The New & Refurbished Balance Point
The sum of the parts...
On day two of the Circular Summit in London next week (23/10/2024), there’s a talk titled “Why many consumers are shunning used phones”. This is off the back of a useful survey1 conducted by YouGov back in May 2024, which has the headline “Majority of Britons are aware of refurbished handsets, yet only 6% own one”.
I’m not sure what the implication is here. The same survey states that 22% of consumers are likely to consider a refurbished device to replace their existing phone. So, I’ll add a couple of other stats and try to think this through practically:
Assume a total installed base of smartphones in the UK of 48m2.
Take the YouGov 6% figure as the current installed base of refurbished devices.
I think the current replacement rate for a smartphone is about 3.5 years - it’s possible that people buying a refurbished device hold on for it even longer.
My own recent survey3 suggests that currently 15.8% of people are buying refurbished devices - call it 16%.
Taking all of the above to remain constant (which they aren’t) means it would take another 3.5 years to reach a refurbished device market share of 16%. From a unit perspective, this means the market share of refurbished phones increases from approximately 2.9m devices to approximately 7.7m devices. Which in practical terms means the secondary market needs to process an additional 4.8m devices over that period to meet the implied demand, a net annual increase of 1.4m devices.
Taking YouGov’s 22% “refurbished consideration set” respondents as a market potential means we get to a 16% market share in 2.2 years with a net increase of 2.2m refurbished devices required annually. Even more positively, taking GfK’s 25% refurbished purchase rate4, getting to the same market share of 16% refurb to new is only going to take 1.8 years needing a net increase of 2.6m devices annually.
Obviously, achieving these numbers does not occur naturally and in addition to the overcoming the consumer adoption barriers identified by YouGov, sector challenges remain.
The past few years of gross margin pressure means less cash has been finding its way through the P&L and onto the balance sheet for investment. Whilst it might not feel like it yet, recent inflationary pressure is beginning to come under control with the headline CPI number down to 1.7%. So, perhaps now it’s time to take another look at business cases to fund automation or other volume increasing projects.
Perhaps more importantly, I’m wondering what new / refurb market shares the OEMs are planning for? Parts availability, pricing and parts-pairing remain key OEM levers which control influence the sector’s ability to grow and therefore the balance between new and refurb market shares. The EU’s Ecodesign / EcoLabelling / Ecodesign for Sustainable Products Regulation mashup almost got there in that spare parts have to be made available for a set period of time and at a reasonable price5, (whatever that means), but I’m sure OEM lawyers lobbied hard to include the parts-pairing exemption6.
Fundamentally, however, these numbers should be good news for the sector and some refreshed business cases. And, if you’re in the UK, it’s probably worth giving some support to the Restart project’s lobbying efforts by adding your signature here and giving this group some love.
Peace.
sb.
USwitch make it 54m (https://www.uswitch.com/mobiles/studies/mobile-statistics/mobile-phone-market-statistics/#:~:text=United%20Kingdom,67). I make it about 48m, I’ll be cautious and take my number.