Author: Wen Yehao

Editor: Wu Xianzhi

The second-hand e-commerce sector is currently standing at a crucial watershed.

On the one hand, the industry has survived the brutal competition that followed the cooling of investment and financing fervor. Players like Xianyu, Zhuanzhuan, and AI Recycling have survived to lead the industry into a more stable and sustainable mature stage. On the other hand, the evolution of both internal and external environments has brought new growth opportunities to the mobile phone e-commerce sector.

Since being upgraded to a first-tier business within Taobao and Tmall Group last year, Xianyu has transformed from a laid-back attitude, making continuous moves from implementing comprehensive commission charges to opening offline stores. Meanwhile, Zhuanzhuan, while focusing on store openings, has also acquired the second-hand luxury platform Red Breen (Hongbulin).

As people become more accepting of second-hand transactions, the once dormant second-hand e-commerce sector seems to have many new stories to tell.

Second-hand e-commerce: The Second Battle Begins

In the second battle for second-hand e-commerce, profits are important, but ultimately secondary. The more crucial aspect is breaking through established frameworks and seeking new growth points.

Let's start with Zhuanzhuan. Once, the competition between Zhuanzhuan and Xianyu was fierce, but now there is a stark disparity in their sizes. According to QuestMobile data, as of April this year, Zhuanzhuan had only 24.08 million daily active users (DAU), while Xianyu boasted 162 million.

On the other hand, compared to the overall e-commerce market, the second-hand e-commerce sector has limited penetration among consumers—there is still room for the industry to grow and attract more customers.

What sets the second-hand market apart is that it involves more than just buying and selling; it also involves educating users, which translates to high customer acquisition costs. For example, in urban areas, young people are avid collectors of vintage items, while in rural areas, the same items may be seen as worn-out and worthless.

This mindset gap makes expanding the second-hand market challenging. To win in this second battle, players may need to abandon traditional competitive strategies and find new angles of attack.

Previously, 58.com, the parent company of Zhuanzhuan, acquired the used car e-commerce platform Uxin. Against this backdrop, Zhuanzhuan's acquisition of Hongbulin becomes clearer.

In 2022, Zhuanzhuan invested $100 million in Hongbulin, showing its confidence in the platform. Now, with the acquisition, Zhuanzhuan aims to leverage Hongbulin's expertise in second-hand luxury goods to diversify its business beyond 3C products and tap into the high-value user segment.

With this marriage of the "pretty girl" (Hongbulin) and the "rich peasant" (Zhuanzhuan), future strategies will likely align with Zhuanzhuan's overall layout. It is rumored that by the end of this year, Zhuanzhuan plans to expand its nationwide store count to around 800, and after acquiring Hongbulin, luxury goods may soon be featured in Zhuanzhuan's offline stores. Zhuanzhuan can also replicate this partnership model in other vertical markets.

Unlike Zhuanzhuan, Xianyu, as the dominant player in the second-hand market, has already covered most of the existing customer base for second-hand transactions and holds an unshakeable position in shaping industry perceptions. Therefore, its focus is not on competing with peers for existing user ecosystems but on expanding the overall pie and attracting potential users who have never ventured into second-hand transactions. When that happens, Xianyu will naturally be able to "siphon" users through its dominant position.

After all, Xianyu has shifted from charging only "professional sellers" to charging all sellers a basic software service fee of 0.6%. User growth is directly tied to revenue growth, with each new user contributing directly to platform income.

It is reported that Xianyu has opened two community stores in Hangzhou and Shanghai. Unlike Zhuanzhuan's focus on 3C products, Xianyu's physical stores cover a full range of categories, serving local users through consignment sales of unwanted items. This is aimed at changing customers' shopping habits.

In the past, second-hand transactions often involved cumbersome processes: taking photos, filling in information, negotiating with buyers, confirming details, packing and shipping items, and anxiously waiting for buyers to confirm receipt.

After completing this lengthy process, one might not even recoup much money but waste a lot of time. Especially for low-value items, the time cost of the cumbersome transaction process may even exceed the value of the item itself, leading to many unwanted items being left to collect dust, discarded haphazardly, or passed down through personal connections—from old refrigerators to small items like tables, chairs, pots, and pans. Once these items become unwanted, they often end up with "poor relatives."

Community stores simplify this process. Users only need to pack their unwanted items and bring them to the store, where they will be selected, evaluated, cleaned, and put up for sale. This essentially allows users to drop off their unwanted items at the store and wait for the money to come in without having to follow up on transaction details. If the items don't sell, they can be retrieved or donated.

From the buyer's perspective, the store's screening and cleaning process reduces the risk of dirty, worn-out, or misrepresented items, making the process more transparent than online transactions.

Although the community stores have a strong pilot project flavor, they convey Xianyu's commitment to lowering the barriers and simplifying the process of second-hand transactions. It is foreseeable that as a leading player in second-hand e-commerce, Xianyu's efforts to transform the second-hand transaction ecosystem will continue.

Integrating Small Markets, Revitalizing the Larger Market

Another driver behind the renewed competition in second-hand e-commerce is the evolution of the second-hand transaction ecosystem. Currently, second-hand transactions are gradually shifting from peer-to-peer (C2C) to business-to-consumer (B2C) models.

In the early days of second-hand e-commerce, core users often shied away from platforms and preferred person-to-person transactions. For example, when selling a used phone, recycling platforms would scrutinize every scratch and wear with a microscope, reminiscent of a forensic investigation. While communicating with individual buyers added communication costs, it often translated into more tangible benefits compared to platforms that constantly pressured prices.

