Mark Lancelott, sustainability and circular economy expert at PA Consulting, is quoted in Canadian Retailer Magazine explaining how the circular economy is reducing waste and maximizing value, and what that means for the retailer of tomorrow. The article also features key insights from PA’s “Keeping Customer Connections” report.
Research recently conducted by Arizona State University found that the average American has a whopping $7,000 worth of unused good in their home.
Mark explains that this leads to a major opportunity for retailers. “We make lots of things, use them, and just throw them away. And in that case, only about 5 percent of an item’s material value gets recovered. Which means that, in the 95 percent that gets discarded, there’s a huge value and productivity opportunity.”
With the continued expansion of e-commerce, increased competition for customer loyalty, and a growing emphasis on sustainability, today’s retailers face unprecedented pressure to engage customers, maximize profits, and reduce their environmental footprint. Cue the entrance of the circular economy, a model where consumer goods – instead of being sold – are leased, rented, recycled, repaired, or repurposed to maximize their use and value.
Mark continues: “It has an extremely positive impact on resource efficiency for retailers. We try to keep resources and goods, to get their maximum value through the years. And that can be about designing things to last, or looking for a second or third life, or refurbishment. Or recycling as a last resort, since recycling can destroy the inherent value of products. It’s a way for supply chains and companies to work in a different way that creates more value for everyone.”
According to PA’s figures, 72 percent of electronics customers and 66 percent of clothing customers indicated their willingness to resell goods if a store offered a good enough buyback program.
Mark says: “Whether it’s in stores, or online, people come and buy something and then walk out the door and you wave goodbye. Whereas if you start to look at a more circular economy model – which could be service-based or a buyback-type model – it gives you the opportunity to build different relationships with customers, and that’s something that’s of value to most retailers. The circular economy offers retailers an opportunity to stay engaged with customers beyond the point of sale.”
On top of that, the economics speak for themselves. PA’s “Keeping Customer Connections” report found that retailers could potentially generate $70 billion just by reusing goods and materials. That $7,000 in unused consumer goods translates to roughly $875 billion that could be recirculated back to retailers. Clothing in particular has profound economic benefits. In the UK for example, it is estimated that close to $1,300 in profit could be generated by collecting one tonne of used clothing – significant value considering that roughly 80 percent of clothing items go unworn.
Mark adds: "There’s recognition of the value of opportunity that’s there, given how much stuff gets created and then thrown away. And leading companies have begun to experiment with ways to tap into that – whether their big corporations like Nike, or startup innovators who are trying to find ways of creating value on their own.”
For eager retailers curious about where to start, it’s important to start small.
Mark says: “Retailers need to experiment. They need to pilot. Understanding the big picture and figuring out what it might mean for you as a retailer, and then choosing some specific opportunities to test these things and learn. Maybe that means particular products that might be most relevant, or customer groups that a retailer might have. I think it’s worth experimenting with these models in order to understand what it means from a marketing perspective, and what it means in terms of logistics.”
The key to success lies in a businesses’ agility, the ability to not only breakdown specific silos and utilize new technology, but to leverage partnerships with other like-minded businesses.
Mark continues: “You can’t do it on your own. You’ll need to build relationships. The value in a circular economy comes from how companies within a supply chain can figure out how these circular loops work. Sometimes it might mean working with partners to test these models. Through collaboration, companies can unlock a lot of new value for themselves and be more successful in the long-term.”
When it comes to retailers, the time for exploring the benefits of circular economy is definitely now.
Mark continues: “There are plenty of companies doing this, and there’s a growing body of information to help companies through it. But it’s still in the very early stages of adoption. We’ve still got a way to go.”
How can the circular economy create value for your business?