The Goods Samaritan of Reverse Logistics

Image: Amit Verma

Hitendra Chaturvedi, CEO, Reverse Logistics

His Company: Reverse Logistics
Started In: 2008
Business: Refurbishing and reselling orphaned ‘returns’ for consumer electronics brands
Is there Money In It? About Rs. 54 crore in annual revenue, with gross margins ranging from 20-40 percent
Don’t Others Do It Too? Sure, but if Reverse Logistics can pull off its consumer facing ‘Greendust’ brand and outlets, it could become an eBay like platform for returns


Conceived in South Korea and India, she was finally born in Noida, Uttar Pradesh. Weighing nearly 27 kg, her light grey body glowed white under the fluorescent lights. There were many like her; all bore the same name — WT8507AG.

Within a few days she and the others were put onto a truck bound for Mumbai. Then one day she was put on a rather run-down tempo that wobbled violently over every stone and pothole.

A few hours later she was happy to notice the smiles of a newly wed couple as her protective covering was removed. But then the husband took a closer look and his smile was gone.

“What have you done?” he asked the tempo driver. “This is a damaged piece. The body is dented. I paid Rs. 9,000 for a new Samsung washing machine!”

Before she knew it, she was bundled off to a facility for damaged ones like her. The sign outside the building said ‘Greendust’. There, a bunch of people put her through a series of tests before trying to smoothen out the dents.

A week later, she was on a truck to Bhiwandi, near Mumbai. Once again, she spotted the name ‘Greendust’, this time at the sparsely furnished shop where she was put to display. One day, a young couple pointed her out to the shopkeeper, enquiring what’s wrong.

“Nothing madam,” said the young shopkeeper. “There was a small dent in the body and a scratch on the lid, that’s all. You can buy this for just Rs. 6,000, instead of the current market price of nearly Rs. 9,000. Plus, we’re also offering a Samsung warranty on it for one year.”

The couple bought her. She had finally found a home.
***
“We are giving a new lease of life for these products,” says Hitendra Chaturvedi, 45, the founder and CEO of Reverse Logistics (RLC), the parent company of Greendust, which buys damaged or older goods at cheaper prices from manufacturers, retailers and even consumers before refurbishing and selling them.

The Samsung WT8507AG is but a drop in the ocean of retail products that are returned by Indian consumers — estimated at 4-5 percent of all sales. The value of these products in the consumer durables space alone is $265-$330 million. Reverse logistics also covers end of life products that need to be disposed off safely, warranty claims, surplus stock and exchange offers.

Since starting out in 2008, Chaturvedi has managed to secure manufacturing clients like Samsung, LG and Lenovo as well as Future Bazaar, the online retail arm of Future Group. From them, he currently generates revenue of about $1 million every month, translating into an annual turnover of around Rs. 54 crore.

He expects to nearly double revenues by next year and touch Rs. 500 crore over the next four years.

The Neglected Orphan
Companies and retailers have traditionally paid little attention to ‘reverse logistics’ — the movement of goods from consumers back to retailers and manufacturers. Given the limited resources and time, any organisation would strive to expand its forward supply chain and sell more of its products than figure out how to deal with the few that are returned. This is where Greendust steps in.

K.H. Khan, general manager – finance at Samsung India, says the biggest reason for him signing up with Greendust was to clear his warehouse of returns. “Warehouse space is costly all across India and using it for ‘B’ and ‘C’ class products [products with minor, repairable defects] is of no use.”
 
In a calculation done for Future Bazaar, Chaturvedi found that each return of a popular entry level mobile phone worth Rs. 1,400 was costing the company roughly Rs. 1,200 in write-offs and costs. Returned products also become obsolete fast. “Returns often just keep sitting in warehouses, depreciating, till finally they are sold as scrap for just 5-10 percent of their original value,” says Feroz Khan, formerly the vice-president of operations at Future Group and in charge of the group’s online fulfilment and commerce activities, including Future Bazaar.  (He left Future Group six months ago to start his own venture).

Nevertheless, there’s significant money to be made, in many cases as much as the price of the product being returned. So it made sense to enter a space dominated by the unorganised sector — small-time dealers and individuals who buy damaged/old consumer goods at throwaway prices and channel them to grey markets or salvage components in environmentally unsafe ways before junking the rest.

