When looking at the emissions of a retailer, the so-called scope 1 and 2 emissions from shops, offices, and corporate activities such as business travel contribute only a small share to total emissions. About 90 per cent of total emissions sit in the product supply chains, with a staggering half of all emissions driven by the production and processing of raw materials, 15 per cent from transporting materials and products, and another 25 per cent from customers using a product and its end of life. All of these combined make up the so-called scope 3 carbon emissions that need to be tackled to drive the reduction required to meet the goal of net zero by 2050.
One step towards this is working with suppliers to ensure a switch to renewable energy across the entire supply chain. But beyond that, fundamental emissions reduction can be achieved only by drastically reducing our need for new raw materials and shifting to circular models, such as rental, resale, repair and recycling. Only those will allow uncoupling revenue generation from driving virgin resource consumption.
Current model is unsustainable
The current retail operating model is a ‘take, make, waste’ approach, with products being made from virgin resources, going through countless hours of manufacturing, sometimes across multiple continents, and then being distributed to even more. Generally, products are purchased outright, owned by only one household, often used only for a fraction of that time, and eventually discarded. This linear model of production and consumption is unsustainable because humanity is already using up twice the resources that our planet can regenerate annually, and this trend has been getting worse year by year.
Sustainability within the confines of this model is not only constrained by the need for a limitless number of limited resources but also by consumer wants and needs.
Humans are attracted to novelty. We are motivated to explore and learn and this is rewarded with a dopamine rush in the brain. Marketers tap into this. Asking consumers to consume less requires individuals to ignore human desires for novelty in favour of self-imposed scarcity, which is unrealistic and thus unsustainable. This is where circular models come in.
Rental, resale, and repair
Businesses with circular models strive to keep the resources they use alive for as long as possible. They move away from linear sales to individual one-off buyers and innovate their business models around offering the same products to multiple customers over time through rental or resale, repairing them if needed. The customer still benefits from a product’s novelty and utility (for example, wearing a new dress or using an electrical appliance), even though they are not the only person ever to use or own it. This scenario does require breaking up with the concept of traditional ownership in favour of only temporarily accessing products or procuring used ones to satisfy one’s wants and needs, but a shift towards this in consumer attitudes has been under way for a while already.
The resale market led the way and has been driven by independent marketplaces such as eBay and Gumtree for over 20 years now; these outlets have recently found a strong competitor in Facebook Marketplace. This group of players is being complemented by many more specialised independent resellers. Ten years later, other entities entered, embracing the sharing economy – a challenger to traditional ownership models. Global tech unicorns Airbnb and Uber have long been the crowning jewels, but the number of such service-based businesses is growing, including fashion rental businesses Rent The Runway in the US, and, on Australian shores, GlamCorner and Designerex for fashion and recently launched Releaseit for household items.
Both the sharing economy and resellers have brought incremental change within a flawed system, but barriers remain to building a truly circular economy. Firstly, circular activities have generally been driven on third-party platforms without the original seller or maker receiving a clip of the ticket on the rental revenue or second sale their products generated. Consequently, there has been a lack of incentive for brands and retailers to keep the resources used in circulation for longer.
Secondly, and most importantly, resellers and the sharing economy have not yet fully closed the loop on waste, as the goods being offered are still part of the old system and ultimately designed for disposal. The overall structure of production and consumption needs to change to include efficiently reclaiming resources at the end of a product’s life to truly uncouple consumption from the use of virgin resources.
Innovation, investments, and incentives
A fully circular economy not only keeps resources alive for longer, but also recoups resources for recycling at their end of life. This requires not only big structural shifts in business models, but also strategic investments, collaboration, and changes in government policy.
Traditionally, waste management has been driven mostly by the public sector but momentum in the private sector has been growing and innovative organisations have recognised both their responsibility and the commercial opportunity.
To close the loop, some leading businesses have started to strategically invest in whole business units around circularity; for example, food retailer Kaufland in Germany has become fully integrated in recycling for the plastic bottles it sells (and other waste). Kaufland runs a take-back scheme, recycles bottles in a group-owned plant and re-inserts them back into the sales cycle. It also recycles bottles from other players. These partnerships help drive scale.
In fashion, Patagonia, alongside rental and resale models, also focuses on recycling and upcycling, showing its strategic direction towards retaining responsibility for the resources it has put out into the world through the entire product lifecycle. The company recycles unusable manufacturing waste and worn-out garments into polyester fibres for its collections or upcycles scraps of fabric waste into unique pieces in its project ReCrafted.
Another example is Ikea, which is attempting to take a holistic approach and innovate for circularity along their entire supply chain. The homewares giant has pledged to be a fully circular business by 2030. Alongside also trialling rental and resale models, a strong focus for Ikea is to design products for disassembly and recycling in the first place, so they can recoup the resources later. Only by considering circular design principles and product end of life from the start can a circular system truly come to life.
Governments can facilitate this systemic transition by continuing to play a key role in supporting the expansion of recycling infrastructure, but also through policy changes such as formalising Net Zero regulation to help businesses plan strategically, penalising waste disposal (as in France), or incentivising labour in the circular economy, such as repairs and recycling, through tax breaks (as in Sweden).
Over time, this multifaceted circular system can become more profitable than linear outright sales of goods; environmental impact and costs are decreased, and job growth is also promoted. According to Patagonia, this is how to achieve “scale, growth and profitability in a way that’s more efficient than continuously making new stuff”.
The only way to have our cake and eat it too
Rather than aiming for sustainability from scarcity and curbing consumption, a truly circular economy allows consumers to continue enjoying a large range of products new to them. At the same time, circular models mean businesses can greatly reduce emissions, generate sales from services such as rental or resale, and access further revenue and future resources at yesterday’s prices through recycling. A strong policy framework, strategic investments and collaboration are needed to foster the systemic changes required to make this shift, but it is the only approach to consumption that can be sustainable and provide retailers a space to exist in the future.