However, as the scale of second-hand transactions gradually increased, professional resellers and even gray and black market players flooded in, making C2C transactions fraught with scams—from official replacements, repaired devices, or even watered-down or screen-replaced phones. This made users wary.

This is evident in the grading system. In the early days of second-hand e-commerce, an item labeled as "9/10 new" was truly in excellent condition. Now, a "99 new" item may only be "8/10 new," and an "8/10 new" item might only be "5/10 new." Subjective grading, along with sales pitches like "used by a female owner" or "gifted by an ex-boyfriend," have become jokes.

Against this backdrop, trust becomes invaluable, and users are gradually returning to platforms. This is a significant reason why Zhuanzhuan chose to acquire Hongbulin rather than start from scratch—in addition to existing users, Zhuanzhuan is also eyeing Hongbulin's large pool of appraisers and mature appraisal system.

On the other hand, the current second-hand market is not as chaotic as some might imagine; it's just too vertical and rule-bound.

In fact, many niche vertical categories have stable second-hand transactions but operate with their own appraisal systems and game rules, leading to severe information asymmetry and making it difficult to follow uniform guidelines. In the past, official involvement would inevitably entail significant effort and management costs.

Take a highly vertical scenario as an example. Due to its strong style and design sense, the silver jewelry brand Chrome Hearts has been favored by many fashion-conscious and avant-garde users. However, its popularity has also led to a flood of counterfeits on the market, and the high appraisal costs are due to the small overall market size.

As a result, second-hand Chrome Hearts transactions place great importance on the seller's reputation. If a seller is caught selling fakes, they will be shunned by the community, making it difficult for them to sell in the future. Ordinary users who wish to sell silver jewelry often entrust it to reputable professional sellers for consignment, who then handle the appraisal to ensure authenticity.

This is actually a highly suitable category for platformization. However, in the past, Xianyu, with its C2C approach, mostly left these small markets to their own devices, relying on platform rules like Sesame Credit and the "Xianyu Small Court" as well as community context to reduce the impact of information asymmetry on transactions.

Xianyu itself only intervened in categories like used phones, computers, and luxury goods—categories with large market sizes, relatively high average order values, and ample profit margins.

However, this approach has limitations. On a small scale, it's difficult to significantly boost revenue, and on a larger scale, it's hard to promote the overall prosperity of the second-hand market. Moreover, as the saying goes, "for every step forward in morality, there is a leap forward in vice." Professional users can easily exploit loopholes in the system, undercutting ordinary users and leaving many of them feeling like they've paid a "tuition fee" for user education that the platform should have provided.

Today, both Xianyu and Zhuanzhuan are attempting to strengthen their B2C presence and tap into incremental growth in vertical markets.

Take the scenario of game cartridge and disc recycling as an example. This is a highly stable niche market—players order games from Taobao game stores, and after completing the game, the stores repurchase the physical cartridges and discs at a slightly reduced market price, essentially allowing players to play for free. The repurchased cartridges and discs are then restocked and resold, creating a virtuous cycle.

In the past, Xianyu largely ignored such small markets, but its attitude is changing.

Li Xiang, the owner of a game store in Chengdu, told Photon Planet that his store used to rely on Xianyu for game recycling, with only a handful of loyal customers opting to bypass the platform and send games directly to the store. However, a few months ago, Xianyu required his store to use its official recycling channel, i.e., a mini-program, for recycling.

"They created a self-service recycling mini-program and required us to join. It's like we're piggybacking on their platform," Li Xiang explained to Photon Planet. "Joining costs a few thousand yuan per year, and there's a 1% handling fee for every RMB 10,000 recycled. There are so many rules now that we're a bit overwhelmed."

This may be a strategic move by Xianyu, no longer content to rest on its laurels. By integrating and absorbing previously overlooked "small markets," Xianyu aims to build a "big market" and revitalize the overall second-hand market. It is foreseeable that categories that were once "left to their own devices" may soon attract hotter attention from the platform.

Conclusion

As the second-hand e-commerce ecosystem evolves, the role of second-hand e-commerce platforms within the broader e-commerce system is also changing.

Over the past two years, the prevalence of "only refund" policies has caused significant losses for merchants. While e-commerce platforms have gradually regained their senses and introduced merchant protection policies, the issue of high return rates continues to plague players in the industry.

How to handle returned and exchanged goods has become a dilemma for platform merchants. Reselling these items can easily upset customers, leaving merchants to find alternative sales channels.

In September, Xianyu launched "Xianyu Outlet," a B2C business, bringing this aspect of the business to the forefront. It is reported that Xianyu Outlet sources its goods from B2B channels such as e-commerce returns and exchanges and trusted brand channels. Xianyu seems intent on positioning itself as a crucial part of e-commerce infrastructure, thereby gaining greater trust from its parent group.

Although JD.com has Pipaipai and Jingdongzhai (an app that connects JD.com orders with second-hand sales) to supplement its offerings, neither of these platforms is large enough to compete with Xianyu in terms of scale. According to Photon Planet's observations, Xianyu has a large inventory of nearly brand-new, unboxed consumer electronics, many of which are sourced from JD.com returns and repairs upon inquiry.

Ultimately, as second-hand e-commerce grows, its role is also being strengthened—from existing independently to gradually becoming an integral part of e-commerce infrastructure. As Alibaba and JD.com gradually open up, whether the two can reach new cooperation and consensus in this regard will be an intriguing aspect behind this battle.