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China’s secondhand business is booming

Used goods, from apparel to appliances, have finally lost their stigma. It’s a big market. China’s consumers have grown increasingly cautious. Strict Covid measures are one reason; another is a recent government crackdown on everything from property markets to private tutoring.

This column was originally published in Bloomberg Opion

Retail-sales growth slowed to 2.5% in August from a year ago, much lower than analysts had expected. Restaurants and other service businesses faced even steeper declines. Yet China hasn’t totally lost its penchant for retail therapy. Instead of spending at the mall, shoppers are increasingly buying and selling the secondhand stuff piling up in their closets and drawers.

In the first half of 2021, about 202 million users bought and sold secondhand goods via China’s online platforms, up from 183 million for all of last year. Unlike other industries, hard times are likely to be a growth driver for this most resilient form of retail.

China has long had an ambivalent relationship with used goods. Secondhand clothes were once considered bad luck (especially if they had previously been owned by someone now deceased). Although the country’s economic opening allowed consumers to acquire lightly used goods from abroad — and many students and entrepreneurs did so — such stuff was soon stigmatised in line with China’s rising prosperity.

Not all used goods were shunned, however. Most Chinese cities have had thriving used electronics markets for decades, often catering to college students in search of cheap technology. Likewise, there’s long been a thriving market for used luxury goods, especially handbags that often look as good as new.

In 2011, the potential for this market became clear when Milan Station Holdings Ltd., an owner of secondhand luxury shops, went public. Though headquartered in Hong Kong, its customer base is largely mainland Chinese looking for affordable goods. Demand for the company’s shares exceeded available supply by 2 179 times at its initial public offering, then a Hong Kong record. 

China’s technology giants targeted the market as well. In 2012, Alibaba Group Holding Ltd. launched an online flea market that it rebranded as “Idle Fish.” JD.com Inc. purchased Paipai.com, an online marketplace, and relaunched it as a direct competitor to Alibaba. In 2017, Tencent Holdings Ltd. invested US$ 200 million (EUR 176 million) in ZhuanZhuan, the used-goods platform of China’s 58.com Inc.

Growth was slow for these ventures at first, but some key advantages soon became clear. First, after 30 years of hyper-charged consumption, many Chinese households had acquired far more stuff than they needed. Apparel was in particular excess. One study estimated that Chinese consumers were tossing out 26 million tons of clothing a year. Much of that waste could be resold: China is now one of the biggest suppliers of used clothing to Africa, and similar surpluses exist for a range of other goods, from phones to sofas to cookware.

Second, China’s younger consumers haven’t inherited their parents’ disdain for secondhand goods. For one thing, like their affluent counterparts in other countries, they’ve embraced sustainable brands and consumption. But they’re also keen to find bargains, which is one reason that the online secondhand industry has done so well amid the pandemic and an economic slowdown.

In 2020, the market turned over US$ 48 billion in merchandise, an increase of 19% over the previous year. It’s on track to hit $62 billion in 2021. Expect those figures to keep rising. Currently, secondhand goods account for only about 5% of China’s overall luxury market, compared to 28% in Japan and 31% in the U.S.

It’s likely just a matter of time before Chinese consumers start emptying dressers and desks and catching up. Investors certainly see an opportunity: In the first half of the year, they plowed some US$ 900 million into up-and-coming Chinese online secondhand companies.

In the midst of economic uncertainty, that’s a bargain worthy of a flea market.

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