360-degrees of the modern retail economy

How the circular economy is reducing waste and maximizing value—and what that means for the retailer of tomorrow

ACCORDING to research recently conducted by Arizona State University, the average American has a whopping $7,000 worth of unused goods in their home. And for retailers, explains Mark Lancelott, that’s a major opportunity.

“We make lots of things, use them, and just throw them away,” notes Lancelott, a Sustainability Expert with PA Consulting. “And in that case, only about 5 per cent of an item’s material value gets recovered. Which means that, in the 95 per cent that gets discarded, there’s a huge value and productivity opportunity.”

“To shift to a circular economy, businesses need to explore new models that allow products to be used again and again.”

JOHN ATCHESON
Stuffstr

With the continued expansion of eCommerce, increased competition for customer loyalty, and a growing emphasis on sustainability, today’s retailers face unprecedented pressure to engage consumers, maximize profits, and reduce their environmental footprint. Cue the entrance of the circular economy, a model where consumer goods—instead of simply being sold—are leased, rented, recycled, repaired, or repurposed to maximize their use and value.

“It has an extremely positive impact on resource efficiency for retailers,” explains Lancelott. “We try to keep resources and goods, to get their maximum value through the years. And that can be about designing things to last, or looking for a second or third life, or refurbishment. Or recycling as a last resort—since recycling can destroy the inherent value in products. It’s a way for supply chains and companies to work in a different way that creates more value for everyone.”

“Our current linear economy operates on a take/ make/dispose basis,” adds John Atcheson, CEO of clothing resale app Stuffstr, “while in a circular economy, all products are used fully and then regenerated into new products[…] The circular economy system has been in the ether since the 1960s, but now the much-more-visible impacts of issues like climate change and waste have begun to push ideas of systemic change up the agenda.”

Launched in 2014 by John Atcheson and Steve Gutmann, Stuffstr—which allows consumers to sell old clothing to its retail partners in exchange for gift cards—has gone on to partner with brands like The North Face, H&M, and the UK’s John Lewis & Partners. For CEO Atcheson, it was the logical next step in a career that had become increasingly sustainability-focused—involving stints at the Sightline Insititute, and as Founder of peer-to-peer car sharing service Getaraound. And as he explains, when it comes to retail, the transition to a circular economy is not just good for the bottom line, but for deepening customer connections, and helping the environment. “To shift to a circular economy, businesses need to explore new models that allow products to be used again and again,” Atcheson continues. “Our vision is ‘No Unused Stuff’.”

“I think it’s worth experimenting with these [circular economic] models in order to understand what it means from a marketing perspective, what it means operationally, and what it means in terms of logistics.”

MARK LANCELOTT
PA Consulting

Peak Stuff

And from the looks of it, Atcheson’s vision is in line with that of many consumers. According to a study conducted by OC&C Consultants, 15 per cent of Gen Z respondents reported they were dedicated to “reducing the amount of waste I create,” 14 per cent to “reducing my carbon footprint” and 13 per cent to “reducing use of single-use plastic.” According to PA’s figures, 72 per cent of electronics customers and 66 per cent of clothing customers indicated their willingness to resell goods if a store offered a good enough buyback program. According to Atcheson, recommerce has been growing at approximately 21 times the rate of regular retail. And as a recent Goldman Sachs study found, “Millennials have been reluctant to buy items such as cars, music and luxury goods. Instead, they’re turning to a new set of services that provide access to products without the burdens of ownership.”

And while this might signal a shift in thinking for many retailers, Lancellot is quick to point out its potential.

“Whether it’s in stores, or online, people come and buy something, and then they walk out the door and you wave goodbye,” he says. “Whereas, if you start to look at a more circular model—which could be service-based, or a buyback-type model—it gives you the opportunity to build different relationships with customers, and that’s something that’s of value to most retailers. The circular economy offers retailers an opportunity to stay engaged with customers beyond the point-of-sale.”

On top of that, he adds, the economics speak for themselves; a recent PA report (co-authored by Lancellot) estimates that retailers could potentially generate $70 billion just by reusing goods and materials. That $7,000 in unused consumer goods translates to roughly $875 billion that could be recirculated back to retailers. Clothing in particular has profound economic benefits; in the UK, it’s estimated that close to $1,300 in profit can be generated by collecting one tonne of used clothing—significant value considering that, according to Lancellot, roughly 80 per cent of clothing items go unworn.

