eRecycling Corps Finds Niche as Broker of Used Cellphones

Think of it as “Sanford and Son” 2.0.

Turns out, those outdated devices you have taking up space in the junk drawer are worth a great deal, a fact that eRecycling Corps is finding lucrative.

The company, which is based in the Dallas suburb of Irving, TX, raised $105 million recently on a simple premise: What we in America and Europe view as junk are highly sought-after consumer goods in emerging markets. eRecycling Corps has become the middleman.

“I’m the Fred Sanford of the Internet,” says David Edmondson, eRecycling Corps co-founder and CEO, comparing himself to the junkyard owner in the 1970s television show, “Sanford and Son.”

This is how it works: eRecycling Corps has agreements with major wireless carriers that can offer to buy back old phones in return for an upgrade. “When you give a customer an instant in-store credit—give them $80 that they didn’t they would have—they end up spending $100 on other things they’d like to have,” Edmondson says.

The store then sends the phone to eRecycling Corps, which brings it back to factory condition and ships it to partners in emerging markets for resale. In rare cases, Edmondson says, the phone is too damaged or old for use so it is stripped down to parts.

eRecycling Corps takes a commission or service fee from wireless partners. The model varies depending on the carrier, Edmondson explains. Individual pricing is monitored daily by software but they typically adjust prices for the phones once a week.

“The residual value has never been brought into the equation,” he says. “There is a lot of economics to be captured by reselling these phones.”

In 2010, the U.S. Environmental Protection Agency reported that we disposed of 152 million mobile devices, or 416,000 each day. “This is a huge environmental problem,” Edmondson says.

The wireless industry should work more like the retail car business, he adds. “When you buy a new car, you don’t park the old one behind your house and let it rot,” he says. “It doesn’t make sense economically.”

The message has resonated with its customers and investors. In May, the company announced it had traded in 1.1 million devices that month. eRecycling Corps plans to use the $105 million to expand internationally beyond Europe. Investors in the Series C round included Kleiner Perkins Caufield & Byers and Silver Lake.

There are other companies in the e-waste recycling business, namely, Gazelle, which also buys smartphones and other devices for resale.  The Boston-based company made almost $58 million in revenue last year but dropped its program with major retailers, opting to work with consumers directly. In July, Bellevue, WA-based Coinstar agreed to pay $350 million to acquire EcoATM, a San Diego startup that operates automated kiosks for recycling electronic mobile devices.

Edmondson is familiar with recycling in a particularly personal way. He went into an unplanned retirement in France in 2006, after resigning as CEO of Fort Worth-based RadioShack following media reports that he claimed on his corporate biography to have college degrees listed that he had not earned.

(His current bio on eRecycling Corps’ Website states he has a theology degree from Pacific Coast Baptist Bible College and that he completed the Advanced Management Program at Harvard University’s business school in 2002. Caran Smith, a company spokeswoman, says the education credentials on this bio are accurate.)

But after a year in France, Edmondson says he wanted to get back to work. He started Easysale, an online consignment company, in 2007. “We’re basically the warehouse version of an eBay store,” Edmondson says. “We sold anything from grandma’s couch to Oswald’s letter from Minsk, Russia, to Senator [John] Tower of Texas.”

Easysale’s only criteria was that each item had to have a minimum value of $50. So, when a box came in containing cell phones, Edmondson says he almost scolded the employees for accepting them. “I was out on the dock,” he says. “I used to like to go out there at the end of the day and see what things came in. It was interesting to me to see what people had to sell.”

Edmondson says he knew the phones originally sold for $29 but his employees told him that those same phones went for three times that on eBay. “So I looked, and, sure enough, the devices sold for an average of $80 a piece,” he adds.

As he realized the residual value of second-hand cell phones—and the market opportunity in being the company to bring them to those customers—Edmondson says: “My next question was: How do we get a bunch more used cell phones?”

In February 2009, he and Ron LeMay, the former president and COO of Sprint and someone he had gotten to know in North Texas’ business scene, launched eRecycling Corps. Sprint became the company’s first customer with a pilot in 100 Sprint stores in southern California by June. That program was expanded to all company-owned stores and dealers by February 2010. Two years later, eRecycling Corps had agreements with wireless carriers in the U.S., Canada, and Europe.

Today, the company employs about 65 people in its Irving headquarters and has a distribution facility in Bloomington, IN. Its European office is based in Brussels, with several smaller sales offices in the U.S. and Europe. Edmonson says the company is profitable and he doesn’t expect to need to acquire additional venture capital.

He says that eRecycling Corps is a “eco-capitalist” company, saying, “we ought to use the idea of capitalism to solve the ecological problem.”

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