Re-commerce: can we become homo-circularis?
24 / 01 / 2024
As a European consumer, I’m a child of the GAFAs. I expect a best-in-class experience: free shipping and returns, same-day delivery, and an infinite inventory of competitively priced products and services...but does “best-in-class experience” mean the same thing for everybody? Probably not. For some of us it could be to find a second-hand product, available next door. Or even having access to products or services just for a couple of hours, when we need them. For some of us owning is old, buying new is unethical, and renting or sharing is the way forwards. Retailers have to please most (if not every) customer, and this is one reason why the circular economy is now more important than ever for them.
Humanity has never stopped evolving. Evolution is induced by the need to adapt to changes, yet when adaptation has to be sudden and fast, it is rarely comfortable. The evolution towards a sustainable, circular or even regenerative economy will not be an exception. In this post I’ll explain the challenges that this evolution will bring. And in my next posts I will propose solutions to overcome or mitigate these obstacles.
But first, let me set a little historical context for the evolution of our societies…
The hunter-gatherer was the human of the paleolithic era, their way of life was based on hunting, fishing, and gathering. These were the subsistence modes of the human species, consisting of directly taking resources available from nature. Once local resources were depleted, they moved to a new area. Their life-style induced nomadism. This way of life is referred to as the paleolithic predatory economy.
In the neolithic era, small human communities began to group together in permanent villages, and they developed agriculture. They changed their “business model/way of life”, taking an active part in the production of resources. That had a drastic impact on the development of societies, eventually leading to ours. Agriculture comes with benefits but at the time it was a very labour-intensive activity. This change has undoubtedly been harsh for those who have experienced it, as farming communities had to devote most of their time and energy to food production.
Our current society is based on an extractive economy, as the goods and services we consume are produced from minerals and energy extracted from the earth. Extraction is becoming increasingly expensive. The gradual depletion of natural resources generates gradual increases in their cost of exploitation. But for many, resource recycling is still not economically viable at scale because the process itself consumes energy and resources and most products are not designed with this mindset. For example the PCIAW (Professional Clothing Industry Association Worldwide) explains that recycling clothes is so expensive it’s not economically viable. Perhaps, the better option would be once again to change our “business model/way of life”. The main idea being to make products last longer by designing them to be more durable, or consider use rather than ownership just like streaming movies and music can replace storing DVDs and CDs. We also have the concepts of the circular economy and re-commerce (finding a new user for a product instead of just disposing of it). The regenerative economy has also come into play. Being carbon neutral or sustainable is no longer a sufficient objective. Some companies are already focused on being restorative: balancing the negative impact of their past activities by capturing as much carbon as they emitted in the past. The ultimate goal being to go further by being regenerative. Regenerative describes a cycle that maintains and upgrades the conditions of an ecosystem. For companies it is about operating in a way that can restore and regenerate natural resources. These concepts have been introduced in 2012 by the Ellen MacArthur Foundation (EMF) as “an industrial economy that is restorative or regenerative by intention and design”, and the EMF website provides a list of regenerative projects.
The transition from the Paleolithic to the Neolithic era did not take place without adaptations or disruptions.
Let me introduce to you homo-circularis, a term first coined by Louis Lehmann in 2021. Homo-circularis could be defined as a person, acting in accordance with the theory of the circular economy. They are empowered to fit into their ecosystem, they respect the planet, they care about other species, and they value sufficiency and subsistence. Homo-circularis repairs instead of disposes. They prefer local vegetables\products instead of imports.
Let me introduce re-commerce: according to a study published by VISA regenerative business models like resale, repair, and rental could generate a €900 billion opportunity by 2030, drawing new customers, boosting sales, and creating many jobs. Offering sustainable options, businesses can help consumers shop differently and reduce their carbon footprint.
