Obstacles

Every change comes with a portion of resistance and challenges. Circular initiatives are not an exception and there are couple of common obstacles. One of them is an internal alignment across business functions. How do one prioritise circularity compared to other initiatives? Circularity tends to stay higher on the priority list at sales, marketing, and finance executives compared to their peers from operations and supply chain. Another stumbling block is an underdeveloped circularity system of peer companies, suppliers, technology, and regulators. An ecosystem, that shares the common goal, is a crucial foundation for the shift towards circular strategy. Priorities on competitive advantages and fear of cannibalizing new products and sales also break progress. When people hear sustainability or circularity, many think recycling. Here lies a less explicit obstacle - the fail to look beyond recycling. Every stage of a product life cycle presents its opportunities for circularity (Fig. 1. Bain, 2022).   

Figure. 1 Circular opportunities across a product line.

The research shows that while sustainability influences only 24% of consumers in their wardrobe choices, 46 % of customers are concerned by products future at its end of life (Fig.2. McKinsey, 2022(1)). This shows that there is a fruitful soil for the brands circular initiatives at the “Use” stage like repair and share. Nearly every second customer is looking for opportunities and established channels to prolong their products lifetime. Scalability and repeatable models are pivotal to ensuring the success of these initiatives. 

Figure 2. The influence of sustainability on customers behaviour.

Consumers

Fashion industry as well as consumers are paying more attention to sustainability with every coming year. Consequently, circular strategy being a part of company’s sustainability initiatives can help companies communicate to consumers. Similarly, to the UK market Danish customers are as hypermodern and with a rising concern for the environment. Both markets experience the increasing presence of the Millennials and Gen Z customer groups. These consumers are reaching the income level that affords showing eco-conscious values in their wardrobes. Experts point out that in the future sustainability will not even be an option. Sustainability will be a prerequisite of brand love and brand loyalty (McKinsey, 2020(2)). McKinsey’s research shows that sustainable shoppers are evenly spread by gender and age, but often have an above average income (Fig. 3. McKinsey, 2022(1)).

Figure 3. Profile of respondents who agree or strongly agree that they go out of their way to buy clothes, footwear, or accessories from sustainable and eco-friendly brands. 

Finding information on sustainability might a be a jungle for many customers. McKinsey’s research of UK market shows that customers rely heavily on brands websites, product tags and certification. The research shows though that there are some differences in age groups. Consumers under 35 years old tend to rely on online reviews, social media, influencers, and fashion magazines. While 35+ years old customers seek information on product tags and certification (Fig. 4. McKinsey, 2022(1)). Findings show that besides having multiply ways to inform the customers about brands sustainable initiatives, brands can communicate both before and at the point of sale.

Figure 4. Sources of information to understand whether a brand is sustainable.

Circularity and other industries

Furniture industry.

Circularity is also a hot topic in furniture industry, where manufacturers are already widely using sustainable materials. This includes recycled plastic, wood and metal or recyclable materials like concrete, cardboard, bamboo, cork and hemp. The next stage is taking a step further to a high-value circular resource flow.

Companies are facing though their industry specific obstacles. The migration from solid materials like wood and metal sets a restriction to a product’s potential second life. Weak design limits or excludes product’s reuse of components, repair, reuse and recycling.

Another obstacle as weak incentives for furniture take-back programs cause underinvestment into the logistics development. High transport and labour costs in many parts of EU also make repair and refurbishment costly. Furthermore, the price difference between new and second-life furniture is not significant enough to lead to a sustainable consumption on a wider scale, that would include private and commercial sectors. Lastly, furniture reuse is underprioritized compared to recycling. This limits the potential of the furniture circularity overlooking its “Use” stage (see Fig.1 Circular opportunities across a product line).

To overcome these barriers, the industry needs the infrastructure for collection, sorting and reuse of the materials. This can be a part of mandatory producer responsibility or voluntary industry agreement. The return to eco-design would significantly extend the furniture lifespan directly and would contribute to its ability to repair and remanufacture. 

Circular economy and People Integrated

The playground of opportunities within circular economy expands every year. For brands being circular can bear unexpected fruits. A growing body of evidence show that many job seekers are attracted to organizations with sustainable practices. Why? Sustainability lifts companies market reputation and being associated with these companies contributes to employee's sense of pride. Being sustainable suggests that companies are generally concerned about the well-being of the society and are likely to treat their employees well. Lastly some candidates can connect with companies on a personal level as they share the same values. This attraction can be used as a competitive advantage. Drawing more applicants dramatically increase company’s chances of hiring a top performer.

