Exploring New Retail Business Models to Operate within Planetary Boundaries
Retailers face mounting pressure to change their business models. Many are undertaking ambitious initiatives to decarbonize along their value chain, working to decrease emissions both by upstream suppliers and internally. However, the greatest potential for retail decarbonization lies in the underlying driver of these retailers’ environmental footprint: how consumers use and buy their products.
Circularity is a rightfully hot topic in the quest for sustainability. It means moving away from the linear value chain–where retailers sell newly produced products never to see them again–and instead entails creating a value chain that slows and closes the material loop. A variety of circular sales models can increase the utilization of each garment, including renting, subscribing, sharing, repairing, reusing, recycling, and more.
Circularity’s success relies on shifting consumer behavior. Consumers must move away from strictly purchasing what they need, decouple ownership from usage, and consume products in various ways depending on situation-specific need. Renting may be superior for time-constrained needs. Subscription models could be favorable when needs are fast changing, and models for reusing materials and parts may be suitable for tech products.
Despite the buzz surrounding circularity and its potential in the retail industry, the challenge of designing financially sustainable business models around it remains unresolved. Recent years have seen many attempts across the retail sector, but low success rates. Often, the circular aspect of an apparel store is a few garments, of limited sizes, in a corner for resale or rent.
A challenge faced by circular retail business models is the often-large costs that are difficult to recoup from consumers. These costs stem from retailers’ need to manage product flows across sales cycles–as opposed to selling items one-off–which includes handling product flow logistics, performing quality controls, and washing and relisting returned products. To achieve financial sustainability, retailers must increase consumers’ willingness to pay for circular models by creating clear upsides when compared to linear consumption.
To unlock a compelling value proposition around circular models, retailers must build on a thorough understanding of consumer preferences, combined with a changed view of the value of products in stock in consumers’ homes as well as within retailers.
Learn more about the Houdini Circle
Circularity is one way to solve one of the most disruptive challenges the retail industry has ever faced. We have only just started to uncover what this journey will entail. It will require that retailers not only reimagine their value propositions but also actively shape consumer behavior, all while unlocking a world of innovative business models that tap into new value pools.
A retail industry that does not over consume natural resources can last a long time. This is where the retail industry needs to go to carve out its niche in the oncoming low-carbon world. Join us on the journey to reinvent retail and collaboratively forge a more responsible future–starting today.
Managing Director & Partner
Stockholm
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