ESG Investing

Refurbishing Grows in Face of Supply Chain Shortages

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For decades, the environmentally minded have promoted “reduce, reuse, recycle” as the foundational mantra to minimize the use of raw materials and waste. The concept has only grown as the global population multiplies and consumer appetites expand. The World Economic Forum notes that the extraction and processing of 92 billion tons of materials accounted for nearly half of the world’s carbon emissions in 2019, adding another reason to support ESG efforts in mining.

Supply chain shortages resulting from the shocks of COVID-19 pandemic, however, may change the equation by increasing acceptance of refurbished products, which have been restored to like-new condition and sold at a considerable discount, often with a limited warranty.

The trend appears to be catching on as eBay, Toyota, and other major companies incorporate refurbishment in their products and services. This has led to the expansion of this newer market segment built on old goods, opening another opportunity for investors to make an impact on both climate and supply issues.

Weighing Matters of Supply and Demand

An afterthought to most consumers once they have a product in hand, product supply chains were thrust into the spotlight shortly after the COVID-19 pandemic first swept across China, a key supplier to manufacturers worldwide. In early 2020, pandemic-related restrictions shut down factories, mines, cities, and distribution channels—first in China, then worldwide—as governments attempted to restrict the flow of people, materials, and goods to contain the spread of the virus.

Yet, once restrictions eased and demand rebounded, suppliers generally struggled to return to their prepandemic conditions. Distribution channels, hamstrung by labor shortages among port and trucking companies, further exacerbated supply-side woes. Many consumers revised their mindsets in favor of refurbished products rather than face the frustrating repercussions of supply chain shortages.

In 2021, the product class broke into mainstream holiday shopping trends. According to an October 2021 survey by Wakefield Research, 47% of respondents had given a refurbished gift in the past and 84% were open to receiving a refurbished product. In addition, 66% identified refurbished gifts as a sustainable way to shop.

The refurbished product movement has attained impressive traction in a relatively short period of time.

Building Business Opportunities

The refurbished product movement has attained impressive traction in a relatively short period of time—Euromonitor International counts the strategy as one of the top 2022 trends for retailers to navigate supply chain hassles while holding appeal with increasingly cost-conscious consumers. Accordingly, numerous existing and startup business have refined their business models around the concept.

  • Online marketplace stalwart eBay created a dedicated refurbished products portal to offer products including manufacturer-certified items and moderately worn products—all with warranties of one or two years.
  • Toyota UK unveiled a program that refurbishes vehicles to ensure that autos are on the road for at least 10 years.
  • Plantronics’ Poly division, which markets office and conference room phones, introduced its Poly Renew program for buying and reselling refurbished devices.
  • Privately held France-based startup Back Market, rooted in a mission “to build trust and desire for renewed devices,” raised money at a $5.7 billion valuation early this year to fund a broader push into the US market.
  • Privately held Swappie of Finland raised $171 million in funding through early 2022 to fuel European expansion for its iPhone refurbishing business.

Smartphones are a high-profile target for refurbishing efforts, as 83% of each device’s harmful emissions are released in its manufacture, shipping, and first-year usage. This parallels similar factors in electric vehicle production and operation.

As the benefits from using refurbished handsets become more clear—and as consumers increasingly seize on the lower price tags on such units—market intelligence firm International Data Corporation projects used smartphone shipments will increase an average of 11% a year through 2024.

Securing a Circular Spark

The increased acceptance and adoption of refurbished goods could prove to be a stepping stone to a circular economy, which features greater reliance on reused materials and less extraction and processing of virgin materials. Strong advances in the circular economy, with an emphasis on plastic, electronics, and batteries, could lead to $4.5 trillion in economic benefits by 2030, according to the World Economic Forum.

Momentum on that front, however, may have faltered; the Circularity Gap Reporting Initiative found that only 8.6% of the world’s economy achieved circularity in 2020—a 0.5% fall from 2018. Yet the power of consumers can be immense. Exasperated with supply chain shortages and delays, consumers have emboldened a burgeoning market segment, and the growing acceptance of refurbished goods may cultivate interest in the circular movement. This offers potentially robust investment opportunities to those looking to make an impact on the environment.

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