Here's Why UAE-Based Startups In The Resale Space Are Poised For Growth
In the UAE, new business models around resale and recommerce have arisen to serve the needs of millennials and Generation Z.
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
Resale is the future of retail. Walmart, Gap, and Macy's are the latest big name retailers to get into the resale game, partnering with startups like Thredup to appeal to a new generation of sustainability and cost-conscious consumers.
According to research by GlobalData, in 2019, the resale sector grew 25x faster than the broader retail sector, with resale expected to grow five times in the next five years. As of 2018, the overall resale market in the US is estimated to be between US$50 - $70 billion, with approximately half of it in secondhand apparel. This number is expected to grow to $250 billion in the next five years.
Resale Sector Research by GlobalData, 2019. Source: Melltoo
In the region, consumer to consumer resale and recommerce is also growing in popularity. While physical stores, classifieds and listings sites, like Dubizzle and Facebook, remain cornerstones of the used trade, new business models around resale and recommerce have arisen to serve the needs of millennials and Generation Z (born between 1990-2010), with local startups like Melltoo and The Luxury Closet leading the charge.
While The Luxury Closet is a consignment marketplace focused on the luxury segment, Melltoo is a mass market recommerce marketplace that facilitates transactions between individuals, never directly handling the products. Startups in the resale space are poised to grow as consumers are increasingly adopting resale as part of their daily lives. Melltoo reported a 60% increase in sales in the second quarter of 2020 over the previous quarter and nearly doubling revenues over the previous year.
Changing consumer behavior
Sama Afash, a local banker based in Abu Dhabi, is a fervent seller on Melltoo. "I get bored of my clothes very quickly and many things have only been worn a few times," she says. "They're still new, why throw them away?"
Afash began selling on Melltoo in the summer of 2019, when an unanticipated expense caused her to have a sudden need for cash. "I needed the money so I decided to try selling my stuff on Melltoo," she adds. "I sold clothing, home furnishings, even a broken microwave. Honestly, I didn't think I would find buyers, but I did...so I continued."
Over time, Afash has sold more than 900 items on the platform, ranging from her personal used items to products that she purchased for the purpose of reselling. Afash is representative of millennials and Generation Z, generations of consumers who care about sustainability and who feel proud to shop secondhand. As of 2019, 30% of millenials and 40% of Gen Zs reported having purchased secondhand clothing.
Sustainability is coming to the forefront as 43% of consumers say they will spend more on sustainable brands within the next five years. The current health pandemic has only refocused attention on the need for sustainable practices against the backdrop of climate change, with COVID-19 being one of the most potent "natural disasters" we've seen in recent times.
Related: Five Unexpected Findings From UAE E-Commerce User Behavior (And How Your Business Should Address Them)
No longer just a hobby, resale is now a lifeline
The economic fallout of the pandemic has turned resale from a hobby to a lifeline. While people resell for other reasons, to do good for the environment, to make room in their closets, money is the main motivator.
Samira Hossain, a student born and raised in Ajman, had been taking care of her sick mother for several years. Last year, her mother passed away leaving a void in Hossain's life that she struggled to fill. Her brother introduced her to Melltoo. "Because I'm a student and because of my family circumstance, I was never able to get a job outside of my home," she says. "We find ourselves in very tough times today with the COVID-19 pandemic badly affecting the economy. I'm so glad for Melltoo, that I'm able to sit at home and earn. I'm very proud of myself, of being independent."
Between selling her personal belongings and new goods that are entrusted to her to sell, Hossain has been able to make a modest living from selling online via Melltoo. She is not unique- two in three people surveyed by GlobalData in 2019 have said that they are open to selling their belongings online to make money. This trend has only been accelerated by the pandemic as people spend more time at home worried about their finances and looking to downsize their belongings.
The silver lining is resale. As budgets become tighter and consumers prioritize value and online shopping over the next 12 months, the availability of resale markets give consumers the confidence to buy, knowing that they will be able to resell.
