Circular economy for retail: Sustainability is good for business

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  Quantumrun Foresight
• July 11, 2023

Insight highlights

Consumers are increasingly prioritizing sustainability, opening opportunities for retailers to promote a circular economy, which minimizes waste through reusing products and materials. Implementing this model requires designing durable products, optimizing reverse logistics chains, and leveraging smart planning platforms to mitigate potential disruptions. Furthermore, increased regulations, startups' innovative services, and a shift towards sustainable business models are further catalyzing the transition towards a circular economy.

Circular economy for retail context

According to a 2021 study by strategy firm Simon-Kucher & Partners, 60 percent of consumers regard sustainability as a crucial factor when making purchases, and a third of them expressed their readiness to spend extra for environmentally friendly products. This market of ethical consumers can encourage brands to establish sustainable supply chains and promote a circular economy. 

This industrial model is designed to minimize waste by re-employing, re-utilizing, and redesigning products and materials. Instead of disposing of "waste" into a landfill—which impacts financial performance and the environment—companies can re-integrate this waste into the supply chain.

To successfully implement circularity, companies (and their manufacturers) need to design products that have long-term durability and use reverse logistics chains. This process includes creating parts that can be easily replaced or upgraded and materials that can ultimately be repurposed. Also, all packaging—for the product and shipping—needs to allow for repacking in case of a return. 

Furthermore, to mitigate disturbances in the circular economy, it's essential to have a smart planning and analytics platform capable of simulating future scenarios based on a range of continuously shifting criteria. For example, "what-if" analysis using real-time climate information enables retailers to detect potential volatility early on, allowing them to modify their respective supply chains before issues occur.

Disruptive impact

Aside from increasing demand from consumers and responsible investors, increased regulations also pressure businesses to establish circular processes. As such, startups may start offering services that ensure these companies comply with laws and optimize their supply chains. For example, a comprehensive 2020 anti-waste law in France prohibited designer clothing and high-end goods businesses from disposing of unsold or returned products.

Startups like Lizee started offering a solution to brands and retailers where they can put up their products for rent or re-sell. According to the company, rented items are required to be tidied, refurbished, and fixed. An essential part of these products’ attractiveness is their fresh, high-quality feel, similar to the freshly laundered bed sheets in a hotel room. Attaining such standards requires a distinct skill set. As a result, many brands are fostering local employment opportunities to address the skill gaps in the reverse logistics chain.

Aside from offering sustainable solutions, some companies might also consider assisting small businesses in fulfilling their environmental, social, and governance (ESG) reports and pledges. ESG software can automate this process, which is often laborious and time-consuming due to the need to gather large datasets across the supply chain. As different sustainability frameworks are established, such as the United Nations' Sustainable Development Goals (SDGs), smaller companies might increasingly need assistance navigating these various policies and mandates.

Implications of a circular economy for retail

Wider implications of a circular economy for retail may include: 

• Retailers reducing their reliance on finite resources by minimizing or reusing materials and reducing waste, which may lead to increased profitability and economic resilience during fluctuating raw material prices.
• A culture of reuse and repair, increasing the demand for products designed for longevity, upgradability, or recyclability, and rental or repair services.
• Increasing legislation that mandates circular practices. Retailers that have already embraced the circular economy may be well-placed to comply with such regulations, avoiding potential penalties and negative publicity.
• The creation of new jobs in resource recovery, recycling, and refurbishment, changing the demographic profile of retail employees from sales-focused to sustainability specialists.
• Technological innovation in recycling, remanufacturing, and traceability of products. Adopting digital technologies like the Internet of Things (IoT) for tracking resources, artificial intelligence for optimizing resource use, or blockchain for securing supply chain transparency could be instrumental in this transition.
• Innovative business models such as product-as-a-service, where customers pay for the use of a product without owning it. This development could provide retailers with new revenue streams and greater consumer affordability.
• Products designed for reuse lowering toxicity and becoming safer to use, contributing to better consumer health.
• Select countries emerging as global leaders in sustainability after they successfully implement circular economy legislation and tax incentives. This trend can bring political advantages, such as increased influence in international environmental negotiations.

Questions to consider

• Do you prioritize sustainability when you shop?
• What are your local businesses doing to promote a circular economy?