Produce Less, Earn More: Learnings from a Houdini Circularity Experiment

The idea of a fully circular store is new to consumers and difficult to understand–there are many different interpretations in the markets and consumers are confused by the options. The first step is therefore to clearly define what consumer needs are being addressed, how different circular services complement each other, and how to communicate and explain this to customers. For example, why offer both rental and subscription? How do you communicate the benefits of both to consumers? The decision between in-store and online offerings is also important: it impacts the viable sustainable business model design and geographical reach, and it determines the requirements for physical & IT infrastructure and the OPEX & CAPEX profiles of the business. Additionally, the value proposition and offering should prioritize extended usage over several seasons and years, emphasizing items resistant to fashion shifts and trends.

Circular models introduce the need for new pricing systems in which a specific product SKU has multiple prices depending on the sales model. This requires a simple yet robust approach to ensure profitability. Prices should adhere to a well-defined logic, anchored in an understanding of consumers’ willingness to pay for product usage as well as the company’s costs associated with offering the circular consumption model. Prices may also vary depending on key drivers of willingness to pay, including item condition and attractiveness. Introducing several prices for the same product also requires that the prices are cross-checked to be internally consistent so offerings fulfilling similar customer needs are consistently priced.

A key enabler is adjacent system architecture and support. Retailers commonly find that their systems cannot handle the increased complexity of circular models. Especially problematic is the fact that retailers need product and customer traceability, enabling them to monitor product availability in store as well as to follow up with customers when products are not returned promptly. Circular models may also require setting up recurring payments, for which many linear retailers lack the technical capabilities. Circular-ready platforms and solutions have emerged on the market in recent years, accommodating circular as well as linear models and the tracking of individual products and customers. However, challenges exist with these players, including that they are typically young companies focused on e-commerce–to date only a handful of solutions are tailored to physical retail.

In its first weeks, the Houdini circular store has been very well received by customers and the retail industry at large. Reuse and new have been the two most successful models in terms of sales, 60% of sales from reuse and 40% new and for subscription there is clear interest. Rental has so far been a minor share, but expected to pick up closer to ski holidays. The revenue of the circular store is a testimony of its success: it achieved the same level of revenue as the older regular store even within the first few months. We are still experimenting together, and Houdini’s circular store is just the first step on the journey to unlock the full potential of each garment. Going forward, the plan is to refine the concept and make it even more clear to customers, combined with unleashing the value of peer-to-peer exchanges, as well as seasonal dynamics together with expanding Houdini Circle to omnichannel.