FedEx (NYSE:FDX) recently announced the acquisition of the third-party logistics company Genco, which will expand the company’s profile to now include reverse logistics. Reverse logistics is the processing of returns for retailers. Genco processes more than 600 million returned items annually. The FedEx acquisition is on track to be official in 2015.
For companies like Genco and Progressive Green Solutions (OTCBb: PGSC) who specialize in reverse logistics, the market is a booming one. Best Buy CMO Barry Judge says, “Secondary market electronics sales represent an estimated $15B market in the United States.”
To put things into perspective, the value of U.S. remanufactured production grew by 15 percent to at least $43.0 billion, supporting 180,000 full-time U.S. jobs in 2011, according to the US International Trade Commission. There is no doubt that the market is getting bigger and with the DOW hitting 18,000+, new companies are sure to emerge as secondary market consumer electronic distributors and secondary appliance distributors.
The average consumer saves close to 30% for an item that has a small ding from the show room or for a scratch from moving it off a truck. For example, consumers spent $998 on average per person in 2011 for electronics and that would have been roughly a $300 savings. With more and more people spending their money wisely and with these items being “as good as new” the industry as a whole has blossomed into a great investment opportunity.
Right now reverse logistics has gained the attention of some of the biggest organizations in the retail spot and with the size of the market, a smaller player even grabbing a 5% market share could see impressive revenue numbers with shareholders reaping the benefits. Even if you take 1% market share of a $43B industry, a company would be roughly generating $430M a year in annual revenue. For Progressive Green Solutions, a $430M revenue number at the current price to sales ratio of roughly 2x for the logistics industry would put this stock around $8; currently it’s trading at $0.80 leaving over 500% in potentially upside.
To drive the point even further home, last year the mobile phone industry, for example, sold an estimated 1.2 billion devices. 96 million mobile devices were refurbished and sold again on the secondary market. With an average resell price of $82.50, you do the math on profit that is to be made.
“Returns in the e-commerce segment are a more important issue than they are in a typical retail channel, representing a larger percentage of overall sales,” said FedEx Services president and CEO Mike Glenn. “It’s critical that we have these capabilities.”