However, there are some of the challenge manufacturers and retailers will have to embrace the re-commerce:
New economic models
The transition to a circular economy will require prioritisation of the regeneration and reuse of resources over the traditional linear model of extraction, production, consumption, and disposal. Developing and implementing these new economic models will require significant effort and investment. For example, retailers and manufacturers will have to be able to rebuy their used products from end-users and then repair and resell them. In some areas, this approach is encouraged or even enforced by law. For example the Waste Electrical and Electronic Equipment Directive (WEEE) which enforces the collection, recycling or reuse of goods. It even requires improvements in the design of products so they can be repaired or disposed of properly.
Then comes the question of the value of a second-hand product. For some goods, like cars, the evolution of value over time is modelized, but for most products it’s not the case. We will have to take into account how desirable and available a specific product is over time, making pricing a complicated matter.
Changing relationships to objects and their social function
Products will be designed to last longer and be reused, repaired, or repurposed. This means that consumers will need to change their relationship to objects and their social function. For example, instead of buying a shiny new mobile phone every year as a social marker, they will need to learn to value and care for the products according to their use.
This new model will require significant changes to logistics and supply chains. Companies will need to be able to collect used products (reverse logistics), repair them, and redistribute them to new users. It will require new systems for tracking and managing resources, as well as new technologies for repairing and refurbishing products.
Education and awareness
The transition to a circular economy will require education and awareness-raising campaigns to help people understand the benefits of this new model and to encourage them to adopt new behaviours and attitudes. This will require significant effort and investment in public education and outreach campaigns. For this challenge we already see encouraging signs: for example, wearing second clothes is no longer a source of shame but of pride for many people.
Used products are given a new life through repair, refurbishment, or repurposing. Ensuring the quality and repairability of these products when rebuying them is essential for building trust in second-hand markets. Quality control can be a significant challenge, should people trust the company who built it in the first place or any other retailer, or a broker?
Consumers need to be willing to buy and use second-hand products. Not every consumer is willing to redefine the value or the purpose of a product, and some may still prefer to buy new products. Having the latest phone or a brand-new shiny car is still a marker of social status for some. Changing consumer behaviour will require significant effort in marketing, but every generation comes with a new mindset.
Availability of second-hand products can be limited, particularly for niche or specialised products. This can increase the impact on logistic even more, or introduce delays which may limit customers’ willingness to participate.
Regulations and policies
Existing regulations may not be well-suited to support circular business models. For example, concerning the guaranty of product return policies. New rules may be needed to promote the circular economy. With the implementation of the buy-back of second-hand products by merchants to customers, new rules apply. Under the European DAC7 directive, platforms and merchants are now obliged to keep an up-to-date list of the amounts repurchased from each customer. And, where applicable, to declare income for the customer, if the number of transactions or the sum of the amounts exceeds a certain threshold.
This global change requires significant investment in infrastructure, such as recycling facilities, repair shops, and logistics networks. This infrastructure is expensive to build, to adapt and maintain. And having a qualified workforce at a compatible price may also be an issue.
Incentives can play a crucial role in encouraging the development of the circular economy. But they too can be challenging, particularly in a global economy where regulations and policies can vary widely between different countries and regions.
With the buy-back comes the need for a merchant to pay the customer. In this case, when Mr Smith sells his second-hand goods to a retailer, in a way he is a merchant. The money must travel in the opposite direction to the usual case. And this is not so easy because the payment ecosystem was not designed with this in mind. A naïve approach would be to use the refund function, but this may cause more issues than it solves. It could make bookkeeping challenging. And the "payment" will take days before the customer can see the money in their bank account. Consumers are used to seeing debit transactions on their account very quickly, so this processing delay could be badly perceived and seem unfair. Fortunately, solutions do exist, but I’ll explore them in my future posts.
Having introduced the concept, goals, benefits, and challenges of transitioning to a more circular economy, in my next blog post I will start sharing some hints to help solve (or at least mitigate) these issues. So, stay tuned if you are interested in learning more about how we can transition to the circular economy.
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