Tuesday, June 25, 2024

Retail outlook – the circular revolution

A retail revolution is underway with four circular trends that will change the landscape, globally and locally, forever.

Gordon Brothers Australia Senior Managing Director of International Retail and Brendan Smyth, Director of Valuations Nick Taylor told the Turnaround Management Association National Conference in Sydney (9 November 2022) these trends include:

  1. Retail rental set to explode

“Consumer behaviour is shifting from ownership to usership,” he says. “In the fashion space for example, we are seeing more consumers renting their wardrobes.

“Harrods has recently partnered with My Wardrobe HQ where people can rent a $10,000 dress for as little as $134 a day rather than buy it outright for a special occasion. Similarly, Selfridges has recently partnered with HURR, allowing customers to rent clothing and accessories from its website.”

Mr Taylor says it is not just the fashion sector that’s tapping into the sharing economy. “UK retailer, John Lewis wants to be the Airbnb of furniture rentals, working with Fat Llama offering 500 lines of rental furniture.

“As the concept of usership over ownership grows we should expect to see more retailers jumping into the retail renting market.”

  1. The resale market will boom

“Customers will buy used rather than new via the ‘resale’ market,” said Mr Taylor. “For example, there is an estimated $16B of old electronic devices lying in peoples’ drawers, which equates to around 11 devices per household. This offers retailers a huge opportunity to enter the ‘money for old’ market, because there is revenue to be made from manufacturing a product once and selling it twice – just like Apple does.

“Apple began offering discounts with trade-ins in 2013.  Apple then refurbishes these trade-in-devices and resells them into emerging markets such as India, Latin American and Africa. In effect growing Apple’s market by capturing millions of users in these developing countries that ordinarily could not afford the latest technology,” Mr Taylor said.

“Apple is also seen to be reducing its carbon footprint by making good use of old product -manufacturing a device once, and then selling it twice.”

He notes retailers such as H&M, IKEA and now Levi’s are also getting into the resale game. “Levi’s has recently launched a resale website where customers can return old jeans which Levi’s then refurbish, repair and resell at a lower price.  Money for old jeans.

“The idea of hand-me-downs being second best is over. Increasingly, circular retail products will be seen as better than new.”

  1. Clean retail will grow

Mr Taylor said the third big change is that clean retail will grow market share. “In 2020, the circular economy retail market grew 25% faster than the wider retail market and is set to double in the next five years.

“Smart retailers are seeing an opportunity and are developing ethical and highly lucrative new concepts. For example, Allbirds uses carbon labelling on each of its products. Each item of clothing displays a carbon emissions score so customers know the climate impact of their purchase.

“The Allbirds range includes items including flip-flops made from sugarcane, shoes made from eucalyptus trees and uses recycled bottles to make shoelaces,” Mr Taylor said

Allbirds is no small operation: the relatively new start-up has a global footprint and a market cap of US$1.75 billion.

“Green products can be cheaper to manufacture,” he said. “Take Mud Jeans for example, producing one pair of MUD jeans uses 477 litres of water, compared to an industry standard of 7,000 litres of water.  This is made possible by water recycling plants and innovative washing techniques.

“There are huge fortunes to be made for retailers who play clean.”

  1. Dirty retail will be punished

Mr Taylor forecasts the fourth big change coming to retail is that “dirty retailers” will no longer get away with it, because they will attract consumer activism and lose market share.

“Given the fashion sector contributes 10% to global carbon emissions, how long will it be before the likes of Extinction Rebellion turn their attention to dirty retail?

“The reality is that as climate tensions increase so too will the boycotting of dirty brands. Brand boycotts have now spread virally. It is very easy for consumers to voice their disapproval of badly behaved brands. There is even an app for it,” Mr Taylor cautioned.

“Sustainability and environmental concerns are an expectation now from the consumer. So, woe betide any retailer that doesn’t listen to those concerns and act accordingly.”

In short, Mr Taylor says “The retail rental market will explode. Increasingly customers will buy reused.  Clean retail will grow. And dirty retail will get punished.

“Successful retailers have always thrived by responding to and anticipating consumers’ needs. The big winners will be those retailers who listen to their customers’ clarion call and do the right thing by their customers and the planet.”

Local retail transformation trends accelerating

Gordon Brothers Australia Director of Valuations Brendan Smyth adds: “It might be early days in Australia, but companies like Glam Corner are making headway having recently partnered with David Jones to offer rental of high-end designer goods. There are also other local clothing renters such as The Volte.

“Brands with their own resell shops increased 275% from 2020 to 2021 and this trend is expected to grow exponentially,” he said. “Consumers are happy to purchase used products online, often the only hesitation is “who is the seller” and “can they be trusted”. This presents a tremendous opportunity for brands with an established reputation.

Mr Smyth also noted: “With the Covid-induced-acceleration of e-commerce, one in five purchases in Australia last year were online – which also leads to a massive increase in returned items with damaged packaging. The concept of re-selling that returned e-commerce item (or re-commerce) is showing similar signs of growth.

“Last Year Amazon Australia launched “Amazon Warehouse” – where pre-owned or open-boxed items are inspected, graded on their condition and then re-sold. Amazon are now in a position to offer their e-tail partners re-commerce solutions.

“Department store Myer is offering customers a convenient place to drop off textiles, cookware and cosmetic packaging. “Closing the loop” and stopping these materials going to landfill – and at the same time, encouraging return visits.

“The craft brewing industry has also embraced sustainable packaging, Breweries like Young Henrys offering a growler bottle refill service straight from the source. Not only are they refilling customers’ bottles, they are also harnessing solar to do so and even making their own oxygen.”

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