Increase experience, reduce waste: Circular and share economies take on retail

Economic wealth has traditionally been measured by the acquisition and accumulation of material goods for private ownership. However, ownership often requires an input of capital that is not accessible to everyone. A shift from ownership to access, where one may access the benefits of services or goods without owning permanent rights to them, is underway. In this evolving economy, driven by dwindling resources, an increasing world population and the need for sustainable products, the smaller capital inputs needed to access a given resource, service or product increase its availability to additional population groups without a net increase in production.

In her TEDxSydney talk, Rachel Botsman called this burgeoning behavior “a powerful cultural and economic force reinventing not just what we consume, but how we consume.”

Technologies built around this “collaborative consumption,” or “sharing economy,” are based on the innovation pattern of access in lieu of ownership. And many of the startups that dMASS tracks are able to marry this value proposition with the “circular economy,” the economic system aimed at eliminating waste, and maximally, or continually, using each resource.

Some traditional examples of access-not-ownership include renters versus property owners, or car leasing versus buying vehicles outright. Most recently, it has been taxi use versus car sharing or scooter sharing (Uber/Lyft/Lime/etc.). In clothing (plus fine jewelry and art, watches and home decor), there’s Rent the Runway, Le Tote, Thredup, and The RealReal.

With the onset of COVID, it wasn’t just social gatherings and jobs that shrank, clothes sales slumped 25%, the biggest drop in 23 years. With rolling lockdowns, few opportunities to socialize, and tighter consumer budgets, the conscious consumer segment has grown.

We are witnessing a changing world and its economies, including the circular economy, which has been driven first with sustainability in mind. Meanwhile, collaborative consumption has been driven by convenience and desire for accessing (the benefits) of material goods that would otherwise be out of reach.

With the onset of the Coronavirus and the attendant financial constraints it has wrought, the trends that were already in motion have accelerated. People aren’t just being more conscious of how they are spending money; there are more options to shop and attach a good sentiment to it, which is driving the conscious consumer. People feel an opportunity to shop their values now.

Over the holidays, for example, consumers were looking to buy fewer, better things, and in the process lessen their consumption footprint. One in the runup to the holiday showed 59% of the 1,000+ American adults surveyed planned to alter their gift-giving practices, with 40% limiting the number of gifts they’d purchase and 36% setting price limits. Many jumped into the circular/sharing mindset and economy, and the distance between concerned consumers and smart, effective retailers was bridged with of pre-owned, thoughtfully curated items, from Motherhood Rental to and beyond.

This kind of purchasing is a growing practice, says Andy Ruben, the former first chief sustainability officer of Walmart, and current founder and CEO of Trove, a clothing resale powerhouse that brings together large corporations and startup-thinking for circular shopping, or recommerce. Brands include Levi’s, Patagonia, REI, Eileen Fisher and others.

People are increasingly buying used items as gifts, and while they may be doing it to attain or give an aspirational brand that they might not have been able to afford otherwise, a secondary reason and a major benefit is that they can decrease their carbon footprint.

It’s a trend in retail that three or four years ago Reuben, and most retail executives, did not expect.

“Circular shopping is the growing channel in retail today,” says Ruben. And while current thought holds it at about $32 billion in the U.S., the expectation is that it will double to $62 billion over the next five years, rental and resale included. He expects $30 billion in growth coming in the next five years, with 24 of the 30 billion expected to be resale.

And in this majority-resale circular economy, a brand will often buy-back or give you a gift card or cash for their item that you’re no longer using. While you can put that gift card toward the item you’re looking for, the brand resells that item to, typically, a new customer who aspires to the brand but might not have been able to afford it.

One of the buying benefits in this situation is brand association, and brands that resell their own products establish the trust it takes for the circular fashion economy to work.

The pattern of circular fashion started has been driven by the younger population who advocate for manufacturers or retailers to increasingly retain ownership of their products and, where possible, act as service providers — selling the use of products, not their one-way consumption. Trust is at the center of these exchanges.

