Rental BusinessRetail Innovation

Retail Conquering the Circular Economy

Is it possible to combine new consumer needs, environmental imperatives, and waste reduction with business objectives? Does retail have a place in the circular economy?

March 4, 2020

8 min read

Is it possible to combine new consumer needs, environmental imperatives, and waste reduction with business objectives? Does retail have a place in the circular economy?

Revolution underway in retail

In recent years, you have undoubtedly witnessed a profound transformation in consumption habits: environmental impact, ecological transition, the trend toward conscious consumption, the rise of second-hand markets... Millennials are shaking up traditional consumption patterns.

Digital transformation is strongly disrupting traditional economic models in retail. This revolution revolves around three major axes:

The rise of e-commerce
The development of omnichannel
The customer experience revolution

Yet it is possible to reconcile growth and circular economy. Instead of seeing it as a threat and synonymous with collapsing sales, it is possible to view this economic system as an opportunity.

The advent of the circular economy is an opportunity to develop other business models, diversify and sustain your revenue sources.

Innovative business models are emerging and are not reserved for startups. Among these new models, some retail players have taken the lead in testing and adapting other economic models, such as subscription sales to secure a new source of recurring revenue.

The new momentum of the circular economy

The circular economy, a true deep societal movement, responds to consumer concerns and needs. The emergence of new "conscious" and "digital native" consumers, concerned with ethics, sustainability and transparency, is disrupting the traditional economy.

This new consumer is no longer attracted by owning a good, but by the use they can make of it. They prioritize experience over possession.

The context of reflection on the transition of economies and industry toward a sustainable development operating mode motivates companies to provide new responses. New consumption patterns must address ecological concerns.

The urgency of the textile sector

For clothing retail, for example, the lifecycle of a new garment has dropped to 35 days on average, with new clothing worn only 5 times. Out of 5 tons of clothing sold per year, 4 tons are thrown away and contribute to waste production. How can we fight this resource waste?

In clothing, there's what we call "the Vinted effect": this marketplace, facilitated by digital technologies, has actively contributed to the growth of the second-hand market.

Vinted, the second-hand fashion site between individuals, represents between 700 and 800 million euros annually in transaction volumes in France. Until now, this market had completely escaped brands.

The circular economy is emerging in many other sectors: in home appliances, for example, we see the appearance of new companies and services to fight planned obsolescence and improve product repairability.

What place should retail take in the circular economy?

Today, the biggest challenge for retail is to adapt to this transformation by converting the offering of goods into a service offering. Driven by consumer demand, this is a logical shift from product logic to "services" logic and user experience.

American pioneers of the subscription model

Some brands across the Atlantic have successfully made this change. The following brands have implemented a monthly subscription system for renting a few clothes per month:

American Eagle
Urban Outfitters
Rent the Runway
Ann Taylor
Banana Republic

This subscription model comes with additional services (included in the subscription), such as dry cleaning, delivery, or personalized recommendations based on customer habits.

The subscription system is also a powerful lever for diversifying revenue sources. It was in a context of a 3.3% drop in revenue that H&M is currently experimenting in Sweden with in-store clothing rental from the ethical "Conscious Exclusive" collection (€33 per week for 3 items). For sale, prices for this higher-end and ecological collection range between €79 and €199 for a dress.

French innovation: inspiring examples

French brands are not to be outdone! Innovation is not reserved for Anglo-Saxons.

Case study: L'Atelier Bocage

Let's cite the remarkable innovation of Bocage, supported by ZIQY in implementing its new economic model. Since January 2019, the French manufacturer offers a shoe rental subscription package for €39 per month. Consumers can therefore get a pair of new shoes every two months.

The virtuous cycle:

End of rental doesn't mean end of product life
After the two-month period, customers can buy the shoes at a preferential price
Otherwise, shoes are refurbished in a French workshop
Introduction into the second-hand circuit for reuse

This is therefore an ecological and solidarity-based model. The Bocage example demonstrates that it is entirely possible to reconcile value creation with environmental imperatives.

In France, the subscription model is not reserved only for clothing. Ligne Roset, the contemporary design furniture brand, launched its own high-end rental offer in late 2019 (rental with purchase option).

Its objective is to meet the expectations of customers who don't want to commit to keeping the same furniture for 15 to 20 years. The brand also offers exclusive services associated with the rental contract:

Interior designer guidance
Furniture maintenance
Repair services

Result: this new model has enabled them to reach a new target, younger customers not ready to spend several thousand euros on furniture.

Major retailers embrace sustainability

Major retailers are also getting involved. To compete with Amazon's dominance, Darty decided to differentiate itself through its sustainability and solidarity argument.

The home appliance retailer recently offered a subscription at €9.99 per month allowing free repair of all appliances for several years. Used appliances that are taken back, if repairable, are donated to a job integration network.

Unlike Amazon, which destroys its unsold items, Darty strives to extend product lifecycles.

The subscription model as a response to new consumption habits in retail

The subscription model is no longer reserved for digital services or streaming, but is gradually extending to consumer goods. More than an omnichannel sales strategy, the subscription model has become a business model in its own right.

Explosive growth across the Atlantic

On the other side of the Atlantic, the subscription sales model is expanding rapidly.

Indicator	Key Figure
2023 Forecast	75% of companies with direct sales points will offer subscription services
Global market share	18% of the market
US annual growth rate	17.33%
Generation Z adoption	90% use subscription services

The Subscription Trade Association (an industry professional association) predicts that by 2023, 75% of companies with direct sales points will offer subscription services. Global subscription commerce already represents 18% of the market.

In the United States, the subscription commerce economy benefits from an annual growth rate of 17.33%. 90% of Generation Z consumers use subscription services. Given the influence of American trends in business model innovation, this dynamic is perfectly transferable to the French market.

What are the advantages of a subscription-based business model?

A subscription-based business model can be part of a powerful differentiation strategy, as the entire customer relationship is transformed and no longer limited to points of sale.

This model allows building a lasting and engaging relationship with the consumer. This new proximity provides deep customer knowledge: it allows collecting valuable customer data on consumption habits and thus refining customer profiles.

Advantages for the consumer:

Cost savings: subscriptions can provide value with a monthly cost lower than a one-time payment
Flexibility: less constraining solution than credit sales
Easier access: ability to access premium products without significant initial investment