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Hot Trend in 2012: Retailers Turning E-Waste Into Gift Cards

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Unused electronics that once went to the back of a closet -- or into a landfill -- get an environmentally friendly spit and polish with "reCommerce."

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Looking to spot the next retail trend in 2012? Look for retailers that pay customers to turn their old electronic items into something new (like a gift card). The concept lies in the "reCommerce" industry, and industry analyst site TrendWatching.com predicts that "trading in to trade up" will be a major economy in 2012. Major retailers have jumped on board the trade-in program idea, and those who develop a working formula might just pull ahead of the competition.

The idea of "reCommerce" is not new, but as technology changes rapidly and the economy lags, customers are collecting more and more electronics they cease to have a use for. According to the Consumer Electronics Association, Americans now own approximately 24 electronic products per household. While the "early adopters" gain media attention when they form lines outside of Apple (AAPL) stores, they actually represent just 13.5% of the population, according to the Diffusion of Innovation Theory.

The "late majority" and "laggards," on the other hand, make up 50% of the population. These segments are either priced out of the retail technology market or are simply uninterested in paying top dollar for technology. In any case, they have created an increased demand for refurbished gadgets sold at an affordable price. Thanks to online aftermarkets, many customers are aware of the value of and demand for their old models and are looking to unload electronics they no longer want, especially for a small reward.

Gazelle, the self-described "largest and fastest growing player" in the reCommerce industry, has been around since 2007, offering cash or a Wal-Mart or Amazon gift card to customers for their old electronics. Retailers recognize the demand and value of the trade-in market, too.

Gazelle has partnered with Costco (COST), Walmart.com (WMT), OfficeDepot (ODP), and Sears (SHLD) to manage their trade-in programs. According to the official Gazelle press kit, key partnerships could account for up to 30% of the online recyclers' revenue in 2012, versus the 5% it generated from the relationships this year.

Apple also has a "reuse and recycle" program through a partnership with PowerON, which has been recognized as one of America's fastest growing privately held companies, and offers a gift card for the "fair market value" of an iPhone, iPad, Mac or PC desktop, or notebook computer. In the program, for example, an iPad 2 in "mint condition" is valued at $290. By contrast, a new model retails for at least $499. Target (TGT) has partnered with NextWorth to manage its trade-in program.

Arman Sadeghi, founder and CEO of full-service recycler All Green Electronics Recycling, explains that corporations with a "buyback" program typically outsource to a third-party waste management vendor (like those mentioned -- and a slew of others) to test the products, wipe the data, clean the items, repackage, and resell them through eCommerce channels.

He explains the value of the partnership to the retailer: Companies that have not yet started to offer a recycling or trade-in program likely don't because the logistics of handling "odd and individual items is extremely complicated, and many of them simply don't have the partnerships in place to be able to handle it."

While Gazelle offers its direct customers the option of a cash transaction, in addition to the choice of a Wal-Mart prepaid card or Amazon.com gift card, retailers typically issue store gift cards for trade-in reimbursement. The benefit of issuing gift cards is multidimensional for the retailer, providing a shot at increased customer loyalty, customer acquisition, and of course, the chance that gift card customers will spend beyond the card's value or never use it.

After the reCommerce transaction is complete, items in good condition often end up back in a robust online reuse economy like eBay (EBAY) or Amazon (AMZN). Naturally, Gazelle takes a cut of the action when it manages programs for retailers, which may explain why Amazon has gotten aggressive with its own reCommerce initiative. In September 2011, Amazon announced that it was expanding its trade-in program (which has existed since 2009) to include the "Electronics Trade-In Store," which issues Amazon gift cards for cell phones, cameras, and MP3 players.

The program offers free shipping for trade-in electronics, and customers can receive a credit to their Amazon account in the form of a gift card within 48 hours of product receipt. In a corporate statement, Paul Ryder, vice president of Electronics for Amazon.com, said "hundreds of thousands of customers have already received millions of dollars in gift cards from the other products in our program. The Electronics category is a natural extension and we are delighted to offer our customers more trade-in options."

Retailers that take advantage of a reCommerce program may also see a benefit to their own supply chain. Environment watchdog Greenpeace maintains that businesses will increasingly take e-waste seriously, despite the logistical challenges, because aside from customer loyalty, trade-in initiatives can ultimately reduce raw materials costs.

Twitter: @WellnessOnLess
No positions in stocks mentioned.
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