Flip This Phone! Site Aims to Turn Profit from Old Gadgets
Thursday, February 12, 2009
"What we're doing here is buying dollars for 80 cents"
From Forbes.com comes this story of recycling for big green:
Rousseau Aurelien stands inside a 12-foot-high steel cage in a former shoe factory in Boston, surrounded by $200,000 worth of used laptops, cell phones and videogame systems. The firm he founded, Second Rotation, bought the gadgets through a Web site it launched in July called Gazelle. The likely destination: Ebay. "What we're doing here is buying dollars for 80 cents," he says.
Aurelien estimates that only 1% of people in the U.S. bother to go online and sell their old electronic goods. He is betting that the current economic downturn will push more consumers to sell their used products for cash.
A customer enters the name of the product he wants to sell on the Gazelle site, rates its condition and gets an automated bid based on Gazelle's current inventory and its past success in moving that product. If the customer accepts, he is sent a prepaid envelope or box in the mail. The company inspects the item it receives and cuts a check if it's in the condition that the customer claimed. The company then wipes all personal data off the device before reselling it.
Gazelle offers the most desirable used gadgets--in January the biggest sellers were the BlackBerry Curve, the Motorola (nyse: MOT - news - people ) Razr and the Apple (nasdaq: AAPL - news - people ) iPhone--on Ebay or Amazon, and sends the less popular items to wholesalers.
An iPhone 3G in good condition that Gazelle bought for $153 in mid-December went for $300 at the company's Ebay store. (It would have cost $199 new from Apple with a two-year AT&T contract; Gazelle sells iPhones "unlocked" so they can be used with any wireless service. AT&T has announced it would sell the iPhone without a contract for $600.) Aurelien says he gets similar markups on items like laptops and GPS devices, but the company makes most of its revenue reselling run-of-the-mill cell phones, which rate a gross profit margin closer to 20%. The company is not yet profitable, but Aurelien aims to achieve a net margin of 10%.
The tiny 30-employee company looks like a cash sink at the moment. It says it has purchased 40,000 used items so far, paying on average $115. That's $4.6 million out the door. Coming in: probably a whole lot less. Aurelien's revelations about revenue are limited to the assertion that they exceed $1 million to date. By way of illustrating that the business is not recession-prone, he notes that his purchases of used items increased 60% between December and January. But what about sales? He sold fewer items in January but for a higher price. To pay the bills Gazelle has raised $11.5 million from Venrock Associates, RockPort Capital Partners and other suppliers of venture capital.
The retail market is tough these days. Even Ebay reported decreases of 7% in revenue and 31% in profits in the fourth quarter. "It's a myth that companies like Ebay do better in a recessionary environment," says James Friedland, an analyst at Cowen & Co.
Aurelien, 40, also founded an Internet consultancy and a think tank since he left his native Haiti. At Gazelle he is the chief strategy officer; chief executive is Israel Ganot, an Ebay veteran. Ganot is focused on shortening the time that used gadgets spend in the warehouse and fending off competition from GameStop, which buys and sells used videogames and game hardware, and VenJuvo.com.
From Forbes.com comes this story of recycling for big green:Rousseau Aurelien stands inside a 12-foot-high steel cage in a former shoe factory in Boston, surrounded by $200,000 worth of used laptops, cell phones and videogame systems. The firm he founded, Second Rotation, bought the gadgets through a Web site it launched in July called Gazelle. The likely destination: Ebay. "What we're doing here is buying dollars for 80 cents," he says.
Aurelien estimates that only 1% of people in the U.S. bother to go online and sell their old electronic goods. He is betting that the current economic downturn will push more consumers to sell their used products for cash.
A customer enters the name of the product he wants to sell on the Gazelle site, rates its condition and gets an automated bid based on Gazelle's current inventory and its past success in moving that product. If the customer accepts, he is sent a prepaid envelope or box in the mail. The company inspects the item it receives and cuts a check if it's in the condition that the customer claimed. The company then wipes all personal data off the device before reselling it.
Gazelle offers the most desirable used gadgets--in January the biggest sellers were the BlackBerry Curve, the Motorola (nyse: MOT - news - people ) Razr and the Apple (nasdaq: AAPL - news - people ) iPhone--on Ebay or Amazon, and sends the less popular items to wholesalers.
An iPhone 3G in good condition that Gazelle bought for $153 in mid-December went for $300 at the company's Ebay store. (It would have cost $199 new from Apple with a two-year AT&T contract; Gazelle sells iPhones "unlocked" so they can be used with any wireless service. AT&T has announced it would sell the iPhone without a contract for $600.) Aurelien says he gets similar markups on items like laptops and GPS devices, but the company makes most of its revenue reselling run-of-the-mill cell phones, which rate a gross profit margin closer to 20%. The company is not yet profitable, but Aurelien aims to achieve a net margin of 10%.
The tiny 30-employee company looks like a cash sink at the moment. It says it has purchased 40,000 used items so far, paying on average $115. That's $4.6 million out the door. Coming in: probably a whole lot less. Aurelien's revelations about revenue are limited to the assertion that they exceed $1 million to date. By way of illustrating that the business is not recession-prone, he notes that his purchases of used items increased 60% between December and January. But what about sales? He sold fewer items in January but for a higher price. To pay the bills Gazelle has raised $11.5 million from Venrock Associates, RockPort Capital Partners and other suppliers of venture capital.
The retail market is tough these days. Even Ebay reported decreases of 7% in revenue and 31% in profits in the fourth quarter. "It's a myth that companies like Ebay do better in a recessionary environment," says James Friedland, an analyst at Cowen & Co.
Aurelien, 40, also founded an Internet consultancy and a think tank since he left his native Haiti. At Gazelle he is the chief strategy officer; chief executive is Israel Ganot, an Ebay veteran. Ganot is focused on shortening the time that used gadgets spend in the warehouse and fending off competition from GameStop, which buys and sells used videogames and game hardware, and VenJuvo.com.
posted by Chris and Frank at 8:45 AM
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