IKEA, the world’s biggest furniture retailer, recently announced a furniture buy-back and resell scheme offering customers vouchers to spend in store. The scheme, which will be available to customers from 24 November to 3 December in 27 markets, marks the company’s most important initiative focusing on climate change.

According to the company’s guidelines, customers wishing to participate can log online their unwanted piece of furniture, request value estimation, and return it fully assembled to their nearest IKEA store. Depending on the condition of their returned furniture, customers will get a voucher which they could spend in-store. This scheme is part of IKEA’s People & Planet Positive sustainability strategy, launched in 2012, that aims to transform the company’s franchise and value chain to a fully circular business until 2030.

Following the development of Designing for Circularity Guide in 2018, which describes how the reuse, refurbishment, remanufacturing and recycling of IKEA products could be facilitated, the company started piloting refurbishment and resale of its products (as claims and takebacks) the following year. During the same period, the company tested new models of product ownership in the Netherlands, Poland and Sweden, offering subscription-based furniture leasing, a pilot programme that IKEA is planning to expand in 30 markets during 2020.

Refurbishment as well as product-as-service (leasing) business models can go a long way towards achieving greater resource efficiency. Adopting modular product designs that can simplify repairs and maintenance could extend the utilisation period of the product, thus slowing down the flow of resources. From a value perspective, both business models not only form an attractive proposition for customers—though lower product prices—and participating firms—through guaranteed maintenance and repair agreements—but also provide an additional revenue source for manufacturers.

To ripe the benefits of such business models, refurbishment requires firms to develop the technical expertise necessary to facilitate the replacement of worn components and establish the necessary reverse logistics flows in order to retrieve used items. In addition, the vertical integration of such activities on a manufacturing level entails a high level of complexity as well as a significant amount of investment due to the radical transformation of operations, market thinking and the strategic design of a dedicated supply chain.

Tapping into the opportunity to capture otherwise evasive value, a new, parallel market segment dedicated to second-hand products has emerged over the last few decades. Particularly in sectors such as consumer electric and electronic devices and fashion, refurbishment services have seen a remarkable increase with businesses solely dedicated to the collection, repair and marketing of second-hand products.

Eurostat’s most recent (2017) distributive trade stats at the EU-27 level indicates that the repair of personal and household goods industry, including furniture and home furnishing, is overwhelmingly comprised of small business (79.7%), generating 1.8 billion euros of added value. This segment does not include the small local second-hand retail stores (vintage, second-hand clothes, furniture, house appliances) that are increasingly making their presence felt in cities. The growing number of such stores justifies their consideration as a stable source of income, a hypothesis that is further supported by the high level of mobility across and within national borders for professional or educational purposes.

The potential of the Circular Economy (CE) paradigm to extract value by extending the useful life cycle of products has led many businesses to implement corresponding practices into their operations. Furthermore, the concept’s association with all three pillars of sustainability—environmental, economic and social—constitutes an appealing marketing message that can enhance a company’s brand name, particularly among younger consumers. The adoption of refurbishment and product-as-service models by multinational corporations is a significant step towards the dematerialisation of the global economy. However, while from a material flow perspective such practices have a clear positive environmental and economic impact, there is a high-potential rebound effect associated with the social pillar.

“There is a high-potential rebound effect associated with the social pillar”

As mentioned above, both refurbishment and leasing business models require the development of take-back, refurbishing and maintenance processes. The vertical integration of required processes within the corporation’s formal structure will enhance the link between consumer (e.g. buying and returning used items) and business activity (e.g. selling and refurbishing), thus minimising related material leakages.

Moreover, a stable material loop would increase demand for workers fully protected by labour law, in contrast to the informal employment arrangements that are quite common in small second-hand stores. However, one question that arises is how the necessary processes for developing the capacity to implement the aforementioned business models can be implemented within a sound ethical framework.

To achieve that, upstream supply chain configurations should not be overlooked, as the location of refurbishment activities and the actors involved in the retrieval and delivery of refurbished products is of utmost importance. The geographic centralisation of refurbishment processes according to the contemporary prescriptions for cost efficiency and economies of scale would go against the principles of Circular Economy, perpetuating the decoupling between the point of production and consumption. It would thus create a leakage in the circular flow of income that corresponds to the re-captured value of otherwise discarded products from consumers.

“The geographical centralisation of refurbishment processes according to the contemporary prescriptions for cost efficiency and economies of scale would go against the principles of circular economy”

Another implication that should be taken into account is the impact on the large number of small firms that are already involved in the second-hand market. As a symbiotic concept, circular economy can only be achieved through effective partnerships, thus it is important to consider the implications of actions beyond the remit of the firm. The entry of multinational firms would reduce the market share of smaller firms, and probably expel them from the market.

Therefore, it is important to consider the role of these existing informal structures in the transition towards circular business models and their potential to be integrated into respective processes. For instance, they could be utilised as a node in a decentralised network of refurbishing operations, focusing on the collection and delivery of second-hand products through franchise agreements - or simply by being acquired by manufacturers.

Circular Economy is not a paradigm that offers an unconditional enhancement of all three pillars of sustainability. While current legislation puts emphasis on environmental aspects, the associated economic costs and social implications that accompany the transition towards a circular economy also matter. Despite the optimism accompanying the growing number of large corporations that are adopting waste prevention practices, the rebound effect is often overlooked. This can be attributed to the technocratic reductionist approaches that characterise the assessment of circular practices, resulting in the disguise of serious failings at the social level and thus to the identification of effective remedial actions.

Large corporations’ pilot initiatives are an opportunity both for the businesses involved and the circular economy as an economic model, and thus taking into consideration such externalities is important. The size of their market share and the different geopolitical contexts in which they operate could be an opportunity to identify related barriers, implications, benefits and strategies that could accelerate the transition towards a truly circular reality.

By Akis Bimpizas (m.bibizas@gmail.com) & Andrea Genovese (a.genovese@sheffield.ac.uk)

October 2020

Akis Bimpizas

Akis Bimpizas is a doctoral researcher in Management School at the University of Sheffield (UK). His doctoral thesis explores the facilitating factors towards the transition to a Circular Economy in the context of food supply chains. Additional research interest is placed on the criticism of the contemporary prescriptions regarding the notion of “economic growth”.

Andrea Genovese

Andrea Genovese is a Professor in Logistics and Supply Chain Management at Sheffield University Management School. His primary research interest lies in the development and application of decision support methodologies in order to solve complex problems in the field of Supply Chain Management, with a special emphasis on Environmental and Social Sustainability aspects and big societal challenges. His recent research has been focusing on the transition towards a Circular Economy; within this context, he has been leading major EU-funded projects.