Mobility

How Gazelle will turn 3.5 million recycled smartphones into quick cash this year

Get an inside look at Gazelle and ecoATM's Louisville, KY processing and repair facility, where employees see a little of everything stashed away in the smartphones they process for resale.

A cacophony of phone alarms, ringtones, and alerts are the background music at Gazelle's processing plant, where millions of smartphones are processed every year as the demand to recycle and purchase used devices continues to rise.

The 67,500-square-foot plant is discreetly located with low-key signage in an industrial park in Louisville, KY. The building is loosely divided into two sides: one to handle Gazelle's business operations and the other for ecoATM, where people can sell their old phones for immediate cash. ecoATM has about 2,000 kiosks throughout the US. and both ecoATM and Gazelle are owned by parent company Apollo Global Management. The key difference between Gazelle and ecoATM is that while Gazelle buys, grades, repairs, and sells used smartphones, the smartphones and tablets that come in through ecoATM kiosks are simply sold as-is without any repairs or inspections. Many of the ecoATM smartphones are older phones or damaged phones, and they sit in boxes with various alarms and ringtones going off all day at random times. Gazelle also accepts tablets and laptops, but does not repair them.

"It's really loud in here between 6 a.m. and 8:30 a.m.," said Dan Brummer, Gazelle's senior manager of electronics processing. "Many of the eco[ATM] phones have screens that don't work, so we can't turn them off. We have to wait until the battery dies. You should hear when an emergency alert broadcast happens. They all go off at once."

PHOTOS: Behind the scenes at Gazelle's Louisville processing plant (TechRepublic)

But given that Gazelle expects to have more than 3.5 million phones go through its facility this year, and that it processes 15,000 phones a day on the ecoATM side, and 2,500 phones a day on the Gazelle side, it's easier to learn to tune out the noise rather than try to turn them all off. And it becomes a soundtrack of sorts for the employees as they open boxes of used smartphones and sort through them to find the gems that can be inspected and resold on Gazelle's online store. The phones that cannot be sold through Gazelle's customer channels or repaired are sold in bulk to wholesalers who often use them for parts. Wholesale dealers purchase 25% of the phones that Gazelle and ecoATM process.

Quick expansion in a demanding market

Gazelle has been in expansion mode practically since it opened in Louisville in 2013 with 70 employees. There are currently 300 employees, and Gazelle boosts its workforce by up to one-third with contract workers when demand hits, such as from September to November each year after a new iPhone model is released and the older models start rolling in. There are 50% more iPhones coming through Gazelle when a new model is released, Brummer said.

The facility also saw a significant increase in employees when ecoATM was put under the Gazelle umbrella after the previous owner of both, Outerwall, was bought by Apollo Global Management in the third quarter of 2016. Turnover is slight, with a "sub-5%" turnover. Of the 300 employees, 70% are full-time permanent staff, and 30% are contractors, Brummer said.

VIDEO: How ecoATM turns smartphones into gold (TechRepublic)

The demand for used smartphones is rising fast, and Gazelle is a leader in the market. The International Data Corp. (IDC) anticipates a 30% compound annual growth rate in used smartphones sold in the US, with 15 million devices sold in 2015 and more than 55 million expected to be sold annually by 2020. Worldwide, the number is staggering, with Deloitte estimated there were 120 million used smartphones sold in 2016 worth $17 billion, an 11% increase over 2015. This is a significant portion of the 1.6 billion smartphones, new and used, sold in 2016.

Gazelle is part of a re-commerce platform that is a green choice for eco-savvy customers, said Yanyan Ji, senior vice president of marketing for Gazelle. The company is an R2 Standard Certified electronics recycling facility.

Putting Gazelle and ecoATM together was the key to making the process work. "One is a retail location, one is online, and we want to provide the consumers both as an option for a complete consumer trading purchase cycle. The Louisville facility is critical to us because all of our product goes there," Ji said.

The growth of the industry and the aforementioned numbers from the IDC and Deloitte are part of what Gazelle uses in its own planning. Customers who buy refurbished phones run the gamut from someone seeking a phone for their children or extended family members, or to someone replacing their own device after it broke. "Mainly I think people are buying our product because it's no strings attached," Ji said.

Keeping it lean

At Gazelle, the key is to operate "scrappy." The company has a lean management approach to eliminate waste to continually improve efficiency and quality. "We signed the lease for this building on February 28, 2013 and by June 1 [2013] we were processing devices," Brummer said.

Brummer, along with Scott Zachow, senior director of processing center operations, have been with Gazelle since its early days. Brummer joined up eight years ago, and Zachow has been with Gazelle for five. And in that time, they've both seen a lot.