Consumers are willing to spend, if they know they can resell
Amalia, originally from the Philippines, was a nurse for over 10 years in the UAE, and is currently living in Abu Dhabi. She stopped working at the behest of her husband. Having been financially independent for the majority of her life, Amalia wanted to continue spending as she had been accustomed. So, she decided that she would only buy something if she could sell something that she owned. She started selling on Facebook in 2013, and when Melltoo came along, she started selling on the platform as well.
"You know, I need things, but I don't want to spend unless I'm sure I can get some money back from the item after I'm done using it," she says. "So Melltoo really helps. I started with selling my own stuff, my abayas and items from my home. And now, with Melltoo, I've been able to build up a very strong customer following because I take good care of the things that I'm selling and make sure that everything I sell arrives to the buyer in top condition."
It's no secret that resale value has traditionally been an important consideration in the purchases of cars and homes; these days, resale value is also a consideration when buying consumer goods. According to a 2018 survey by Statista.com, 57% of Gen Z and 50% of millennials consider the resale value of an item when purchasing luxury goods. The growth in resale and recommerce platforms globally has further enabled this trend.
Resale used to involve classifieds, meetups with lots of strangers and general hassle. Recommerce or online resale has transformed resale into an activity that takes place in the comfort of your home. As Sama Afash from Abu Dhabi recounts, "I'm a very busy and I have enough people calling me up on the phone. I only sell on Melltoo because delivery is included. I don't have time to meet up with buyers." And as resale becomes easier, many have seized the opportunity to use resale platforms to launch small businesses.
Recommerce and the rise of online entrepreneurship
On a trip back home to Jordan in 2016, Deemah Ahmed, bought some makeup bundles as gifts that she ended up not gifting. It didn't make sense to keep them, so she started looking for a platform to sell them on. She sold the makeup on Melltoo at five times the original cost price. She was hooked. "I stopped working to take care of my children, two of whom are now in University," she says. "At first, I started selling for fun and to make an extra income. Over time, it's become my business. I enjoy searching for unique items at good prices that I can resell. Since my Melltoo experience, I've gone on to launch an instagram account and even my daughter was inspired to start her own business."
Based on a report by McKinsey, e-commerce in the region has jumped from 5% to 8% of total retail in the second quarter of 2020, growth that was expected to take years compressed into a single quarter. Pundits and analysts tend to see ecommerce as a play for businesses, but consumers have not been blind to its potential. Microentrepreneurs have sprung up and seized the opportunity to sell online, arbitraging one-time offline deals to sell online for a profit. Sama Afash from Abu Dhabi says, "I'm thinking about expanding wider (beyond Melltoo), starting my own online business. I'm currently learning about dropshipping and designing my own website."
Resale online has become a launchpad for many consumers-turned-entrepreneurs who've found new ways to earn in the new normal.
An opportunity (or a threat?) for retail
As consumers lead the way in resale, retailers are racing to catch up. In recent years, there have been some scuffles with luxury brands versus resale websites, such as a lawsuit filed by Chanel against theRealReal, a luxury consignment resale marketplace in the US. The brand claims that many fake Chanel products are being touted and sold as authentic on theRealReal.
Industry insiders believe that brands are disconcerted by resale marketplaces leveraging their hard earned brand equity without brands directly benefiting from the resale of the products. As a result, savvy retailers have moved to get a cut of the resale market by partnering with startups to launch resale verticals. In February, Gap partnered with fashion resale marketplace Thredup to launch a buyback program. Consumers send in their old Gap clothing in return for Gap store credit.
While there are legitimate fears that this may cannibalize sales of new clothing, Gap executives believe that there will be a net positive for the company. Customers returning to spend their store credit will drive foot traffic. In addition, Gap can now tout itself as "sustainable" and appeal to the coveted Gen Z demographic. The verdict is still out, but in any event, resale of Gap clothing will happen whether Gap participates or not, so they might as well.
It is not a stretch to predict that regional retailers will be jumping into the fray soon. Several have already explored partnerships to sell overstock and returns via local recommerce platforms like Melltoo. The subsequent step is to involve the consumer in buyback programs and resale. The next big thing in retail awaits.
Related: E-Commerce In the Arab World Is Booming: Here's How You Can Cash In On That