How e-commerce is embracing the circular economy

In our e-commerce predictions for 2022, we talked about the rise of sustainability – including a circular economy.

But how do consumers feel about the shift to repair, resale, and recycling? And is it realistic for e-commerce retailers? Here’s the latest on the circular economy, in theory and in practice.

How the circular economy works

A few years ago, most people thought of retail as a linear process. A manufacturer makes a product; retailers sell it; consumers use it; and when it stops being useful, the product (and its packaging) is thrown away.

But there are two major flaws in this model.

First of all, it’s a waste of materials. Scrapping products means that valuable materials are lost and more pollutants are released into the environment.

Secondly, it breaks the connection between retailers and consumers. Our research into customer experience shows that shoppers want to hear from the brands they buy from. But when products simply pass from retailers to customers to landfill, that chance for communication is lost.

The circular economy offers another way of doing business. Companies are finding new ways to repair, recycle, and re-sell their products. And in the process, they’re building more lasting relationships with their customers.

This isn’t a niche idea, either. Major retailers including Asda have begun to offer a clothing resale service, giving customers better value and a more sustainable way to shop. Online-only fashion retailer, Pretty Little Thing, recently launched a platform for customers to resell their vintage and second-hand clothes. In the United States, the direct-to-consumer underwear brand Parade has launched a recycling program which turns out worn-out clothes into recycled fabrics… in exchange for exclusive discounts.

What are the benefits for e-commerce?

The circular economy has been around for a long time. Decades ago, people used to return empty milk bottles to their local dairy to be cleaned and refilled – until supermarkets and plastic cartons took over.

So why is the circular economy having a resurgence now? There are several key reasons why sustainability matters so much to e-commerce in 2022.

• Climate change. The reality of global warming is already here. Companies are looking for smart ways to thrive while reducing their environmental impact.
• Supply chains. 2020 and 2021 were marked by major disruptions to supply chains, for both raw materials and finished products. A circular economy could help protect retailers from shortages or delays.
• Cost of living. Life in 2022 is set to get more expensive – especially in some territories such as the UK. Consumers are looking for more value in their purchases, including the option to shop second-hand or recycle items in return for store credit.
• Changing demographics. Many retailers are now focusing on Millennials and Gen Z as their core demographic. These younger generations care about sustainability, and they’re prepared to pay more for it. In the words of one analyst, “the disruption has only just begun”.
• Customer loyalty. Every retailer knows that customer retention is more cost-effective than customer recruitment. With a circular economy, you can stay in touch with customers for years as they repair, recycle, and re-sell their favorite products.

The circular economy in practice

The circular economy is popular with consumers and it offers plenty of benefits for brands. But is it difficult to put into practice?

Creating a circular economy for your products rests on two key points: great customer service and a simple returns process. If customers have to work too hard, then the scheme falls apart.

“It can’t be complicated for either the brand or the retailer or the consumer,” explains the CEO of ReCircled, a pioneering start-up for the circular fashion economy. And keeping things simple depends on the right tech. A smooth returns system is built on seamless operations management and post-purchase customer service: the power to track items, contact customers, and assess the impact.

Communication is particularly important. In a recent study, researchers from the Centre for Understanding Sustainable Prosperity found that the circular economy is built on “extended business-customer engagement”. Even the smallest e-commerce businesses could benefit from circular economy practices if they put in the time to build relationships with customers.

Are you ready for the circular economy?

The ultimate goal of a circular economy is to sustain the environment, business, and consumers all at the same time. But e-commerce retailers will need robust returns and communications systems to make it work.

Have you experimented with a circular economy yet? What are the main challenges for your business – and what are the potential benefits?