“The pre-owned electronics market still has room to develop and grow”

Kerry Chen, CEO of ATRenew, talks about the market for second-hand electronics in China, technologies for preparing for reuse und future challenges for the industry.
Kerry Chen, CEO of ATRenew

How do you see the current market for second-hand electronics?
Kerry Chen: This market is different from the markets for pre-owned houses and cars, which have a high market penetration rate. The pre-owned consumer electronics industry started relatively late in China and over the past 10 years it has undergone (and continues to undergo) a process of large-scale specialization, standardization and development from the small, scattered and disorderly condition of the early years.

This process may last longer. According to GMV, the scale of China’s pre-owned consumer electronics transaction and service market was 79 billion yuan in 2016, but climbed to 309.5 billion yuan in 2021 and the compound annual growth rate reached 31.4% between 2016 and 2021. The scale of China’s pre-owned consumer electronics transaction and service market is expected to grow to 987.5 billion yuan by 2026, at a compound annual growth rate of 26.1% from 2021 to 2026.

However, the pre-owned consumer electronics industry as a whole still has a very low penetration rate. According to GMV (from CIC, a consulting and research agency), the CR6 (excluding C2C platforms) was 18% in 2021. ATRenew is the No. 1 in the market, but its market share is just 9%. Therefore, there is still a huge underserved market.

According to our observations, although the pre-owned electronics transaction and service market is large, its market penetration rate in China’s lower-tier cities is still in the early stages. Despite the huge addressable market, the penetration rate of the pre-owned consumer electronics that have been traded on formal platforms such as AHS in total consumer electronics in circulation was only 4.2% at the end of 2021.

We believe that the pre-owned electronics market still has room to develop and grow. In this regard, in order to further elevate the penetration rate, we have launched the city-level service integration strategy, which combines the core capabilities of AHS Recycle (C2B), PJT Marketplace (B2B) and Paipai Marketplace (B2C) at city level in order to enhance offline mobile phone retailers’ trade-in service competence and increase the recycling penetration rate within local markets. At the end of March 2022, business growth in 16 pilot cities of the city-level service integration strategy outperformed the market, suggesting that there is plenty of market space for further exploration in lower-tier cities.

Specific to business patterns, current mainstream market models can be divided into C2C and C2B+B2B+B2C. C2C is more suitable for highly non-standard and personalized products, such as toys, shoes and clothing. C2B+B2B+B2C, however, is more suitable for products with certain attributes of standardization, such as electronic devices and automobiles. ATRenew has adopted the C2B+B2B+B2C approach. The platform provides users with a series of standardized services such as quality inspection, privacy cleaning, logistics and aftersales service, and fully participates in the whole transaction, which solves trust issues to a large extent.

Do you think the current global crisis will increase the demand?
In a global and historical context, we can learn from the experiences of Japan and Europe that when economic growth slows down, it is a good opportunity for the second-hand economy to flourish. On the one hand, demand for recycled products go up, especially for high-value products such as mobile phones, laptops, photographic and video equipment, luxury goods, watches, and even gold. On the other hand, there is still a huge purchasing demand for high-end pre-owned electronic devices such as iPhones. In times of economic slowdowns, demand for good quality second-hand products will grow.

I would also add that even during this time of economic slowdown, many Chinese users still have a high level of environmental awareness, which is also driving demand for recycled products. This is combined with the Chinese government’s carbon neutrality goals and policies, which promote the consumption of pre-owned electronic products.

How do you assess the development in the coming years?
In terms of market size, according to GMV, the scale of China’s pre-owned consumer electronics industry is up to hundreds of billions of RMB. The scale of the pre-owned consumer electronics market is expected to continue expanding up to 2026 and the proportion of device trade-ins of residents is also forecast to keep increasing.

In addition, there are two trends that deserve highlighting. Firstly, as mentioned earlier, with the release of China’s carbon peak and neutrality goals, enterprises and consumers are more likely to actively participate in the circular economy and second-hand transactions. Secondly, along with the development of the second-hand transaction market, this industry will also evolve towards more and better standardization, normalization and scale expansion. With the coverage of more online and offline integrated and convenient transaction channels, an increasing number of consumers are willing to get involved in second-hand consumer electronics transactions. In this way, the market penetration rate will rise and the size of the industry will grow accordingly.
At the same time, competition in the pre-owned consumer electronics industry is likely to intensify, which will force the whole industry to improve its service capability and upgrading techniques. Moreover, the advantages of leading companies with better supply chain abilities and service capabilities will become more and more obvious.

What kind of technology does ATRenew use to test and, if necessary, repair the products?
ATRenew’s self-developed ‘Matrix 2.0’ system, a new generation of automated inspection line, was officially put into use in the second quarter of 2021 at our operations centre in Changzhou. ‘Matrix 2.0’ realizes the automation of the whole process, which combines automatic quality inspection and mobile phone automatic transfer through image algorithm, intelligent positioning, automatic distribution and other techniques. It breaks the limitation that individual automation cannot carry out the interactions between systems and completes the automation across systems and devices. The inspection accuracy reaches 99%, which significantly improves consumer trust in the quality of our products.

Compared with the original ‘manual + single’ automation equipment ‘Matrix 1.0’, ‘Matrix 2.0’ makes the automation of the whole process of quality inspection transfer possible and completes a leap from ‘manual subjective quality inspection + semi-automation’ to ‘full automation’, which leads to the undifferentiated execution of pre-owned equipment quality inspection criteria. Operators of the ‘Matrix 2.0’ equipment can be reduced by 85%, labour assistance costs by 83% and quality inspection costs by 20%, while quality inspection work efficiency rises by 18%, further facilitating cost reduction and increasing the efficiency of the enterprise.