Any change does not just happen. People make it happen. As circularity tends to be the future, companies already now must pursue the talents who can drive the change. Circular economy and circular products are challenging different professionals. Circular economy requires a circular supply chain design. Supply chain managers need to find ways to reduce demand for logistics, to create circular modes of transportation and recycling of waste materials and spare parts. Circular initiatives like reduce, reuse and recycle also require facilitation from the supply chain side.

Buying a used good or sharing it with others might be an obstacle for many customers. Returnable packaging requires more effort that a disposable one. Making circular products desirable and helping customers overcoming their habits, fears and preconception calls for the right way of communicating. Choosing the right platform is also a key. Stories on Instagram are helping to create engagement and relationships with the audience. Themed groups of Facebook can help create communities and to share content. Companies might use LinkedIn to build a certain image among professionals.

One of the circular company’s challenges is aligning incentives for performing economical and doing good sustainably, as circularity comes with an initial cost. This requires Finance departments to take a products/services life-cycle perspective and be an involved partner of the change, that brings multiple financial benefits. Circulating existing products and services, stimulating innovation of new products and services may create additional revenue. Distinguishing itself increases competitiveness and may strengthening relationships with customers and employees. Circular strategies may lessen the risks of a linear model (like scarce resources, fail to innovate and adapt).

As Millennials and Gen Z are getting older, the community of online shoppers is getting bigger. An increasing number of customers are not only shopping online. It is also a place where they look for the information, that influences their shopping behaviour.  Therefore, digital experience is becoming a new must for Sales department. New approach to price setting for circular products is another must. Introducing new business model will require learning new customers and new sales techniques to approach them.

The move from a linear to a circular production model must not only be supported by the business initiatives. A strong and clearly defined governance system is required in order to make and regulate the change. Waste regulation, extended producer responsibility, collection program, data privacy needs to be adjusted to a new model.

The development of economy is natural and the circular initiatives are gaining traction in various sectors. Visionary leaders recognise the opportunity of removing the link between economic growth and using virgin resources. This vision stimulates innovation, growth, more resilient and agile business. The change from linear to circular products is a huge creative ground. Investments into innovation leads to technological development, innovative materials, energy efficiency and profit opportunities. The lower cost of the production through a more efficient input utilisation adds to the overall economic growth. Labour market will also feel this shift. Circular economy implies high quality recycling and high-skilled remanufacturing activities. The demand for entirely new business goes hand in hand with circular economy. Collection and reverse delivery, product resell / rental platforms, repair services will be gaining their popularity. Besides macro effects, circular economy benefits individuals. Prolonged products lifespan increases disposable income. Consumers are offered additional options or product quality. Last but not least the improved health conditions due to lower pollution and contamination.

Rome has not been built in one day. Neither does circular economy. The initiatives have to be mainstreamed and supported by systematic solution applied in scale.

Credits:

1. Albella, E, Balchandani, A, Cornbleet, N & Lee L.  2022(1) 'In search of fashion’s sustainability seekers', McKinsey, 28 Jun. Available at: www.mckinsey.com/industries/retail/our-insights/in-search-of-fashions-sustainability-seekers (Accessed: 17 Nov 2022).
2. Bittner, M, Lobis, M & Toriello, M. (2020(2)) 'Is luxury resale the future of fashion?', McKinsey, 14 Dec. Available at: www.mckinsey.com/industries/retail/our-insights/is-luxury-resale-the-future-of-fashion (Accessed: 17 Nov 2022).
3. Granskog, A, Lobis, M & Magnus KH. (2020 (1)) 'The future of sustainable fashion', McKinsey, 14 Dec. Available at: www.mckinsey.com/industries/retail/our-insights/the-future-of-sustainable-fashion (Accessed: 17 Nov 2022).
4. Orebäck, M. 2022(2) 'Transitioning to a circular business model with design', McKinsey, 26 Apr. Available at: www.mckinsey.com/capabilities/mckinsey-design/how-we-help-clients/design-blog/transitioning-to-a-circular-business-model-with-design (Accessed: 17 Nov 2022).
5. Saenz, H, Hinkel, J, Morrison H & Doolan P. (2022)  'The Circularity Challenge: Expect Disruption and Get Out in Front of It', Bain, 11 May. Available at: www.bain.com/insights/circularity-challenge-expect-disruption-and-get-out-in-front-of-it/ (Accessed: 17 Nov 2022).