Business model innovation can create competitive advantages. As business leaders push towards a more sustainable, circular economy than the current take-make-waste system, they’re embracing novel circular services to create new value for customers and transform processes across supply chains.
At GreenBiz Group’s virtual circular economy conference, Circularity 21, executives from companies big and small discussed how different types of circular business models can replace the current linear system and drive real change. Conceptually, circular economy-centric business models provide services or products that extend the length and quality of materials, reduce waste and emissions, and help reduce new resource inputs. In practice, these various models have different operations, requirements, target customers and more.
Take rental and recommerce, for example, two of the best-known circular business models (although others such as circular design are growing in popularity). Neither are necessarily new concepts — just think about how commonplace the practices of buying a used car or leasing a new car are. But younger generations of consumers who want companies to have positive environmental and social impact increasingly turn to companies offering these models — opening up massive economic opportunities for forward-thinking business leaders.
Rental and recommerce business models require a nontraditional way of thinking about relationships with material goods.
It’s a major step in the shift from a linear economy to a circular economy — rental and recommerce business models require a nontraditional way of thinking about relationships with material goods. Rental provides consumers with access to goods or services rather than full ownership, while recommerce allows them to use a product until it is no longer needed or enjoyable, then recoup part of its monetary value. In a world with finite resources and a changing climate, rethinking traditional consumption models is increasingly attractive to both consumers and businesses.
Recommerce: It’s not just Craigslist anymore
Sure, anyone can resell an old car or electronics or clothing when they’re done with them and want to buy some new goods. But it can be inconvenient and difficult to find buyers and transfer goods to them. That’s an unmet need that enterprising companies are aiming to fill. In 2019, the global secondhand apparel market alone was valued at $28 billion, according to market research firm Statista.
Resale platforms such as Poshmark, Depop, Mercari and TheRealReal have grown immensely in the past few years. Headlines have labeled these platforms "tech-turbocharged thrift" and heralded them as the "future of retail."
Apparel brands and other fashion industry players are looking to get a piece of that pie. If they can sell clothes once, why not sell them again? Clothing retailers Patagonia and COS both have made efforts to own their own resale markets, although they’re at different places in their implementation.
Francesca Lilley, global head of sustainability and brand strategy of clothing retailer COS, described the company’s first recommerce pilot project launched last year: "It’s a customer-to-customer platform where our loyal customers can sell their pre-loved garments," she said. COS partnered with Reflaunt, a resale logistics company, to create the platform.
"We know that resale is a fast-growing landscape, but we also wanted to know what our specific customer needs were, so we wanted to create a very branded experience — a platform that they could relate to," she said.
It’s early days, but interestingly, COS already has seen a high average resale price for their products, she noted. "That helps us understand that investing [in buying clothing] is something you can benefit from for a long time — both by wearing it and giving it a new life afterwards."
When big brands want to begin their resale journey, they often look to experienced solution providers in recommerce, including entrepreneur Nicole Bassett, founder and CEO of The Renewal Workshop. The company built a technology and logistics system that can be adapted to each company, and it partners with global apparel retailers to refurbish their "unsellable" returns and excess inventory.
Growth in third-party marketplaces has exploded, and brands that want to access this customer need to have a stance and a place in the marketplace.
"We enable three times more products to get resold again because we have the operations for cleaning things, repairing them, getting them back out to the market, and also offer [the opportunity to] to trade in products," she said.
"Growth in third-party marketplaces has exploded, and brands that want to participate in this and access this customer and offer these products to them, need to have a stance and a place in the marketplace."
Patagonia has a well-established "Worn Wear" program that allows consumers to buy and sell used and vintage Patagonia. Alex Kremer, head of the program, described how it contributes to customer satisfaction. If someone knows that they’re buying a new $400 piece of gear, but that they can immediately get $200 back for it when they're done with it, that factors into their decision, he said.
Rental models tap into experiences, not material things
Books, movies, cars, bicycles, even homes — most consumers have used rental services before. That consumer awareness is an advantage for new companies entering the rental space with unique products.
Some rental companies have found ways to plug into existing models of linear systems to expand access to rental services.
Amy Kang is senior director of platform product management at CaaStle, a company that manages rental services for apparel retailers. The end-to-end technology and logistics service manages all aspects of the clothing subscription: the website; databases; algorithms; analytics; distribution; clearing; shipping; and receiving. All its fashion partners do is provide the inventory.
CaaStle often works with retailers that want to create a rental model in addition to their linear retail model, and Kang said enabling retailers to expand their offerings is actually "really thinking about the customer."
"Consumers are showing up to ecommerce sites, and some might not be willing to pay the $200 ticket price for the thing they’re not so sure of, so we enable ‘borrow,’ a rental program embedded into their ecomm page," she explained. "So you can borrow it for two weeks at typically a quarter of the cost and see if it works. And if you love it, you can absolutely buy it."
Other companies solely offer rentals for consumer goods. Jay Reno, founder and CEO of Feather, a vertically integrated furniture rental company, described his company’s business operations and made the case for furniture rental.
The company owns high-end, durable furniture, from couches to lamps to beds to standing desks to dining tables to bar carts. Customers can rent them individually or in a package — the "streamlined scandi" office package with a desk, chair, lamp and framed print goes for $63 a month with a 12-month plan (compare that to a retail price of $1,526).
The company sells mainly to young urban apartment-dwellers, who want nice furniture but will likely move in the next year or two and don’t want to have to continue to keep furniture only to not fit in a new space, then have to sell it or throw it out. (According to the U.S. Environmental Protection Agency, furniture waste generated by Americans in 2017 alone totaled a staggering 12.2 million tons, and 80.2 percent of it went to landfill.) With a team of shippers and logistics planners, the company is in 12 U.S. cities.
Our challenge as an industry is to, with math, show the value of rental.
Reno explained the value proposition of the industry: "Our challenge as an industry is to, with math, show the value of rental: to show the cost of your time, of going out and spending weekends at Ikea, buying furniture from different places, having to assemble it yourself."
And, he can prove it: When the company partnered with West Elm to rent its furniture out a few years ago, the luxury furniture retailer found that new customers that had never bought from it before were shopping there.
This type of business model speaks to how modern consumers no longer dream to own things, but instead dream of experiencing things, Reno said. And no one has ever dreamed of just lugging things around.