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03 Jun Secondhand Electronics Resale as Good Business: Aihuishou to Launch IPO on NYSE
Aihuishou, also known as Wanwu Xinsheng, China’s largest secondhand electronics resale platform, filed an IPO on the New York Stock Exchange (NYSE) on May 29 under the ticker RERE. Founded in 2011, Aihuishou’s services include electronics recycling and eco-processing, an online secondhand electronic product transaction platform, and a secondhand product selling platform. It covered 172 cities with 755 stores and over 1,500 self-service stations within China by the end of March 2021. The company also covers other markets such as the US, Japan, and India under the brand of AHS Device, making it the only Chinese electronics resale platform with overseas operation. In addition, the secondhand electronics platform is backed by Chinese e-commerce giant JD.com [JD:US], which currently owns 34% of its ordinary shares.
According to Aihuishou’s IPO prospectus, in 2020 alone, the transaction volume of used electronic devices in China reached 189m, generating RMB252bn in gross merchandise volume (GMV). Revenue in 2020 was RMB4.858bn, of which core business revenue accounted for RMB4.709bn, a YoY increase of 38.2% compared. In the past 12 months as of March 31, 2021, the company’s overall revenue reached RMB5.68bn, a YoY increase of 49.4%. With proceeds raised from its public offering, the company is looking to develop technology, diversify service offerings, and expand online sales channels.
Regulations and Opportunities in Electronics Recycling
Electronic products such as smart phones usually contain various types of valuable materials like metals and chemicals. If not discarded properly, electronic waste will lead to toxic pollution and health risks. Coupled with the tightening reserves of raw minerals and increasing global demand for precious metals in a digitizing world, electronic waste recycling has emerged as a responsible and beneficial strategy to alleviate resource shortages and prevent environmental degradation.
Since 2009, China has set up regulations on the trade-in and recycling of secondhand electronic goods. The initial regulation used an allowance model to reward the recycling of specified electronic products, which covered mostly larger units of household electronics, such as refrigerators, televisions, laundry machines, and personal computers. In May 2010, NDRC and the Ministry of Finance (MoF) instructed the urban mining pilot bases program, targeting industrial parks above the scale of 300,000 tons in resource consumption volume. The goal of the move was to alleviate environmental pollution and promote circular economy by recycling industrial materials like metals, plastics, and rubber from used electrical equipment, wires, communication gadgets, household electronics, and other products. To cover household and consumer waste recycling, in 2016, the Ministry of Commerce (MOFCOM) promoted business innovation in recycling models. This led to a wave of new recycling enterprises utilizing internet, big data, and other information technology measures to participate in the used electronics recycling market, such as Huge, Aiboolv, and Haihuishou.
The State Council of China released a document in February this year, which called for strengthening green, low-carbon circular production systems, enhancing green development of service industries, and promoting regulated transactions of idle resources. The business model of Aihuishou aligns with State Council’s vision. According to circular economy think tank Ellen MacArthur Foundation, compared to recycling parts and materials of a product, which involves physical and chemical processes and generally incurs devaluation, sharing and reusing a product retains the highest value in the product’s life cycle and should be attempted before recycling takes place. Through Aihuishou’s credit leasing service platform, users with good credit can rent mobile phones free of deposit, and may choose to extend the lease, upgrade to a new phone on a new lease, or purchase the phone at the end of their lease. This leasing model helps reduce the amount of discarded phones and maximize the gadgets’ service life. In addition, Aihuishou collaborates with electronics sellers like JD.com, Yihaodian, and Walmart [WMT:US] to offer at-home pick up recycling services as well as one-stop phone trade-in and upgrade services, making electronics recycling convenient for individuals. The company has created a comprehensive in-house infrastructure which encompasses recycling, inspection, evaluation, pricing, and resale.
In addition to specialized resale and recycling platforms like Aihuishou, some manufacturers of electronics are also taking initiatives to repurpose and recycle electronic goods at their end of life. Chinese telecommunications company Huawei has established facilities to recycle traded-in Huawei electronics collected from around the world. The firm disassembles and sorts used mobile phones, and extracts and processes their different materials to obtain precious metals and other industrial materials, such as gold, copper, resins, and plastics. A Huawei representative stated that in 2020, e-waste processed by Huawei’s own recycling channel exceeded 4,500 tons. Over 600,000 mobile phones have been traded-in within the recent four years.
A Market Boom for Secondhand Goods
As the idea of a sharing and circular economy catches on, consumer preference is undergoing a shift towards more eco-friendly products, creating a space for secondhand goods trading to thrive. Secondhand tech items like smart phones generally offer a user experience not too different than their mint counterparts, making them an ideal option for sustainability-minded consumers. The fervor for secondhand goods trading appears consistent globally. In 2018, Japan’s secondhand e-commerce company Mercari [4385:JP] went public on Tokyo Stock Exchange and saw its stock price soar 76% on the first day. Similarly, US secondhand luxury goods trading platform The RealReal [REAL:US] saw a 44.5% increase in its stock price on day one of going public. Poshmark, a US secondhand trading platform, went public in January 2021 and saw a stock price surge of 141% on the first day, its market value once exceeding USD7.4bn.
Those overseas examples serve as good evidence that overseas investors are receptive to the idea of financing secondhand trading platforms. With an increasing domestic secondhand electronics market and positive stimulation from state policies, Chinese secondhand electronics enterprises may be uniquely positioned to capture the interest of global investors. According to a report by SWS Research, in 2019, China’s secondhand goods market reached RMB883.4bn, a YoY increase of 19%. The projected market in 2020 was estimated to be RMB1040.9bn, of which secondhand electronics market was expected to exceed RMB100bn. According to data from iiMedia, in 2018, Chinese online secondhand transaction users exceeded 100m, reached 144m in 2019, and were projected to approach 200m in 2020.