Rachel Botsman is an expert in how technology and trust intersect at the heart of the sharing economy and collaborative consumption movement to drive value. The “functional service” model of the circular economy is similar to what dMASS calls naked value, or the ultimate value a product delivers when it’s stripped of most of the energy and material resources required to manufacture and deliver it: In product-service systems, you really pay for the benefit of the product, what it does for you — the need or the experience it fulfills — rather than the product itself. Take a drill, for example. Most of the life of a drill is wasted, observes Botsman. The drill is used 12 or 13 minutes over its entire lifetime. “People want the hole not the drill.”

The technology that enables a product-service system to work is the system’s ability to establish trust between strangers. It allows meeting and sharing at scale and leverages social networks to drive bartering, trading and swapping. Sharing in dynamic, appealing forms in a world wired to share — whether it’s our neighborhood, school, office, or Facebook network — is creating more opportunities toward an economy of access-not-ownership.

This new-old thinking matched with new digital technology helps power collaborative consumption and the sharing economy. The digital natives, or Gen-Y, who are growing up trusting strangers rather than institutions, share with those strangers — files, video games, knowledge. Trust has become the new currency driving economic activity in unexpected ways.

Like collaborative consumption, circular shopping is being taken up by younger shoppers. And brands that aren’t experimenting with resale and rental models are losing customers to platforms mentioned earlier like The RealReal and Thredup, because circular shopping requires capabilities (brand expertise and authenticity, and easy and positive shopping experience, and more) that younger customers expect. Trove provides the capabilities, 100% white label, to the brands and retailers who are losing these customers.

Ultimately, brands that participate in recommerce take control of their resale platform, validate authenticity and give customers trust. The system reduces resource waste. And its growth is not only staggering, matching that of ecommerce from 2000 to 2009, it’s just as disruptive. Ruben says the recommerce growth period even mimics the 10-year growth period of ecommerce. (November 2020 marks year six.)

The challenge to companies who should jump aboard: Like ecommerce, where “it was very difficult for brands and retailers to make the shift,” for recommerce, or circular shopping, “we’re seeing the same patterns,” says Ruben.

Brands and retailers have a tough time recognizing the sea change in how customers shop and taking advantage of it. Tremendous benefit awaits those who do, yet not all companies can take the lead. Then, jumping onto a moving trend is never easy, and scaling this particular new economy has its mix of challenges. Brands also fear cannibalization if they sell a used item next to a new item; is the customer who was going to buy new going to move over and buy a pre-owned item?

According to Ruben, the millions of data points indicate no. Brands moving into the pre-owned space are picking up new customers they wouldn’t have otherwise gotten, and existing customers who come in to purchase new continue to purchase new.

Values-based shopping with convenience, price point and validation of the brand sounds like a winning combination. And when you add the 65–70% of customers at a brand like Patagonia buying used who have never bought directly from Patagonia before, the benefits may seem clear.

Is it overkill, then, to mention that Levi’s had over a billion impressions just launching what they’re calling Levi’s SecondHand? Or that, according to Ruben, Eric Artz, the CEO of REI, talks about a future where more than half of items come from other members of the co-op?

Granted, Ruben has a vested interest in these companies’ successes. But he drives the point home: “If you’re a brand and you’re not standing behind your own items and you’re letting someone else do it, you’re missing this massive benefit of bringing new customers into your brand. And when they’re in your brand, your ability to keep them loyal by handing their item back to you for a gift card so they can upgrade or so they can buy that next item, is one of the most incredible loyalty drivers I’m aware of.”

What Ruben doesn’t mention is the conscious consumer’s loyalty to Mother Nature. With the increasing number of options for people to shop — and shop their values — while decreasing their carbon footprint, which is in turn empowering the conscious consumer, we expect the high ROI to continue, transcending the current economic turbulence.

Originally published at https://www.dmass.net on January 27, 2021.