn’t the iPhone, I don’t know, 15 but it was iPhone 12, something like that.
Karri: That sounds like a potential issue for the end consumer if they are kind of promised a higher price and then they end up actually going down which I assume is usually that way around, not usually that hey it’s actually iPhone 15 and here’s double the money.
Tuomo: I think those things where you have an item that tends to become more expensive than the original owner assumed tend to be news like hey someone learned that their painting that they thought was worthless ended up being super expensive and it’s kind of the same thing happening but maybe in a different scale so in that kind of antique like you have that honest antique shopper who tells you that or the pawn shop situation where...
Karri: Those are more like collectibles maybe rather than actually like use, they use items.
Tuomo: Exactly. But yeah so those are I think the main friction points that someone might have that they look to then solve via software or then via other like operational models.