How retailers can help the UK get more circular – and profit from it

This post first appeared on BusinessGreen.

What comes to mind when you think of the British economy? A land of supermarkets and call centres? If so, you wouldn’t be far wrong, as retail business accounts for one fifth of our economy, part of a service sector contributing 78 per cent of GDP. Yet discussions about increasing the circularity of the UK economy often leapfrog retail. They tend to skip straight from the changes manufacturers can make to product design to how to get householders to recycle more.

But this is a missed opportunity to get the circular economy rolling. The intermediary role retailers have between product makers and product users gives them plenty of leverage to influence what everyone else in the economy does. Good retailers have earned the trust of their customers, allowing them to shape customer demand, whilst their purchasing power means they can shift manufacturers’ decisions. Also, their operations encompass vast logistical networks and floor spaces that could be harnessed to create productive ‘loops’ for products and materials. So what should retailers be doing more of and what’s in it for them?

Turning market pull into market push
One thing the Circular Economy Task Force has heard a lot in its discussions with business is the need for more market pull for recycled materials. Interface has shown how this can work driving innovation amongst its suppliers to provide them with the recycled nylon yarn they needed.

We know householders look to retailers to remove the environmentally bad choices, and the effect of this has been seen with initiatives like the Round Table on Sustainable Palm Oil and supermarket commitments to fair trade and free range for own label products. Retailers have the power, and the mandate, to push their suppliers for greater resource efficiency and higher recycled material content.

Increased demand for recycled content requires innovation throughout the supply chain. Retailers can have a direct influence by requiring that products are easy to recycle (recyclability in the jargon). Even better would be if they got together as a sector and agreed design standards with manufacturers. This would be along of the lines of the initiative Unilever is leading on polypropylene, the plastic in margarine tubs, to restrict the range of colourings and plasticisers used, making it easier to remanufacture and use again. WRAP’s Product Sustainability Forum, already engaging retailers, provides exactly the kind of framework for holding these discussions.

How retailers can make it work for them
Going beyond their suppliers, retailers can also make a big impact on the waste in their own operations, and benefit themselves in the process. Supermarkets provide a good model to follow, with all the big four using the lorries that deliver goods to their stores to pick up waste packaging and food products. These are consolidated at depots and sold to reprocessors, enabling them to turn waste and its management into profit. Through in-store collections, some retailers have begun to extend options for recycling items like batteries that are currently harder to recycle. The rise and rise of internet shopping means there’s a growing opportunity to extend this service to home deliveries, and the recovery of small electronic and electrical items for remanufacturing and recycling should be a priority here.

Retailers can also help to deliver the infrastructure required to get useful materials out of waste streams. This could be through direct investment and ownership, as is the case with Sainsbury’s, Tamar energy and anaerobic digestion. Or it could be by providing certainty to developers through long term contracts, as M&S did for Closed Loop London, offering a ten year supply agreement.

Switching from products to services
One longer term vision for a circular economy is for people to procure services rather than products. So, instead of buying a washing machine you pay for a clothes cleaning service. The point of this is that this would turn the economics of washing machine design, or any durable good for that matter, on its head. Suddenly, rather than selling more machines, it becomes a priority for business to make machines last and be easy to repair and upgrade.

Whilst leasing rather than selling might appear to be a threat to retailers, it might actually prove to be a salvation in the face of declining footfall as customers move online. In a service based economy, a retailer’s relationship with a customer becomes a long term partnership rather than a hastily sealed deal. Service provision provides ongoing revenue streams and multiple effective sales. It should also benefit the customer through more consistent and upgraded product performance at a lower total cost of ownership. Despite these theoretical benefits, leasing hasn’t taken off, and retailers say they’ve trialled it and found there was very little demand.

Customers are open to more action from retailers 
Intriguingly, research by WRAP suggests customers are open to a more involved relationship with retailers, provided the offer comes from a brand they trust. This seems like an open invitation for retailers to lead customers into a service economy through compelling offers, especially given the fact that their sector is the single greatest source of advertising spend and so are highly influential in shaping customers’ desires. If going straight from a fling to lifelong commitment is too much of a leap, then a halfway house would be to set up more buyback schemes. This is mushrooming in the world of smart phones, with manufacturers like Apple, network operators like Vodafone and retailers like Carphone Warehouse all offering to buy your old phone, to be refurbished and resold, either at a lower price point in the same market or in a market overseas.

The emergence of buyback schemes, reverse logistics and joint ventures show that retailers are realising some of the benefits of a circular economy. But this is just the beginning. A radical but realistic vision for circular retail would build on the sector’s strengths: using retailers’ supply chain influence to redesign products for reuse and recovery; and sharing the value of better products with customers through service based business models.

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