Circular e-commerce | Embracing a new model to stay relevant

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Over the last decades, consumer focus has been centred around what products can do to make their lives easier. Rising consumption around the globe has increased pressure on the environment, climate change and created greater competition for resources.

Consumer concern around sustainability deepened during the COVID-19 crisis and the several EU policies aim to address these challenges and promote a more sustainable, resource-efficient, circular economy. It’s clearer than ever: it’s time for a new model. So, what is the circular economy all about?

Sustainability has reached a tipping point

8 out of 10 consumers indicate sustainability is important in their purchasing decision.

Today’s consumers realise that the efficiencies which underpin our modern culture—from lightning-fast shipping speeds to single-use plastic packaging—are not sustainable with our planet’s finite resources.

As consumers increasingly embrace social causes and seek products and brands that align with their values. According to the Meet the 2020 consumers driving change report by IBM, nearly 6/10 consumers surveyed are willing to change their shopping habits to reduce environmental impact. 8/ 10 respondents indicated sustainability is important for them, over 70% of said respondents would pay an average premium of 35% for a sustainable and environmentally responsible brand.

As brands and retailers, seize this post-pandemic opportunity to reiterate your commitment to a new, circular model to remain relevant to your customers.

So, what exactly does a “circular economy” mean?

In our current linear economy, which is a product of the industrial revolution, we take, we make, and then we waste: a new phone comes out so we ditch the old one; our washing machine packs in, so we buy another. Finite resources get consumed and toxic waste is produced—the model isn’t sustainable in the long term.

The circular economy aims to design waste out of the system. Underpinned by a transition to renewable energy sources, and a gradual decoupling of economic activity from the consumption of finite resources, the circular model is based on three principles:

  • Design out waste and pollution
  • Keep using products and materials
  • Regenerate natural systems

1/ Design out waste and pollution

Waste and pollution should not be created in the first place: the circular model proposes that manufacturers should view waste as a design flaw and that products should be designed to be durable and with recycling in mind. By rethinking and redesigning the way products, their components, and how the packaging they come in is made, damage to human health and natural systems from pollution should be reduced or, better still, eliminated.

Fast-fashion power-house Zara has pledged to make all its brands use only organic, sustainable, or recycled materials for their clothing by 2025, and smaller D2C brands are at the forefront of this movement.

The second-hand market booms

It is estimated that, by 2028, resale will be 1.5x bigger than fast-fashion and second-hand items will account for 13% of people’s wardrobes.

Astonishingly, every second the equivalent of one garbage truck of textiles is landfilled or burned, and an estimated USD 500 billion value is lost every year due to clothing that’s barely worn and left unrecycled.

In the past few years, we have seen a wave of new digital platforms responding to this problem, enabling consumers to buy and sell used clothes, such as Depop, Vestiaire Collective, Vinted, FarFetch and Loopster. It is estimated that, by 2028, resale will be 1.5 times bigger than fast fashion and second-hand items will account for 13% of people’s wardrobes. Millennials and Gen Zs are driving this growth, as 18-37-year-olds buy 2.5x more second-hand than other age groups.

2/ Keep products and materials in use

Following a circular model, products and components should be manufactured to be durable, and so that they can be reused, repaired, and remanufactured, and materials should be recyclable. Dutch headphone start-up Gerrard Street provide easy to disassemble headphones, so they can easily be repaired or modified. The components are durable and standardised so that, if a model fails, up to 85% of can be refused to make a new model.

As good as new

Refurbished goods only make up about 6% of the global technology and electronic goods market, and that share is set for strong growth in the coming years.

Renault and Caterpillar are two key examples of companies that recover faulty machines and parts before they break, to rebuild them with a mixture of new and used parts to be resold at more attractive prices in both the B2C and B2B markets.

Back Market is another successful example of this model raising $120M this year to provide consumers with refurbished goods such as mobile phones, laptops, computer screens, Playstations and Xboxes. The items are reconditioned and sold at a more attractive price to consumers, typically with a 12-month warranty. Refurbished goods only make up about 6% of the global technology and electronic goods market, and that share is set for strong growth in the coming years.

Rethinking ownership: The sharing economy

We have seen the boom of electric scooters in recent years in capital cities around the world, and the sharing economy has been on the rise, with companies such as Airbnb, Taskrabbit and Getaround at its forefront.

Consumers are shifting to access, not ownership. As people live in more urban areas, often in smaller homes, it’s less of an option for them to hold on to items indefinitely.

Subscription-based models, such as that provided by Dutch organisation Bundles, offer a novel approach to consumption. Bundles leases washing machines to customers for a monthly fee. It monitors the usage, maintains and repairs the machine, and takes it back once it can no longer be used, ensuring products are not wasted and go back into consumption when no longer fit for the individual consumer.

3/ Regenerate natural systems

A circular economy avoids the use of non-renewable resources to privilege renewable energy. Brands and manufacturers should, for instance, use renewable energy throughout their supply chain as opposed to relying on fossil fuels.

Initiatives at the European level (EU Ecolabel, ecodesign directive, energy labelling regulation) enable the provision of clear and credible information to allow consumer s to make informed purchasing choices while encouraging companies to develop products that are durable, easy to repair and recycle. The FnacDarty group similarly motivates its clients to favour responsible consumption by providing information related to the environmental or energy impact and efficiency of its products.

Retailers today must orient themselves around their customers’ fast-changing preferences to ensure their relevance, at a time when brand loyalty is ever hard to come by. The good news is today’s consumers are increasingly focused on sustainability and the end-outcome of the items they purchase, meaning there’s an opportunity for brands and retailers to create long-term, meaningful relationships with their customers.

 

Main image: ready made /Pexels

Image 1: William MattePexels

Image 2: Fnac Darty

Naomi Botting

Communications Project Manager - UK/NORDICS