Cellphone Recycling Is Becoming a Lucrative Business

The popularity of full-screen smartphones in second half of this year has stirred up excitement among quite a few phone users. While buying a new smartphone, how to get rid of the old one becomes an issue.

According to the statistics by China Academy of Information and Communications Technology (CAICT), in 2016 the sell-in volume of domestic cellphones reached 560 million. Based on the statistics on domestic cellphone users’ behavior released by Shenzhen Cellphone Industry Association, 90% users are changing the old for a new one. That is to say, over 400 million phones are discarded each year.

In the past, the discarded phones are usually left somewhere at the bottom of drawers. In recent years, however, more and more companies see the business opportunities behind those used cellphones, and are looking to make money out of them.

In fact, the industry of cellphone recycling has a business potential much higher than outsiders’ imagination. Many start-ups have gained the trust of capital with such potential. For example, in December 2016, cellphone recycling platform “Aihuishou”(爱回收) has raised 400 million RMB in its D round financing.

And recently, another cellphone recycling platform “Huishoubao” (回收宝)has accomplished 300 million B round financing led by Haixia Capital. After this round, Huishoubao’s estimated valuation reached 1.5 billion RMB.

Huishoubao was founded in July 2014. He Fan, the founder and CEO, has abundant experience in cellphone supply chain, and has co-founded the supply chain management service provider Prolto Supply(002769.SZ)in 2015. Leveraging his experience in supply chain, He Fan came to discover the opportunities to obtain value in discarded products, and around 2013, he started an in-depth investigation into this industry.

“Back then, Europe, America and Japan, etc. were the places of origin for second-hand cellphones. After repairing and renovation, those cellphones are sent to regions like South East Asia, Africa, and Latin America,” said He Fan in his interview with Jiemian.com reporter. This phenomenon provided cellphone recycling industry with abundant supply.

Also, back then, however, cellphone recycling is a still a rarely-known domain in domestic market. For general users, other than put the used cellphones aside, the only way to get rid of them is to sell it for recycle. Though, due to the little knowledge of the recycling industry, sellers usually get a bad deal with a much lower price than the cellphone’s remnant value. On top of that, the concern of personal information security also discourages users from selling used cellphones to recyclers.

All these reasons have hindered the development of domestic cellphone recycling industry. He Fan states that the recycling rate of used cellphone in China could be less than 1% back then, while in developed countries as Europe and America, the rate could be more than 30%. Seeing the great market potential, He Fan decided to start a business in cellphone recycling.

At the initial stage, how to win users’ recognition of the platform is a major issue facing Huishoubao. To achieve this, Huishoubao needs to establish a reasonable price assessment system.

In order to recycle used cellphones, users are required to check the boxes of cellphone conditions in terms of basic information, exterior, and functionality on Shuishoubao’s website. Afterwards, according to the introduction of He Fan, Huishoubao will assess from their end using a big data system, and give the cellphone an estimated recycling price according to the input information provided by users. The benchmark includes the general price level in market, as well as price trend in downstream sales channels, etc.

There are usually discrepancies between prices offered by recycling platforms and prices expected by their users. “There are on average 20% negotiation rate in our recycles, including negotiating upward and downward,” says He Fan.

Negotiating downward is usually the case for Huishoubao, the reason being users usually will over-estimate the condition of their used cellphones, and subsequently giving unrealistic descriptions. Thus, the actual prices will differ from the estimated prices.

He Fan gives an example: “For instance, the cellphone screen can have scratches, which will only show against white screen. As users usually cannot see those scratches, they will deem the exterior to be good, and have doubts over the recycling prices.” This is a common pain point of cellphone recycling industry.

In order to address the doubt of such users, Huishoubao added a video monitoring procedure to its recycling process. Meanwhile engineers will issue a report according to overall examined condition. Users can obtain detailed understanding of cellphone condition and reasons price estimation through these videos and reports, which makes it easier for them to accept the actual price proposal.

