Retail and Circular Economy: A Viable Model for Brands?

Is transitioning to a circular model really accessible to large retail companies?

The linear model is running out of steam and consumers are expecting renewal. Driven by legislation, companies are encouraged to rethink their business model to reduce the use of raw materials and avoid resource waste.

In this context, what are the challenges for large retail companies? How can they continue to make money without extracting new resources?

The linear model running out of steam

The traditional "extract — transform — produce — dispose" model is no longer sustainable for the planet. Increased consumption, as well as material waste, are identified as the main culprits.

Several sectors are being pointed out. The fashion industry, for example, is considered the fourth most polluting sector in the world. A garbage truck full of textiles is wasted every second worldwide, largely due to the massive increase in production over recent decades and the lack of recycling processes in retail.

Regarding shoe production, for example, more than 21 billion pairs are manufactured annually, and the majority of them are difficult to recycle. The typical mass-produced shoe includes components made from different materials that are difficult to recycle, including plastic and one or more types of glue.

Electronics and appliances also present many challenges. Less than 40% of electronic and electrical waste is recycled in the EU, meaning 60% ends up in landfills (2).

New consumer expectations

While increased consumption has a considerable impact on climate change, consumers are eager to change how they access goods. With rising environmental awareness, they now expect real commitment from brands to be able to buy more sustainable items.

Mindsets are changing and new conscious consumers are gradually turning away from ownership. They no longer need to own a product to use it. They are no longer reluctant to buy second-hand items.

Instead, they prefer healthy and responsible alternatives, guided by ethical values that influence their purchasing decisions. What also matters is having facilitated access to product use.

And this behavioral change is not insignificant for retail companies.

What challenges for retail companies wanting to adopt a circular model?

Long, difficult, costly: these are the 3 main objections of traditional companies to abandoning the linear model to adopt a circular model.

Indeed, abandoning the deeply rooted linear processes that have fueled production and consumption during the 20th century may seem insurmountable for companies with large infrastructures operating in multiple countries.

However, is it an impossible mission? No, and several large companies have already taken the leap.

Examples of successful transformation

Company	Circular approach	Result
Action	Supply chain audit	Identified that the overwhelming majority of CO2 emissions come from manufacturing at suppliers
Lidl	Emissions tracking program	80% of emissions come from only 60 suppliers
IKEA	2030 circularity goal	Evaluation of more than 9,500 products according to circular principles

The distributor Action, for example, audited its entire supply chain and found that the overwhelming majority of CO2 emissions was generated during the manufacturing of products the company purchased from its suppliers. The solution therefore lay in sourcing more sustainable products and collaborating with suppliers. Circularity starts with procurement.

The distributor Lidl launched an emissions tracking program for the supply chain in Belgium and discovered that 80% of them came from only 60 suppliers. The company therefore chose to collaborate with its suppliers to help them reduce their carbon emissions, particularly targeting meat and dairy products.

For its part, IKEA has set itself the goal of becoming fully circular by 2030. To do this, the company began by evaluating more than 9,500 products to determine to what extent currently sold products respect circular product design principles. Then, the brand established a roadmap for product development and the actions needed to achieve this circularity goal.

Which model to start with?

Transforming the linear model into a circular model doesn't happen overnight. However, there are already proven models, such as rental and second-hand, that allow all companies, regardless of their size, to open the door to circularity.

And these two models are not reserved for startups and pure players. They are accessible to traditional companies that can get started step by step, by introducing the circular model for a specific range of products.

Use case: Rental

For rental, for example, the French brand Bocage launched a new shoe rental offer in January 2019. Customers can get a pair of shoes every two months.

At the end of the rental, the customer can either buy the shoes at a preferential price or return them. The shoes are then refurbished in a French workshop and offered for sale on the "Like new" platform to give them a new life.

Use case: Second-hand

For second-hand, La Redoute, for example, launched a platform dedicated to second-hand and circular fashion —La Reboucle. The site offers second-hand sales between individuals (fashion, decoration, home), of all brands.

For each sale made, sellers have the choice of being paid in cash or receiving a 25% discount card for their purchases on the La Redoute site.

Other retailers, like Decathlon, have launched their own buyback platform for second-hand sports articles. Customers can be paid by bank transfer or in shopping vouchers.

What are the advantages of adopting the circular economy for retail?

Environmental and economic impact

The first obvious benefit for the climate: transitioning to a circular economy could bridge the CO2 emissions gap and limit warming to less than two degrees if implemented globally (4) and achieve a minimum net saving of 380 billion dollars per year in raw materials in Europe.

Local job creation

Increasing the number of circular models also translates into job creation, particularly through recycling which requires four times more jobs than landfilling. Moreover, these are local and non-relocatable jobs.

In France, this could contribute to creating more than 800,000 jobs, thanks to strengthening the local production fabric and developing R&D (5).

Preserved profitability

In the United States, sustainable product revenue increased by 29% between 2013 and 2018, and these goods experienced 5.6 times faster growth than linearly designed products.

If customers can choose to buy products from companies with circular models, they can then move from an ownership economy to a usage economy, while being able to access innovative services at an affordable price.

Systemic issues of transition

The circular model is becoming a priority for large retail companies, faced with an environmental imperative and growing demand for more sustainable practices.

Mass production, waste of natural resources and inefficient management of waste and packaging are driving fundamental questioning.

Ademe emphasizes the urgency of eco-design, valorization and recycling to reduce environmental impact. Companies must rethink their product life cycle, favoring:

• Reuse
• Reusability
• Waste valorization

Electronics and appliances represent major challenges, with only a fraction of products recycled or recyclable.

Faced with these challenges, retail must adopt strategies to reduce environmental impact, integrating more environmentally friendly production practices and encouraging reuse and second life of products.

Ecology and valorization of household waste become essential pillars for reducing extraction of new materials and minimizing waste production.

By committing to a more circular economy, retail companies can not only meet growing environmental expectations but also discover new opportunities for green growth and valorization.

Sources:

1. Ellen MacArthur Foundation
2. European Parliament/Eurostat
3. Xerfi, IFM
4. Circularity Gap Report 2021
5. France Stratégie
6. Ellen MacArthur Foundation