The Resale Economy: From Fast Fashion to Circular Markets

Used or secondhand sales are a significant component of most economies, even though they do not count as part of gross domestic product (GDP).  Secondhand sales are especially popular for durable goods like capital equipment and automobiles and for clothing and footwear.  Unlike many small consumer items or appliances, vehicles and clothing rarely “break” and are disposed of without attempt to repair.  Additionally, user needs may change due to aging, relocation, or career switch, making functional vehicles and clothing ill-suited.  While small consumer items and appliances are almost universally useful, whether the owner is a blue collar worker or white collar executive, vehicles and clothing can be detrimental or poorly-functioning in different environments.

For example, if a former farmhand from a rural area completes his education and gets an office job in a city center, his full-size pickup truck may be detrimental to his transportation needs because it is oversized.  Conversely, if the resident of an urban apartment complex relocates to a house in the countryside, far from paved roads, her small sedan may be ill-suited to handling muddy terrain.  Someone who moves to a different climate zone may have little use for certain outerwear or footwear, and someone who changes careers may no longer need certain fashion or formal wear, such as business suits or steel-toed work boots.  If these vehicles or clothing items are still in relatively good shape, they may find a spot in a circular market.

Circular Markets Explained

For durable goods, including certain clothing like outerwear, the life span may be a hundred uses or more.  A circular market, also known as a circular economy, recycles a good through as many uses as possible, often transferring from owner to owner to be used to produce the greatest value possible at the time.  When a durable good no longer provides enough utility (satisfaction) or marginal revenue product, it is sold or rented to a new user who will receive sufficient utility or MRP from it.  Through repairs, refurbishments, and upgrades, a durable good may remain economically productive for decades.

Circular markets are popular with the environmental movement and proponents of social welfare, who often criticize modern “disposable societies” as wasteful and damaging.  They are especially critical of planned obsolescence, where companies intentionally produce goods to be non-durable and force users to purchase new models regularly.  Disposable products can cause environmental degradation by generating mass amounts of trash, often containing toxic chemicals and metals from electronic components.

Fast Fashion Versus Circular Market for Clothing

Outerwear is typically durable, with sturdy items like coats and boots lasting for decades when cared for according to specifications.  However, in recent decades some outerwear, such as shirts and casual pants, have become less durable.  Mass production of clothing has been outsourced from developed economies in North America and western Europe to factories in Asia where labor is cheap and environmental regulations minimal or nonexistent.  In these largely unregulated factories, fast fashion is mass-produced in record time, designed to be disposable to Western consumers.  These consumers are encouraged to regularly “refresh” their wardrobes with inexpensive clothing coming from Asia.

Some consumers, however, frequent secondhand stores (brick-and-mortar or online) for more durable, higher fashion clothing as part of a circular market.  Two popular online secondhand fashion markets are Depop and Poshmark, which allow sellers to post their used clothing for sale.  Brick-and-mortar consignment shops are also popular in many cities.  For sellers who do not wish to pay a fee or give up a percentage of the sale revenue, which occurs under consignment, selling directly to customers can be done through social media venues like Facebook Marketplace.  Additionally, consignment sellers and third party sellers, including Depop and Poshmark, have quality requirements to maintain the popularity of their business models, meaning many secondhand clothing offerings are rejected as unsellable.

Economic Incentives of Circular Markets

Incentives for Sellers

Gently-worn clothing and well-maintained vehicles can usually generate some revenue for the owner when they are re-sold (or rented, in the case of vehicles and other capital equipment).  The Internet and rise of secondhand sale websites, including platforms on social media, has made it easier and more economical to sell these items.  In previous generations, sellers would have to take out classified ads in local newspapers, usually without pictures, to hope to attract buyers, or use consignment shops.  They would also hold garage sales, yard sales, or park their for-sale vehicle in a parking lot facing a busy street, hoping that colorful signs would attract interest.

Thanks to the Internet and smartphone apps, the opportunity cost of trying to sell used items is virtually zero - it takes little time or effort to post things for sale on multiple digital platforms.  Even though the ease of posting keeps prices of secondhand goods low due to a mass proliferation of online sellers, the alternative is zero revenue, or perhaps even negative revenue (cost) if the goods must be stored and maintained.  For example, keeping an unused vehicle can cost hundreds of dollars per year in maintenance and fees.  As a result, making virtually any sale revenue and freeing up valuable space in one’s home or business is a net gain compared to not selling a used durable good.

Incentives for Buyers

Obviously, the primary incentive of purchasing used items in a circular market is the lower cost compared to purchasing brand-new items.  Buyers may also be able to purchase specifically based on the amount of quality and durability they need, allowing for lower prices.  For example, a specific item of clothing that needs only be worn once, for a specific event like a holiday party, may be found and purchased at a low price.  This provides both buyer utility and seller revenue even for items that are not considered in pristine quality.  However, this is available only by picking the correct market: most consignment shops or fashion-based secondhand clothing websites are dedicated to gently-worn clothing; those who want specific articles of clothing for a single use should utilize Facebook Marketplace or Goodwill.  

Both sellers and buyers can maximize efficiency by using different circular markets for goods of different levels of depreciation or wear.  For example, parents who wish to purchase a vehicle for a teenager may opt to look on Facebook Marketplace for a well-used car, knowing that the teen will put lots of additional wear on the vehicle and potentially not use it responsibly.  A gifted vehicle for a college graduate, however, may be purchased from a used car dealership and have considerably less wear.  Those giving the gift are more reasonably assured that the college graduate will not abuse the vehicle, making a higher quality vehicle more worthwhile.

In addition to lower cost, buyers may enjoy additional utility by knowing that their purchase of a secondhand item is better for the environment than purchasing a new good.  Some premium (price above market value) may be assigned to the knowledge that purchasing the used good kept it out of a landfill, creating a degree of consumer surplus.  For consumers who consider themselves environmentalists, using circular markets to keep goods out of landfills can be a significant driver of their consumption habits.  All consumers should educate themselves on sustainable options for what to do with their used appliances and clothing rather than putting them in the trash.  Aside from environmental degradation, throwing some things away - especially chemicals and appliance batteries - can be significant safety hazards.