Concerning negotiation upwards, these occasions usually occur when users are not familiar with the specifications of their cellphones. “Under each cellphone module there can be high configuration and low configuration, new batch and old batch, etc. Those who do not understand may give an under-estimated price. In such occasions we will also increase the actual recycling price accordingly,” says He Fan.

Huishoubao will categorize the recycled cellphones into three classes, namely good, non-defective, and defective ones. The categorization criteria include cellphone condition, style, integrity of functionality, etc. Among all these phones, good ones account for around 15%.

For those categorized as good, Huishoubao will erase all existing data with expertise. After thorough cleaning, those cellphones will be sold as second-hand products on its own platform or other third-party partner platform including ZhuanZhuan, Jingdong, and Taobao, etc.

For those categorized as non-defective, Huishoubao will resell them to downstream recyclers for further repair and reassemble. Afterwards they will be sold as second-hand products to 3rd or 4th tier cities and some less developed countries. Currently they are the major revenue driver for Huishoubao.

And for those categorized as defective, Huishoubao will join hands with companies with environment credential to process and obtain the precious metal and environmental protection material. “The recycling of defective cellphones is out of the notion of environmental protection and a sense of social responsibility, in order to avoid pollution and destruction caused to environment,” says He Fan to Jiemian Entrepreneurship reporter.

He Fan has transferred his previous experience and management skills from supply chain to the daily operation of Huishoubao. He states that used cellphones can depreciate very quickly. If a used cellphone stays in the inventory for too long, its value will keep depreciating. For this precise reason, Huishoubao keeps a light model without any inventory. Whenever a cellphone comes in, it will be quickly transferred to a downstream recycler, to preserve the used cellphone’s remnant value.

Like many of its competitors, Huishoubao has deployment of both online and offline recycling channels. Contrary to Aihuishou’s focus in building its own recycling point, Huishoubao put more emphasis to its collaboration with offline cellphone distributors.

Therefore, Huishoubao established a sub-brand “Huanjixia” to assist offline distributors to promote changing old cellphones for new ones. By far Huishoubao has cooperation with Huawei, Vivo, China Mobile, China Unicom, and China Telecom. It also reaches cooperation with over 20000 offline stores.

Despite that, online channels remain Huishoubao’s major source of used cellphones. He Fan reveals that the ratio of online and offline cellphones is about 60% to 40%.

According to the official statistics provided by Huishoubao, since its foundation three years ago, over 4.5 million users have used its service, with over 5 million cellphones recycled through its platform. And for now, Huishoubao has a monthly recycling volume of 200,000 with average price of 500 RMB, and monthly revenue of 100 million RMB.

Even so, He Fan also states that Huishoubao has not yet covered overall cost. In order to increase revenue, they need to find new business opportunities.

Focusing on cellphone aftermarket could be an answer. In this June, Huishoubao invested “Shanxiuxia”, the largest domestic O2O onsite repair company. While providing users with repair service, Shanxiuxia also offers recycling service. And this is just one link in the cellphone aftermarket chain.

Other than that, cellphone rental is also a direction considered by Huishoubao. Currently it has achieved cooperation with Sesame Credit, providing credit recycling services in Sesame Credit. It is looking to have more deployment in the future credit life.

“Our vision is that, users will come to us for whatever after service they need once they buy a cellphone,” says He Fan.

As for the industry competition, He Fan thinks it is not the priority for Huishoubao’s strategy.

“Even till today, the recycled cellphones in all platforms only account for 2% of total market potential. While in mature markets, the proportion could reach 30%. The objective right now is to build a bigger industry.” He adds that only when domestic cellphone recycling markets has reached the scale of mature markets, will there be industry competition then.

Currently, Huishoubao and Aihuishou, which have accomplished major financing, are the two leading companies in this industry. With the evolution of consumer’s perception, this market they have been working on is steadily growing. Maybe in the next few years, second-hand cellphone recycling will see a new wave of change.

This article originally appeared in Jiemian and was translated by Pandaily.