In order to elevate the accuracy and efficiency of second-hand consumer electronics quality inspection, we have independently researched and developed a series of automatic inspection equipment: For internal hardware function testing, ATRenew independently developed the ‘007 Automatic Intelligent Detection Platform’ with AI learning ability. It can automatically check whether the functioning of a used phone’s receiver, screen and camera is normal within two minutes. As for internal disassembly and repair detection, our ‘Tianyan X-ray’ can identify whether a phone needs to undergo disassembly and repair or replacement of its parts through X-ray scanning without disassembly. Its high-precision image algorithm can find small problems inside the phone within 1-2 seconds, with high scanning accuracy, fast processing and other characteristics.

The ‘Camera Box 3.0’, an intelligent appearance testing device for mobile phones, has been independently developed by ATRenew to address the pain points such as the slow speed and low accuracy of manual inspection for non-standard pre-owned consumer electronics. Camera Box 3.0 has pipelined concurrent processing capabilities that can inspect the appearance of multiple phones at the same time. Incorporated with the AI algorithm, it can accurately locate and detect more than 30 types of appearance defects in just 20 seconds with an accuracy rate of more than 99%. The above-mentioned techniques form an important basis for pre-owned mobile phone quality grading. They have greatly lifted the operability of the quantification of non-standard product quality.
Furthermore, ATRenew has independently introduced a new portable intelligent inspection tool for devices called Device Hero. The introduction of Device Hero aims to promote the standardization and scale development of the industry, improve the quality inspection operation ability of small and medium-sized businesses in the market, output unified inspection criteria, elevate the penetration rate of inspection criteria in the second-hand market, and enable consumers to enjoy the same quality assurance services when buying or recycling devices from small and medium-sized businesses.

When it is applied, users only need to connect the mobile phone to be detected with the Device Hero and it will identify whether parts of the phone need to be replaced and disassembled without having to dismantle it. The device can automatically detect 32 items of hardware information, quickly detect 23 items of function, and integrate the functions of quality inspection, price inquiry, recycling, resale, rapid warehousing and financial analysis. Device Hero is similar in size to a mobile power bank and has a built-in 5000 mAh battery, which can work continuously for 6-8 hours when fully charged. As of May 2022, the average number of phones that Device Hero can test was more than 25,000 per day.

What do you do with the products that cannot be reused?
With respect to electronic products that cannot be reused, ATRenew chooses to collaborate with certified disposal institutions to handle the disposal of waste equipment, and to supervise their disposal technology, process and final results. In 2021, ATRenew recycled and supervised the green disposal of 223,000 waste electronic devices in total, reducing electronics pollution by 35.7 tonnes.

You also offer consumers the opportunity to bring their devices to automated kiosks — how does that work?
The design concept of MTA mobile phone self-service recycling kiosks is similar to unmanned vending machines, which are very common in subways. Users can put pre-owned mobile phones into MTA kiosks for recycling according to the process prompted by the machine. MTA has a built-in automatic inspection program, which can automatically identify the device’s model, memory, battery life, etc. Its big data pricing technology will offer reasonable and fair pricing. In cooperation with the risk control system, MTA will prepay part of the recycling fee on the spot. After that, when we finish quality inspection, grading and data cleaning on the recycled mobile phones, we will transfer the balance of payment to users.

A huge concern in Europe is data security. Is this an important topic in China as well? How do you deal with this?
Data security is also a vital topic in China. In May this year, the Administration for Market Regulation of Beijing issued a draft for soliciting opinions on recycling norms for waste electronic products. Among them, the collection process is clearly regulated. It is mentioned that when recycling waste electrical and electronic products, such as waste mobile phones and computers, with personal privacy involved, operators should clean up users’ personal information, protect customers’ privacy, and not disclose users’ information to any third party.

ATRenew has developed its own pre-used product data removal system named AiQingChu to protect users’ data security. Through multiple data erasure and overwriting, it can live up to the expectation for cleaning process tracking, cleaning result assurance, more thorough cleaning, and higher efficiency. Moreover, it can completely prevent the malicious recovery of user data and effectively avoid users’ privacy leakage or other data privacy security issues. At present, AiQingChu has obtained ADISA international certification and supports more than 20 different international mainstream standards for deep data cleaning.

What other challenges do you see in terms of second-hand use?
At the front-end pricing stage, due to the lack of an objective and fair pricing system in the traditional transaction process, consumers cannot avoid bargaining. In this regard, ATRenew has established a set of intelligent big data pricing systems, which are based on the accumulation of big data of tens of millions of orders processed by the company. The platform can provide objective, fair and real-time pricing for the selling and recycling price according to brand, colour, storage, appearance, maintenance history and other factors, so as to provide the most reasonable price for both ends of supply and demand. This attempt can greatly simplify the time-consuming bargaining link in the traditional transaction and save consumers both time and energy.

In the middle stage of quality inspection and grading, the uneven quality of pre-owned electronic products is also a challenge, mainly due to the lack of unified standards at the source end. And there are numerous circulation links in the industrial chain, resulting in price increases at different levels. At present, what ATRenew is doing is opening up the process from recycling to disposal to sales, to reduce intermediate costs and unify industry standards. From this aspect, we have established 38 inspection criteria and 42 grading tiers, and empowered merchants by opening the quality inspection capability to them. At present, we have more than 300,000 cooperative merchants.

On the sales side, pre-owned electronic products generally lack aftersales services such as a quality guarantee. To solve this problem, Paipai Selection stores implement a 7-day free return policy and a 1-year warranty to relieve consumers’ worries.

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