The Circular Economy: What’s Old is New Again and Again

The evolution of retail is a study in contrasts. Wal-Mart has been making upscale moves, Whole Foods is looking to leave behind the “Whole Paycheck” moniker and democratize organic foods for the masses, and the fast fashion industry, called out for its damaging impact on the environment, is tackling new green initiatives.

But fashion isn’t the only industry looking to make genuine improvements in its environmental footprint. Parts of the industry have joined a comprehensive approach to sustainability, also known as the circular economy, as it is gaining recognition and prominence across the globe.

In the next few articles, we’ll take a closer look at this circular economy, and more specifically, its implications for both retailers and suppliers.

Defining the Circular Economy

First up, what do we mean by a circular economy?

This definition from the Ellen MacArthur Foundation, a premier resource in this space, gives us a good (if rather academic) start:

A circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:

1. Design out waste and pollution

2. Keep products and materials in use

3. Regenerate natural systems

In their book, Circular Business: Collaborate and Circulate, Christiaan Kraaijenhagen, Cecile van Oppen and Nancy Bocken then add more pragmatism to the concept:

Circular economy: an economy in which stakeholders collaborate in order to maximise the value of products and materials, and as such contribute to minimising the depletion of natural resources and create positive societal and environmental impact. The solution we focus on allows for the long life, optimal reuse, refurbishment, remanufacturing and recycling of products and resources. It has the potential to create value for all stakeholders involved.

I love this concept because it builds on the maxim of "reduce, reuse, recycle" and takes a holistic look at everyone's efforts in making, distributing, and consuming raw materials and products.

In the retail space, those involved are manufacturers, suppliers, retailers, and customers. Each plays a crucial role in reaching a zero-waste supply chain—the ultimate goal of the circular economy—and each ends up creating all sorts of new value along the way. (We’ll show you how in the next update.)

One thing’s for sure: this circular worldview marks quite a departure from today’s linear model, which “takes, makes, and disposes” of products and materials.

But How Might Such a Circular and Collaborative Effort Work?

Let’s take a look at this laughably over-simplified example involving a product in the fashion industry. The circle that is created:

1. Begins when manufacturers reduce waste in their production processes by using a water reduction production method.

2. Continues when retailers employ software to improve their forecasts' accuracy, helping to reduce excess inventory purchases, supply chain costs, and resource usage.

3. Takes more shape when customers better understand what they own, purchase only what they need, and increasingly, repair or purchase pre-owned clothing.

4. Nears completion when retailers step back and fill the role of collecting non-wearable clothing and facilitating recycling, keeping tons of discarded items from heading to the landfill.

5. Closes the loop when manufacturers take the clothing and repurpose it into raw materials for other products. Which are then sold to retailers . . . to be purchased by consumers . . . and so the circle continues and grows in scope and complexity.

At its essence, the circular economy keeps the value of products, components, and materials at their highest, or as close to it as possible, by redirecting flows of materials, energy, labor, and data in restorative or regenerative ways (MacArthur Institute, 2016).

The example above illustrates how all this might come to life in the retail product space.

From What to Why

So now, we know what the circular economy is. But why should we care about it, especially right now?

We’ll tackle that meaty question. See you soon.