"We have a close relationship with the local police department," Brummer said. That's a good thing, because phones have come into Gazelle with drugs stashed inside the case. Phones have also come in with money hidden inside the case, forgotten driver's licenses, and of course, plenty of inappropriate photos and texts that the owner forgot to erase.

"You name it, we've seen it," Brummer said. On three occasions, people have even sent in a death certificate with the phone they were selling, perhaps to document why it was being sold.

Employees are rewarded with a gift card when they turn in cash and other valuable objects they find inside a phone case. When something is found, and it's legal, it is shipped back to the owner, no questions asked.

Part of the lean mentality also extends to the workstations. Brummer and Zachow got together and designed the wooden workstations when they realized it was going to take months to special order desks from an outside vendor. They built one, and tested it, and once they confirmed the design worked, Brummer and Zachow personally built the workstations for every employee.

"When we see something that needs changing, we talk about it and we move on it. We didn't have time to wait for a fabricator to build the workstations," Brummer said.

The reason for the rush for the workstations was because Gazelle wasn't repairing the smartphones it received until Brummer and Zachow suggested it to the organization. They had tested it themselves and realized they could easily replace broken glass in a smartphone, so they mentioned it in a November 2014 meeting. Their bosses liked the idea, and by January 2015 the company was repairing and reselling the devices, Brummer said.

"That increased our profit margin by 10-25%, depending on the model," Brummer said.

How Gazelle buys and inspects used devices

This is how the process works: A consumer goes to Gazelle's site and requests to sell their smartphone or other device by entering information about their device and its current condition. Gazelle gives the price it will pay for a phone in the described condition, once verified, and the customer can either pack and mail the phone in their own box, or request a Gazelle box and prepaid label for shipping within the US.

When Gazelle receives the phone, it's still owned by the customer. A Gazelle employee inspects the phone and grades it, and confirms that it is, or isn't, what the customer said it would be. If the phone is what was expected, then Gazelle alerts the customer, pays the previously agreed upon amount, and Gazelle owns the phone. If the phone is not what was promised, whether due to damage, or a smaller storage capacity, or something else (although those are the most common reasons), then Gazelle counteroffers, and the customer can choose to accept or reject the deal.

Gazelle also purchases Apple laptops, Apple TVs, iPods and iPads, but doesn't repair those; they are resold if they pass inspection.

Of the 2,500 phones that Gazelle receives daily, 75% are purchased for the price originally agreed upon by the customer and Gazelle, and 25% of customers are offered a lower price. Of those 25%, most accept the new offer. Gazelle will send photos of any damage, and explain why the offer is lower. Only 3% of customers ask to have their phones sent back with no sale, Brummer said.

And Gazelle, true to its name, moves fast. "It takes less than 48 hours in a perfect flow before the phone is up for sale on Gazelle," Brummer said. A perfect flow is one where the phone is in the same condition the customer said it would be in, and no repairs are needed. Every phone passes a 30-point inspection check before it is sold on Gazelle.com, and consumers receive a 30-day money back guarantee when bought directly from Gazelle.

How repairs are done

Repairs are done on-site, by a member of the team of 24 Gazelle technicians on site. And repairs are kept simple. "We don't remove broken glass. We replace the full component. On iPhones, we replace all components, and we don't do soldering or board level repairs," Zachow said.

Samsung components can't be purchased by third-party manufacturers, so Samsung repairs are limited to battery replacement, Zachow said.

The phones in the most demand right now are the iPhone 6 and 6S, and gold is the favored color. Although Gazelle sells the iPhone 7, it's not in as much demand as the older models, since most people shopping for a used phone are looking for a great deal, Zachow said.

Meanwhile, the employees stay busy, with each inspector processing 55-70 Gazelle phones a day, and 400-500 ecoATM phones a day, since they require no inspection.

"We have a 70-75% success rate on repairs. Our technicians attempt 3-½ repairs per hour," Zachow said. Every time a new iPhone model comes out, there is a learning curve on how to fix it without breaking it.

The top 3 takeaways for TechRepublic readers

  1. Gazelle opened its Louisville, KY processing facility in 2013 and has already grown from 70 employees to 300, with up to one-third more employees added during busy times of the year.
  2. Gazelle operates its processing facility in Louisville, KY and 3.5 million phones are expected to go through the plant each year.
  3. Gazelle was purchased last year by Apollo Global Management, and ecoATM is under the Gazelle umbrella.

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About Teena Maddox

Teena Maddox is a Senior Writer at TechRepublic, covering hardware devices, IoT, smart cities and wearables. She ties together the style and substance of tech. Teena has spent 20-plus years writing business and features for publications including Peo...

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