Are second-hand markets helping sustainability? Not in the enrichment economy

Posted in: Consumers, Economy, Environment, Research, Sustainability

Dr Roman Pavlyuchenko’s research delves into the hidden world of luxury goods. In this post, he explains the paradoxical nature of the resale business for high-end watches.

Academics, consumer activists, and sustainability experts agree that second-hand markets are essential to achieve desired sustainability outcomes in the coming decades. The idea is simple: if more people shop second-hand, there is less pressure to create new goods, which means fewer CO2 emissions and less pressure on Earth’s dwindling resources.

The recent worldwide explosion of second-hand consumption across a plethora of markets – from cars and clothes to furniture and even vinyl records – is thus seen as a healthy sign of a badly needed shift in consumer behaviour. And buying second-hand is also great for your wallet, especially as far as durable products are concerned.

Unfortunately, recent market developments put this simple idea into question. Specifically, if we consider the enrichment economy: a novel arrangement in which select second-hand goods acquire more status and more financial value as the time goes by.

The name refers to the sheer opportunity for consumers to personally enrich themselves if they buy and sell these select goods at the right time. For example: in 2021, 50 Patek Philippe Nautilus Tiffany Blue luxury watches were offered on sale for $50,000 apiece. Today, you can expect to pay upwards of $3,000,000 for the same piece – that has already been worn.

Paying the price

In our recent Journal of Marketing publication, we explore the inner workings of the enrichment economy in the luxury watch market and ask: how is it possible that certain luxury and non-luxury goods are more expensive second-hand than first-hand?

What we find is the existence of a carefully orchestrated market system that makes this seemingly counterintuitive phenomenon possible. As such, companies that deal in enrichment goods curate access to these goods, akin to how elite galleries curate access to the best works of Picasso or Leonardo da Vinci.

To have even a slight chance of purchasing an item with high growth potential, consumers must signal immense wealth, a personal success story, a strong network of powerful people and exceptional levels of cultural capital (for instance, knowing the full heritage of a given luxury watch). What’s more, it is not uncommon for these consumers to wait more than ten years to obtain the model that they desire.

In turn, the second-hand market for enrichment goods becomes akin to a stock exchange, where those less fortunate have no choice but to buy the much-coveted pieces second-hand and pay excessive premiums for the privilege.

Locked in-between the two markets, consumers are incentivised to secure such goods in the primary market and then monetise them on the second-hand market – either the moment they leave the store or many years later, when they pass on the goods as inheritance.

Buying and selling

What does it all mean for sustainability? In the enrichment economy, we observe an effect that goes against common wisdom: the existence and growing prevalence of second-hand markets actually drives primary market consumption, as enrichment-prone consumers are rewarded for reinvesting their earnings in a casino-like fashion.

In fact, Deloitte estimates that around a quarter of all luxury watch consumers buy watches for the sole purpose of reselling them. And, in our own estimates, the second-hand market in luxury watches already accounts for about 30% of all sales.

But, as the enrichment economy grows, the effect we observe is only going to increasingly prevalent. Already, we see the signs of the same consumer behaviour in other luxury markets (such as elite wines and spirits, sports cars, and perfumes) and, worryingly, in non-luxury markets (Funko Pop toys, Pokémon cards, select Lego sets, ‘vintage’ goods, and all kinds of ‘day one’ or ‘limited’ editions).

Overcoming the limits

As more consumers become ‘hustlers’ who buy only to sell, the pressure on ecosystems and virgin materials is bound to become even stronger.

Still, there is hope. The enrichment economy is a unique arrangement that deserves its place under the sun. But we urge all stakeholders, private and public, to take it with a grain of salt.

For companies, this means ensuring that the ‘enrichment game’ can still be played by those who have the means while making sure that reselling does not become the sole purpose of buying something new.

For an individual brand, one way to achieve this is to impose limits on how many of the brand’s goods can be owned by the same person, either at a time or throughout their life.

For policymakers, it means finding new ways to tax enrichment transactions, many of which (elite artworks sold at private auctions, for example) fall outside of any regulatory purview.

And, for society at large, it means taking a critical look at the circular economy and realising that a growing number of pre-owned markets hide motives that defeat the whole purpose of second-hand consumption.

Posted in: Consumers, Economy, Environment, Research, Sustainability

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