Understanding Circular Economy in Retail
The retail industry is approaching a critical juncture. Rising consumer awareness, tighter environmental regulations, and growing pressure to operate sustainably mean retailers need to think again about their business models. While the retail industry continues to consume materials at an alarming rate and spread its waste throughout the environment, embracing a circular economy could offer a new model that encourages sustainability, reduces waste, and maximises profit.
Did you know that the retail sector produces millions of tonnes of waste every single year? Only 7.2% of materials used in the global market are recycled after they are no longer needed. This is a linear “take-make-dispose” model that is proving to be unsustainable—not only from an environmental viewpoint but also in terms of corporate social responsibility strategy. An alternative is the circular economy, which aims to keep products, materials, and resources in use for as long as possible.
Retailers can get an advantage in a competitive market and boost their brand’s image by embracing sustainable practices and circularity. This will appeal to consumers who are concerned about the environment.
This guide will explain the circular economy in retail in and out, its main ideas, and what it provides.
What is a circular economy in retail?
Never Miss a Retail Update!Whereas conventional consumerism is defined as “taking,” “using,” and “disposing,” the circular economy encourages us to bond with nature by reusing and repurposing items we’ve already used. Being energy efficient and environmentally sustainable is important in every part of life.
The purpose of the retail sector’s circular economy is to rethink the “take-make-dispose” concept. The main benefits of a circular economy model are economic savings, new jobs, saving resources and energy, and contributing to mitigating climate change.
Every retailer should have a sustainable supply chain that reduces waste and extends product life. Retailers should also prioritise long-term sustainability in their designs and offer alternatives to direct purchasing. When materials reach the end of their useful life, they can be recycled or repurposed.
In contrast to the linear economy of making, using, and throwing away, a circular economy is based on reusing, refurbishing, reprocessing, and regenerating materials. Due to its dependence on the depletion of natural resources, the take-make-dispose system produces an incredible amount of waste. The goal of the circular economy is to increase the number of times a product or material is used.
Certain retailers are already incorporating circularity as part of their circular business model and sustainable practices.
L’Occitane, for example, has reinforced its sustainability mission by implementing energy-saving measures in all its UK stores. Likewise, Patagonia and IKEA have introduced resale and refurbishment programs to keep their products in circulation by repairing, reusing, or repurposing them rather than wasting them.
By switching to a circular retail model, companies can save money, reduce their impact on the environment, and secure the future of their brand.
Understanding the core principles of a retail circular economy
When we think about the circular economy, we need to take into account the following three principles:
Designing out waste and pollution
Retailers will have to build more durable, repairable, or readily recyclable goods. This could be accomplished through the use of sustainable materials, modular design, and low-impact biodegradable packaging.
- Durability—the likelihood of something needing to be discarded, as well as consumption and waste, can be reduced with a product that is long-lasting and repairable. Good-quality materials and modular designs can extend a product’s life cycle and make sustainability an integral part of the goods that you produce.
- Recyclability—Products can be easily disassembled and reused when their life cycle ends if they are made of recyclable materials and do not include mixed or harmful materials. As a result, less waste will end up in landfills, and more useful materials will remain in use.
- Reduce waste—Good product design minimises raw materials waste during the production process, as well as the use of unnecessary packing. Retailers have a great chance to lessen their influence on the environment and satisfy consumer demand for sustainable products by optimising material use and enabling circular systems.
For example, Nike’s Move to Zero sustainability initiative is one of the prime examples of footwear that uses reusable material to reduce carbon emissions and build up sustainability.
Keeping products and materials in use
The goal of a circular economy is to make the most out of manufactured products. It uses resources in a way that doesn’t produce waste. There are a number of methods to help products last longer.
Let’s look at some of them in more detail:
Secondhand markets
By buying secondhand goods, we help ourselves financially with the bonus of preserving our planet. Instead of products ending up in landfills, with the help of secondhand markets like Vinted, we reduce the amount of waste and decrease the need for the production of new goods.
Thrift stores and charity shops play a big role in the second-hand market, particularly in Western Europe, but over the last ten years, more and more for-profit companies have been showing interest in this business strategy. Websites like Depop and The RealReal offer an effortless and cheap way to buy trendy second-hand clothing and accessories.