Given the staggering numbers, entrepreneurs are bound to rush in to provide a solution. Apart from Greendust, there are other well-established companies like Intarvo and Aforeserve in the reverse logistics space. But while most are focussed on the supply side of reverse logistics, Greendust is attempting to become a seller of those goods.

Becoming the Platform
When we first looked at RLC, we thought of it as a service provider to corporate and OEMs [original equipment makers]. In a left-to-right supply chain, our focus was on the left — retailers and OEMs — but there was value on the right from consumers who were walking into our warehouses. That’s when we realised we were building a two-sided network, a platform,” says Sandeep Murthy, a partner at venture capital fund Sherpalo Ventures. Sherpalo invested Rs. 30 crore in RLC in March 2010 along with Kleiner Perkins Caufield & Byers and Reliance Ventures.

Platforms that connect buyers and sellers are a great business model. After a certain critical mass is reached, the platform attracts new users through network effects while generating enough value for existing users so that they keep coming back for more.

The supply side of Greendust’s platform comprises retailers and manufacturers. Through exclusive relationships with them, it is able to buy used and damaged products at steep discounts. For instance, Greendust is Samsung’s exclusive national vendor for all its consumer goods, barring PCs and laptops, classified ‘B’ or ‘C’. It picks them up directly from Samsung distributors after paying pre-determined rates.

For Future Bazaar it goes a step further. Greendust visits customer homes to pick up the products. Here, it does not buy the products outright from Future Bazaar, preferring a 70 percent share of the final sale price. These products are taken to one of its 50,000-square-foot ‘value added centres’ in Mumbai, Delhi or Bangalore where they are put through a rigorous 50-point test and repair cycle. The products are then certified OK with the Greendust logo and a manufacturer warranty. Finally, they are sold through the Greendust Web site or a network of exclusive franchisee stores in smaller towns and cities.

Greendust ensures the products are clearly marked as refurbished to avoid cannibalising the fresh grade ‘A’ stock being sold by its clients.

“In fact, our franchisees tell me not to remove scratches from the product because then their customers don’t understand why you’re selling a fridge 30-35 percent lesser than its market price,” says Chaturvedi.

By buying cheap, adding value through high-quality repairs and selling at better prices, Chaturvedi claims to be able to generate margins of between 20 and 40 percent while helping his clients save serious money.

“Between 2-2.5 percent of my bottom line at Future Bazaar was taken care of by RLC [Greendust]. And I recovered around 40 percent of the retail price for most returned products in the process,” says Feroz Khan.

The Gold in Old
As companies like Samsung work round the clock to churn out newer models for India’s booming middle class, they are in effect creating an equally large opportunity for Greendust. Because a buyer of a new model is in most cases a seller of an older one.

According to research firm Gartner, more than half the nearly 140 million mobile handsets sold in India last year were bought by consumers to replace their existing phones. Similarly, in the television market, research firm iSuppli estimates that LCD (liquid crystal display) TV sales will outnumber CRTs (cathode ray tube) from 2012. Again, most of the LCD TVs are replacements for CRTs.

These millions of phones, televisions, air conditioners and refrigerators are a multi-billion dollar opportunity for companies like Greendust. Chaturvedi says these consumers usually have three questions for his refurbished products: “Is it functional? Are you giving me a warranty? Is the price right?” As long as he can answer ‘yes’ to all three conclusively, he says there is no reason why Greendust-rebranded products should not sell briskly.

But much will rest on his ability to scale up rapidly. Bulking up volumes on the supply side is an easy job — manufacturers and retailers understand the problem and are waiting for a solution. It’s the consumers who need convincing.

To that end Chaturvedi says he plans to scale up his franchise store count to 100 in another year, up from about 20 at present. He also plans to add consumers as a new supply partner for Greendust, whereby anyone can request Greendust to do an ‘audit’ of their existing electronics products and then suggest exchanges or outright sales.

If he is successful and Greendust’s volumes grow rapidly, he will be able to get even better discounts from retailers and manufacturers. That, in turn, will mean higher margins.

Vineet Saraogi, 28, owner of Oasis Tradelinks, the Greendust franchise in Bhiwandi where our WT8507AG was finally sold, is hopeful. Since setting up the outlet with his brother Vijay this March, they have sold 60-70 Greendust rebranded washing machines and refrigerators. The brothers are now expanding their store from 1,000 square feet to 3,000.

“Their formula is a hit,” he says.