The concept of circular business models
Ben Reason (Livework): Let’s start at the beginning. Can you introduce the concept of circular business models and circularity?
Gerrard Fisher (QSA Partners): “The main principle of circularity is that there is no waste. Whenever you are finished with a product it is either usable directly again as a product and has value or at the very least, the materials can be recovered and used in a new opportunity, whether that’s the same market or a different market.
It is based on models of natural systems. If you, for example, think about wild woodland, every single material in that woodland is used and is food for another part of the chain. Ideally, that’s how all our systems would work too. But unfortunately, we tend to develop products that don’t quite fit into the food chain of another organism in the system. Circularity is trying to address this issue.”
Why this is important for businesses
You’ve just used a natural metaphor. But if I am in business and running a non-circular organisation with non-circular products: Why should I care about this? What’s the opportunity for me?
“Businesses often don’t see the potential. They tend to not to pick up on the huge opportunity that circularity offers: to learn, understand and engage more with your customer. For example, you can solve your customers’ problems of getting rid of a product at the end of the life cycle. By offering this solution you learn a lot about your customer behavior and you instantly become more valuable because you are solving a problem for them.
Once you get your head around that concept you can begin to think about all the opportunities. ‘What if they are just going to use my product for a short (or set) amount of time? What is the best commercial offer around that window of opportunity? Is it to sell them the item and hope they give it back to me, or is it something more intelligent and finessed?’ ”
How does this relate to the fashion industry?
“In the fashion industry we often see that fashion clients don’t take this into consideration. They know a lot about how to excite consumers and how to sell products to them. But they rarely know how big their customer’s wardrobe is, or how many products are leaving that wardrobe every day, week or month. Their understanding of customer behavior is set in one specific area, they don’t take the entire lifecycle into account. Potentially they are unaware that the market is shrinking and giving way to a secondary market, where they may not be playing in if they are not careful.
We see that an increasing proportion of customers are buying and selling second hand products. A study by ASOS for example found that about one third of their customers are regularly buying and selling used products, either online or through stores. So it is already quite a large proportion of the market, it is not just a niche opportunity anymore.”
Customer demands are changing
So there is a shift in consumer attitudes, how is the fashion industry responding to that?
“The MacArthur Foundation found that fashion has a bigger impact than all international flights and maritime shipping combined. The fashion industry is recognising its large scale impacts, and they notice that their customers demand change. If you ask customers what they struggle with, they often answer that they don’t see their brands moving quickly enough to offer ‘green solutions’. Customers are starting to feel disenfranchised.
For brands, it is important to communicate that they have a sustainable purpose at heart. That it is not just a tick box exercise. They have to communicate that they are living by this purpose and that they are adopting different ways of helping their customers to stay fashionable in a way that has lower impact.”
What type of circular business models have you seen that excite you?
“There are some really interesting changes and new offers that are fitted around what the customer actually needs. A lot of companies start with a simple model – straight resale. It is a transactional model: you buy the product back from your customer, refurbish it and sell the product again. Adidas Infinite Play is an example of that.
Then you see companies going a bit further down the line, they start thinking about temporary use of garments. This can take a number of forms, from individual product hire to longer term rental. We’ve worked with small businesses in London like Alexandra Wood on hiring products out.
Next you have companies moving into the temporary wardrobe space – you are subscribing on a service basis and you have a bundle of garments available for a few weeks. An example is GIBBON: when you go on holiday they arrange a package of the right kind of clothing for you to be available at your destination for the duration of your stay.
A lot of value can be created around that idle time – when assets aren’t being fully utilised. Whether that’s cars or clothing or anything else. About one third of the wardrobe is barely touched by most households. You could liberate that one third and get value for it.”
Apart from minimising the idle time by implementing service models, the other side of circularity is about reusing materials. I have for example seen the Prada Re-Nylon project. How does that work?
“As a fashion company you’ve got to be careful about what materials you put in, how you get those materials back out, and what markets the materials are valuable in. Ideally it is valuable directly in your own market again. That is how adidas is currently operating. But often there are also larger scale markets where these materials can be put back into. A well-designed product can come apart to the components you require, and you can do something with those components to add value again.
The Renewal Workshop for example takes garments back, repairs them and sells them again. This can be the same type of clothing, or they turn it into something else. That way they increase the function those garments originally had. They can even go further and boost the value by embellishing or personalising it.”
You’ve told us all about the opportunities. What are the challenges and barriers you see faced by companies who start to explore circularity?
“The first barrier is to understand the range of different types of circular business models they can operate in, they need to figure out which one fits well with their current model. Secondly, they need to test this model in a relatively safe way – because brands don’t want to take a huge gamble. Basically it is not just one movement but an evolution, a journey they need to start. Thirdly, in terms of practicality, most brands and retailers don’t necessarily have all the capabilities they would need to deliver a circular model. And that’s not just the case in the fashion industry, it applies to all industries. They are geared up around manufacturing and selling products. Getting products back and then doing something with those returned items is a big challenge. Currently we often see that big organisations need the support of a focused partner who specialises in that area. The Renewal Workshop is an example. Big players find small and specialised providers, and align their capabilities.”
That’s a link to service design. We are interested in how you successfully engage your customers in circular services, and how you facilitate the necessary innovations within your organisation.
“Yes, there is absolutely a link there. You have to figure out how to serve your customers well, if you require your customers to bring products back in order for your business model to work. For an organisation that perceives itself as a manufacturing organisation, that is culturally a huge challenge. They might be gearing up and be dealing with product returns, but that is something else. If it is a product that you are currently selling and it is in good condition when it comes back, you can put it back on the market. If it is last season’s product or even a product from a few years ago, that becomes a whole different proposition.
The proposition changes from product ownership to product stewardship. It is about knowing that you’ve placed that product out in the market and that you want it back, because you know you can get more value out of it. And you are making an active effort to go out and find it again.”