It would be hard to> miss the latest advertising blitz from Best Buy (BBY)
Once the provenance of online start-ups, bigger electronics outlets have now set their sights on your used gadgets. Best Buy's new program adds a novel twist: It promises to buy back customers' latest cell phone, laptop, tablet and television purchases for a set rate, in exchange for an upfront fee. SquareTrade, an online warranty provider consumers may know from its partnerships with Amazon.com (AMZN)
But for consumers, these big-name forays into the buy-back business may not, in fact, be the best buy, for several reasons. The guarantees typically lock in a resale price that's way too low, says Manish Rathi, a co-founder of Retrevo.com, a consumer electronics shopping site. The upfront fees further eat into the money you'd otherwise recoup. And the buy-back usually comes in the form of a store gift card, not actual cash all of which makes these new buyback programs a better deal for stores than for shoppers, says Stephen Baker, the vice president of industry analysis for NPD Group.
For starters, these programs often estimate faster and steeper depreciation than actually occurs. The most Best Buy or Tech Forward (another guaranteed buy-back site and Square Trade's partner) will promise is 50% back and then only on trade-ins within six months. Wait longer, and the rate drops futher. But "almost no product loses 50% of its value in the first year," Rathi. TVs, for example, generally lose 20% to 25% of their value over a year, while laptops drop 35% to 40%, he says.
The companies say they're slightly conservative in their estimates to account for technological leaps that do send prices plummeting. "Obviously there's a big unknown," says Mark Lebovitz, chief operating officer of TechForward, which has offered buy-back plans since 2006. "We spend a lot of time trying to figure out how these devices depreciate." What's more, Amy Adoniz, a general manager at Best Buy's Union Square location in New York City, says that because technology gets cheaper as it advances, the highest buy-back price is likely to cover more than half of the price of a new item of comparable quality.
Still, someone with a 16GB iPhone 4 could get $472, on average, for a six-month old handset, says research firm Terapeak 35% more than the $350 the guarantee programs promise. Spokespeople for the companies concede that consumers pay a price for the peace of mind of a guaranteed rate, but say their offers are fair. "People's time is most often worth more than the money they might make selling it themselves," says Jade Van Doren, the chief executive of Tech Forward. Van Doren also notes that in the case of the smartphones, buyers are usually also getting more than the subsidized phone price from their wireless carrier that they originally paid.
Trade-ins for store credit also force you to stay with that retailer for a replacement purchase, and spending tends to exceed the gift card's balance. Trade-in site Gazelle's partners report that consumers typically spend 40% to 80% more than the value of their trade-in, says Israel Ganot, the site's chief executive. Gazelle itself pulled in $21 million last year from reselling the gadgets consumers trade in on eBay and to wholesalers, up from $8 million in 2008. Buy-back programs boost profits further via up-front fees of $20 to $350 fees to lock-in a resale price.
Retailers also assume that, as with warranties, not every buyer will actually use the program after they've paid, says Baker. Participation may even tie in to other lucrative services. Best Buy, for example, offers a 50% discount on program fees when you buy Geek Squad protection plans, while Square Trade only offers buy-back to people who buy a warranty. (Vince Tseng, the vice president of marketing for SquareTrade, says customers get a credit on their warranty when they trade-in early.)
For the most part, consumers will be better off trading in their used gadgets at a site or store that makes an offer based on the item's condition and going rate, Rathi says. And that business is also growing: Radio Shack (RSH)