“Textile production and waste are second only to the construction industry in terms of planetary pollution,” Atcheson says, “so the need to shift to a more sustainable model is crucial. Stuffstr’s long-term goal is to change consumer behavior by encouraging people to buy higher quality goods that retain their value longer. This will reward brands and retailers who develop and sell more durable products. In circular economy terms, the Stuffstr system reduces waste by extending the life of products exponentially, arresting their progress to landfill.”

Opportunities abound

Luckily, for savvy retailers, there are untold opportunities to explore a circular economic model that are scattered through a product’s life, including sharing/rental, maintenance/repair, resale, and recycling. And many leading companies are already taking part; rather than destroying unsold merchandise, Guess and H&M recently announced they would be releasing it as a series of vintage collections, and since 2013, H&M has been giving their customers vouchers for every bag of clothing they donate. Amazon is already trialing a buyback program, wherein consumers can potentially resell their goods while purchasing new items. Dell is diverting plastics that otherwise might go into the ocean to be used as part of a new packaging system for its XPS 13 2-In-1 laptop. Apple has pioneered a robot named Daisy, which can disassemble 200 iPhones per hour, and recycle the materials inside. Outdoor apparel retailer REI hosts regular in-store garage sales of returned products for their members, as well as social events where members can swap or sell gear. IKEA recently expanded their furniture leasing program to over 30 markets. Other companies, like Stuffstr, have it baked right into their business model; Mud Jeans leases pants to customers on a monthly basis, and Netherlands-based Bundles leases washers and dryers. Luxury clothing reseller The Real Real has set the ambitious target of becoming the first $1 billion circular economy company—a goal they’re not far from accomplishing. The push toward a circular economic model is one advocated by leading nonprofit organizations like the Ellen MacArthur Foundation, which seeks to accelerate that transition through the formation of the CE100—a group of forward-thinking organizations like Unilever, Philips, Apple, Cisco, Google, Nike, eBay, and Ikea.

“There’s a recognition of the value opportunity that’s there,” Lancellot says, “given how much stuff gets created and then thrown away. And leading companies have begun to experiment with ways to tap into that—whether they’re big corporations like Nike, or startup innovators who are trying to find ways of creating value on their own.”

THE FUTURE IS HERE

15%
Percentage of Gen Z respondents who say they are dedicated to “reducing the amount of waste I create”.

14%
Percentage of respondents who are focused on “reducing my carbon footprint”.

13%
Percentage who are committed to “reducing use of single-use plastic”.

Source: OC&C Consultants

72%
Percentage of electronics customers who are willing to resell goods if a store offered a good enough buyback program. 66% of clothing customers indicated the same willingness.

21x
The approximate rate of growth of re-commerce as compared to the rate of regular retail.

Source: PA Consultants

Start Small, Scale Fast

For eager retailers curious about where to start, both Atcheson and Lancellot note that it’s important to start small.

“Retailers need to experiment,” Lancellot warns. “They need to pilot. Understanding the big picture and figuring out what it might mean for you as a retailer, and then choosing some specific opportunities to test these things and learn. Maybe that means particular products that might be most relevant, or customer groups that a retailer might have. I think it’s worth experimenting with these models in order to understand what it means from a marketing perspective, what it means operationally, and what it means in terms of logistics.”

And, they add, the key to success lies in a business’ agility; the ability of the business to not only break down internal silos and utilize new technology, but to leverage partnerships with other like-minded businesses.

“You can’t do it on your own,” Lancellot says simply. “You’ll need to build relationships. The value in a circular economy comes from how companies within a supply chain can figure out how these circular loops work. Sometimes it might mean working with partners to test those models. Through collaboration, companies can unlock a lot of new value for themselves and be more successful in the long-term.”

“Partnerships with brands and retailers are crucial to Stuffstr’s success,” Atcheson agrees. “The reaction we’ve received—particularly from brands and retailers that are already proactively addressing the need to reduce their environmental footprint—has been incredibly positive. Much of this has come through shifting consumer attitudes. Consumers increasingly want to live responsibly and are seeking retailers who share their values and who can help them be a bigger part of the solution. What consumer doesn’t respond positively to the message that a retailer will buy back anything they’ve bought from them as soon as they’re done using it?”

But once the pilot is completed, Lancellot warns, it’s important for retailers to scale up their efforts fast. Language is also an important factor to consider ; for example, according to PA’s research, most customers prefer terms like “membership” over ones like “leasing”. That said, Lancellot is adamant that when it comes to retailers, the time for exploring the benefits of the circular economy is definitely now.

“There are plenty of companies doing this,” he says, “and there’s a growing body of information to help companies through it. But it’s still in the very early stages of adoption. We’ve still got a long way to go.”

BY JESSE DONALDSON