The circular economy is often referred to as the most effective solution to make our industries more sustainable. Yet, the business model issue is often put aside. To build a more sustainable economy, we need to work on all the steps in the life cycle of a manufactured product.
The first step of a circular economy is built upstream of the value chain (during manufacturing and before marketing), which is also when the ecological and social impact of a product is the most important. Yet, upstream of the value chain, the business model for brands is solely marketing.
Why? Because there is no financial advantage to manufacturing more sustainably, apart from the "marketing" or "commercial" argument that appeals to the end consumer's conscience. Some other levers can also come into play: legislation or avant-gardism of brands and entrepreneurs.
Conversely, downstream of the value chain (from marketing to the end of a product's life), circular economy friendly business models are multiple. More and more companies are proposing innovative concepts to extend the life of their products and to limit overproduction on a global scale. It is precisely on this part of the value chain that we will focus!
1 - Limiting overproduction: the virtuous model of pre-ordering
The traditional production cycle generally involves manufacturing upstream of the sale. This model has a definite advantage for the consumer: that of satisfying his need instantly, or in the short term, in the case of online sales. The seller also benefits from its stock, notably by its corollary capacity to offer immediate access to its product.
However, the negative externalities of this model are multiple. Indeed, with regard to ecological issues, producing and then selling generally implies overproducing and then overselling. At the company level, this model implies a loss of added value. This loss is compensated by the sustainability of this business model over time. In other words, companies sell at a higher price in normal periods in order to be able to lower their prices during sales periods. Discounted sales are not the essence of the problem, they at least have the merit of attracting a less affluent customer base. But this model encourages companies to produce more and customers to consume more. Another side of the problem, even more worrying, concerns the immense volume of unsold goods destroyed, mainly in the luxury industry...
Finally, having a "fair" price inevitably implies a change of system. Pre-ordering seems to be an effective solution. Many companies, especially in the clothing sector, have put this model to the forefront, following the example of REUNI, which offers its customers to co-create its collections. Introducing a dose of pre-ordering allows the retailer to avoid financing their inventory, and largely solves the problem of unsold merchandise and its dramatic impact.
2 - Extend the life of products: make the choice of second hand
Once the product is sold, the retailer usually loses control over the management of the end of life of his product. Yet this is a real problem!
On average, we wear our clothes less than 10 times (OXFAM), and this number seems to be entirely uncorrelated with the condition of the product. This means that a significant number of perfectly usable products are sleeping in our closets. While 100 billion pieces of clothing are still being manufactured each year (ADEME).
The second hand is certainly on the rise, through the many platforms that allow reselling second hand objects. However, it would be much more efficient to give back this link of a product's life to brands. Why? On the one hand, because the platforms encourage over-consumption, in a way that is not always eco-friendly, by pushing a certain clientele to wear the clothes only once or twice before getting rid of them. And on the other hand, because brands lose control over the life cycle management of their products.
Several pioneering brands have launched their own second-hand marketplace, so that customers can resell the brand's products they no longer need. This is the case of Jacadi, for example, which offers the possibility to buy new or second-hand products on its own platform. This mechanism is very effective in influencing the environmental impact of products, while having an obvious business model: that of a marketplace. The brand at the origin of the product can attest the veracity of the product, while being the most capable of verifying its state of use. But above all, it offers the possibility to build a model for the end of life of its products...
3 - The end of life of products: what business model?
Once products are sold, then resold, there comes a time when the product is no longer in use. What are the solutions for brands?
Not always feasible, and often not very profitable, downcycling aims to transform products into raw materials that can then be used for different purposes. In the fashion industry, for example, downcycling consists of shredding clothing to be used in the manufacture of insulating materials for construction. Very often, the benefit to retailers is minimal and the utility is quite low since there is a surplus of materials recycled for insulation.
Upcycling is the process of recycling that allows the recreation of products of the same use from end-of-life products. In the collective imagination, it is a process that is often not very profitable for the big brands because this method is difficult to industrialize. But this is not always the case.
We have seen the emergence of the refurbishing industry in electronics, and yet in some industries, such as textiles, the task seems unfeasible. It is however conceivable to rework end-of-life products in an industrial way, as one would do with raw materials. The main difficulty lies in the lack of standardization of the end-of-life product, unlike a roll of fabric. A mixed transformation process (upcycling and downcycling) should partially overcome this difficulty. By sorting the products by reference and by "level of degradation" and by saving part of the cost of purchasing the raw material, one can ask oneself if remanufacturing is not more profitable than destroying! In any case, from an ecological point of view, the calculation is quickly made.
Azala: what model for a young start-up?
It is clear that for a start-up company, the question of pre-ordering, managing second choices or end of life is more complicated to understand.
Building a model step by step
For a new company, the huge advantage is to be able to build its entire supply chain by adopting a new model. But for post-marketing, it is necessary to anticipate the development stages downstream of the value chain.
As far as Azala is concerned, the model we have chosen is the one we have presented in this article. Promote pre-ordering (mid-2023), keep control of the product by offering resale of second choice (end of 2023) and find an economic model for the end of life of the products (we are still thinking about it).
Sofiane Bouhali for Azala