A new business model at your service
Reselling, leasing, renting, borrowing and sharing are no longer just for the auto industry. More and more brands have started to engage in Product-as-a-Service (PaaS) models. These turn the focus of consumption into access over ownership.
By Travis Rice
This interview was originally published in Sportswear International
Recommerce is nothing new. Brands focusing on baby clothes have been taking part in the recommerce business for a while now; even luxury is no stranger. Now, as external pressure is mounting, it is becoming more common for mid-market and fast fashion brands to rethink the longevity of their products’ lifecycles and to begin redrawing a new non-linear line.
While reducing the amount of clothes you consume is the most sustainable and responsible choice a business or consumer can make, encouraging the reuse and increasing the lifespan of a garment is perhaps the next best thing. However, if you see brands or platforms still pushing a strong message of consumption who are using recommerce or rental to actually increase primary sales towards the same customer — that should raise some eyebrows. Or if they are offering such a model without also working to create a sustainable product from a design or materials standpoint, then their responsibility commitment is not holistic.
One thing is clear: The journey to circularity is not easy. However, institutions exist to collaborate to help make that journey a little less intimidating. We talked to a bank and a social enterprise focusing on circularity in the textiles industry to weigh in: Experts Gwen Cunningham, leader of Circle Textiles Program at Circle Economy, and Henk Hofstede, sector banker retail at ABN AMRO, both have experience aiding and mentoring brands and businesses taking their first steps into becoming circular.
Let´s jump right into it. What role(s) have you played in helping brands create a PaaS model?
Henk Hofstede: Financial institutions have the responsibility to work towards a better future by changing the current rules of the game. At ABN AMRO a dedicated team has been working on PaaS business models to discover opportunities for the bank. We also have a PaaS manager who contacts stakeholders across various branches. As a bank, we hope to be the “partner in transition” for our commercial banking clients. An example of our services includes a Business Innovation Workshop. Within this workshop, our clients develop a plan to transfer from a sales model to a service model. Here, we see how much and where changes are required (i.e. after-sales, repairs, product design, logistics, marketing, etc.)
Gwen Cunningham: To enable the transition to a circular industry, it is critical for companies to fundamentally redesign their business models to circular business models with net positive outcomes. Extending the active use of garments is considered one of the most effective ways to reduce the overall impact of the apparel industry. Switching Gear is a C&A Foundation supported project, led by Circle Economy, that aims to accelerate recommerce and rental business models and contribute to the apparel shift towards circular consumption models.
Financial institutions have the responsibility to work towards a better future by changing the current rules of the game. — Henk Hofstede
What are common misconceptions brands have about PaaS models that perhaps prevent them from pursuing it as an option?
GC: A common misconception with regards to both rental and recommerce is that of cannibalization. The idea that revenue from these models will diminish the sale of firsthand goods via the traditional business models. This can be avoided by making a deliberate choice to have separate channels for both models. It has also been suggested that PaaS models will actually attract a new/different customer rather than take away sales from existing customers. Additionally, brands have noted that with regards to recommerce, the second market for their product already exists and is growing rapidly outside of their control. It would be an opportunity missed to not take a piece of this already existing market.
HH: Every step towards circular innovation does not always have to cost you! Sometimes you can start for example with cutting out unnecessary materials. A sunglasses company decided to cut plastic packaging during transportation, saving kilograms of plastic and CO2. Simple and at zero cost to them.
What advice would you give to brands considering adding a PaaS model to their business?
GC: The potential is clearly there. Market forecasts show that both the recommerce and rental markets are expected to grow much faster than the traditional retail market. Nevertheless, while many brands see the potential of these new models, they struggle to practically apply them. Do not start with guesswork. Really analyze your supply chain and product and try to understand where you could then have the largest impact. That should be your starting point. You cannot do everything at once.
HH: A transition from a traditional linear model to a more circular service model needs modifications and is certainly not easy. Legal, operational and financial aspects all need to be considered, tweaked and redefined. For us the 4 D’s help here: dialogue, demountable design, data and dare to start. Open up the dialogue with your supply chain partners and with your end consumers. Design with a lineage of users in mind. Service models need profitable subscriptions and therefore data about your customers. And all would not be possible without daring to start. You learn the most from practicing. Share your insights with supply chain partners and be realistic.
Any final words?
GC: There is no one-size-fits-all solution. Many different flavors and variations of recommerce and rental are popping up in the market. Brands need to figure out what will work best for their customer and product, but also build the capacity and support within the organization needed to launch and scale this new business model.
HH: Consider that perhaps a hybrid option is better at the beginning. Products, prices, service agreements and terms are all replaceable, but every PaaS or recommerce model has an impact on the traditional linear business model where maximum turnover is the name of the game. Change needs courage and vision, and regulations will soon be enforced. If companies stay laggard on this, banks will redefine their risks.