Customer benefits: cheaper products, a wide selection offered on different platforms, the chance to find rare items or products that are no longer sold, and the ability to get some of your initial money back.
Benefits for retailers: On the other hand, this means market expansion opportunities (sales through websites, apps, stores, fairs, etc.) and flexibility to operate in flourishing economic scenarios.
Rental services
Sustainability is very important in retail, and rental services are a natural answer to the problem of reducing waste. This is especially true when it comes to clothes and electronics. Instead of buying something that will be used a few times, people can borrow whatever they need and then return it. This practice, along with saving money and reducing waste, reduces the need for new production and protects our natural resources.
Customer benefits: opportunity to enjoy top-quality goods at lower prices, excludes the burden of ownership and saves money (no need to buy items)
Benefits for retailers: replacing the concept of “consumer” with that of “user,” the gradual elimination of non-renewable fuels, sustainable procurement, and increasing the duration of rental units.
Repairs and refurbishing
Repairs and refurbishing make products last longer. This reduces the need to throw goods away and cuts down on waste.
According to the International Resources Panel (UN Environment) report, “the refurbishment process is performed within repair and/or maintenance facilities to increase or restore performance and/ or functionality or to meet applicable technical standards or regulatory requirements”. Refurbishing brings used items to a condition close to new and ready to be sold again.
Customer benefits: saving money compared to buying new products, the possibility to recover part of the initial investment, and acquiring products that are no longer sold as ‘new’/that are out of line on the usual channels.
Benefits for retailers: opportunities for market expansion and product portfolio expansion, the chance to develop new business models, and the tendency to increase profitability when working with higher added-value materials.
Stimulating repair can help lifetime extension to happen. If an old product is still functioning, it should not be taken out of circulation but given a proper destination in order to extend its lifetime.
Repair has proven to be most effective in electronics, fashion, furniture, and even cars. Brands like Patagonia and Apple have embraced repair programs, appealing to eco-conscious consumers and strengthening brand loyalty. The French car manufacturer Renault Group is one of the first in the automotive industry to introduce circular economy principles into its operations. Their goal is to turn waste into valuable resources and extend the life of their vehicles and components.
Remanufacturing
Remanufacturing means fixing a used product so it works as well as it did when it was new with a warranty that is equivalent to or better than the newly manufactured product. Remanufacturing usually means completely taking apart all parts to check and clean them.
Remanufacturing is a key part of a manufacturing process that uses resources efficiently. Using components and their materials for a longer time can help save energy and reduce air and water pollution. Remanufacturing creates chances for skilled jobs and helps the economy grow.
Customer benefits: Security for being covered by the warranty with the supplier when in a critical moment of need (thanks to good design and quick delivery) and the chance to obtain products with similar or even better performance as “new,” faster, and cheaper.
Benefits for retailers: customer loyalty (once customers start buying remanufactured products, they keep coming back), chances to grow the market (by providing both products and services), and the ability to offer a quick and affordable option for consumers, which is very appealing.
Regenerating natural systems
Our current global economy has a startling flaw: we only manage to recycle a mere 7.2% of materials after we’re done using them, while the rest becomes waste.
The circular economy can help restore ecosystems and use renewable resources responsibly through sustainable sourcing and closed-loop systems.
Reusing goods and materials reduces the need to extract new raw resources from mines. If we gradually separate economic activity from using up resources by reusing things, we can assist in rewilding. The goal is to build closed-loop systems where, just like in nature, nothing goes to waste.
Final Thoughts
The retail sector is especially well-equipped to spearhead the path forward to a circular economy that not only fosters fundamentally different approaches to product design but also how products are consumed and reused. Through innovative approaches, such as reimagining product development, reducing waste, and focusing on sustainability, retailers can not only limit their environmental impact but also create opportunities for growth. The advantages of transitioning to circular practices, from fostering deeper client loyalty to increasing long-term profitability, are clear.
A bit of forward-thinking can significantly contribute to the long path towards sustainability. With changing consumer preferences and more stringent regulations, retailers need to be proactively adaptable and informed. In order to adapt to the changes in retail and succeed, it is crucial for retailers to understand emerging sustainable trends and leverage the latest technologies.
Always be on top of trends! Register for our Retail Conference to get all the latest insights from tech leaders and retail trailblazers. Book now!
