Think:Act Magazine "Circular economy"
Rental services offer a green alternative
How the products as a service paradigm helps companies and consumers lower their environmental impact
by Fred Schulenburg
Illustrations and photos by Getty Images / Westend61 + Stocksy United / Giada Canu
Read more on the topic “Circular economy”
Why buy a fridge when all you need is chilled food and beverages? Or hundreds of bulbs when you really need lighting in your office building? More consumers are selecting subscription models over purchases, which can come with their own challenges.
Like many students, Tom Leenders loved music. And like many music lovers he was facing a familiar problem: He found himself throwing away a lot of headphones. Often this was due a simple failure – a broken cable or cracked casing – but the result was the same: another item added to the world's growing mountain of "e-waste."
Leenders, then a design student in the Dutch city of Delft, decided to try and do something about it. He teamed up with his friend Dorus Galama, who was working at a consultancy, to create a new type of headphone that would offer a premium aural experience – and in a sustainable manner, as well. Five years on the result is Gerrard Street, an Amsterdam-based company that offers customers the chance to buy their "last headphones ever." Users opt for either a monthly rental package under which headphones are continuously repaired, replaced and upgraded; or a buy-repair-and-recycle option. The result has been a massive reduction in the waste that so angered Leenders. "We repair around 85% of headphones," he reports.
The company is just one example of products as a service, a key component of the circular economy that lets customers use a service without buying and discarding the actual products. Underpinning it are two realizations. One, we don't always necessarily want the thing (a car, say) but the service it provides us (a ride). Two, businesses and consumers are evermore focused on issues like sustainability and environmental impact.
The number of cities in North America with at least one bike sharing or e-scooter system in 2020.
The monthly subscription fee to drive a new Tesla Model 3, offered by startup Kyte.
The amount of CO2 emissions offset by micromobility in North America in 2020 by replacing car trips.
The hourly rate at which small companies can rent industrial robots as a service.
SOURCES: NABSA, ELECTREK, BLOOMBERG
From fashion to automotive, from office services to electronics, this notion is taking hold across a wide range of sectors. It has also caught the attention of policymakers keen to promote more sustainable economic activity. By his own admission Leenders is a minnow in all this. Gerrard Street sells around 200 headphones a month and has an annual turnover of nearly $400,000. The company employs only three full-time staff, though it draws on the work of tens of other freelance workers. But Leenders wants to grow the business, expanding out of the Netherlands and Belgium into Germany as well as the UK, with the aim of then acquiring some 250,000 users in Europe.
For a startup like Gerrard Street, it is easier to be circular. "One of the reasons we can do it is that we start from scratch," the entrepreneur explains. But for established players, embracing the circular economy is a more complicated and demanding process. Take Signify Lighting Services. Formerly known as Philips Lighting, it was spun out of the Dutch conglomerate in 2016 as part of a response to fundamental technological and manufacturing changes sweeping the sector. Under its Light as a Service (LaaS) program Signify offers customers – from the French industrial group Air Liquide to Britain's National Union of Students – lighting on subscription and in a sustainable manner. The company aims to double its "circular" business to 32% of sales by 2025.
Signify's head of office and industry marketing Francois Darsy recently detailed what this involves in a paper: a profound shift from a transactional relationship in which responsibility is transferred following a one-off sale, to a contractual one with ongoing performance commitments. This requires a different approach to everything from product design, where there is a concerted focus on waste reduction, to built-in sustainability and a business model that puts service, not the product, at the center of the customer relationship. "A commitment to the circular economy is also a commitment to business model innovation," says Andreas Rindt, head of customer satisfaction and governmental affairs at Signify.
However, there is only so much that individual companies can do. "The regulatory and legal frameworks need to provide the right conditions, partners need to be engaged to provide the required materials or to manage the product-enabled lifetime prolongation," says Rindt. It means competitors will have to work together to agree on standards and develop repair centers.
Another example of an established company getting to grips with the move to a circular economy is Ikea. The world's biggest furniture retailer is testing a "furniture as a service" subscription model for both consumer and business markets as part of its goal to become circular by 2030, though initial plans have been delayed by pandemic-related restrictions. One company already breaking ground in furniture renting is California-based Fernish, which is popular with millennials and others with less time and money on their hands. For a minimum of $75 per month, customers can rent classy furniture and decor – from a Sienna platform bed (from $76/month) to a Josie rug (from $9/month) – that can be swapped for something else, returned at the end of the contract, or bought outright. Fernish then cleans and refurbishes items before sending them out again to new subscribers.
Susan Inglis, executive director of the Sustainable Furnishings Council, sees the emergence of companies such as Fernish as evidence of a reaction against "fast furniture" as people are tired of a throwaway culture. In one sense, she adds, this reminds her of her childhood in a small town in North Carolina, where the local furniture store was as happy to sell refurbished items as it was new sofas. "I think that we will see that coming back," she says.
One concern that Inglis does flag is that a rental service may be too expensive for low-income customers. "It is true that sometimes making things out of recycled or reclaimed materials costs more, mostly because we do not have sufficient infrastructure in place for reclaiming and recycling many materials efficiently," she says. "In furnishings, however, there is a wonderful exception to the rule since it is a durable good. Made well, it can last a long time and so have many lives with many owners."
Another subscription company that allows customers to tap top-flight goods is Rent the Runway. The New York-based company that aimed to "take the closet into the cloud" was founded in 2009, initially as a hire company for clothing for one-off special occasions. Since then, it has moved into everyday wear it offers to subscribers who pay upward of $89 a month to choose from an ever-changing wardrobe of 18,000 different items. The service has netted 120,000 subscribers who, analysts note, increasingly factor sustainability into purchasing decisions. The company claims that its model has "displaced production of approximately 1.3 million new garments since 2010" with associated savings of millions of gallons of water, kilowatt hours of electricity and pounds of CO₂ emissions.
The starting monthly fee to rent a king-size bedframe from Canadian furniture rental company Pivot Furniture.
The number of items by over 750 designers that New York-based Rent the Runway keeps in its "Closet in the Cloud."
The monthly fee to rent a fridge/freezer combo from Dutch provider Homie.
SOURCES: HOMIE, RENT THE RUNWAY, PIVOT FURNITURE
But this has not been without some problems. Since Rent the Runway listed on the Nasdaq exchange in fall 2021, its share price has suffered as some investors have raised questions about the overhead involved in handling hundreds of thousands of garments a month while analysts have worried about depreciation costs. More adverse effects of investor impatience with the circular economy were on display last year at Danone, the French consumer goods group. Its chief executive Emmanuel Faber, outspoken champion of "responsible capitalism," was replaced amid mounting pressure from activist investors frustrated with the conglomerate's underperformance.
Rental also brings some challenges of mindset, finds startup entrepreneur Tom Leenders. A lot of Gerrard Street's customers still prefer to own their headphones. Leenders puts that down partly to how people see designer headphones as a lifestyle product and an expression of their image. That forced him to develop the ongoing repair-and-replace service to cover the total lifespan of the headphones. For him, it's a slight change but no deviation from his mission. "We are still a circular business," he says.