The problem brands and retailers face is not scarce consumer demand (78% are more likely to buy environmentally-friendly products, suggesting similar appetite for circular products), but a lack of technology and infrastructure to make switching to circular models as seamless as possible.

As a result, there’s a mismatch between consumer drive to be more sustainable and the solutions they’re met with in the mainstream market. That’s why we’ve actively chosen to invest in startups breaking down these barriers, and bridging the gap between supply and demand, via technology.

While the old adage may once have been ‘Reduce, Reuse, Recycle’, we’ve developed our own three Rs—‘Rent, Refill, Resell’—where we see the biggest shifts in consumer behaviour taking place. We’re tapping into these through our latest retail investments into Zoa, Reath and Dotte.

Here’s why we’re investing in the circular economy and the three R’s:

Rental

Carrie Johnson renting her wedding dress in June made front page news in the UK, but consumer demand for rental stems long before this. Millenials were the first generation to markedly favour experiences over ownership, with 64% of consumers renting items falling into this age bracket. It follows that - in an era dominated by sustainability, social media and selfies - the opportunity to ‘experience’ multiple looks less wastefully, and at a fraction of the cost, resonates strongly.

The US is at the very forefront of the rental revolution, with early players such as Rent the Runway paving the way since launch in 2009. Similarly, on the own-brand side, both Ralph Lauren and Urban Outfitters are some of the first big brands to launch their own rental propositions stateside. If applied in the same way as The Lauren Look, on a select range, a brand can benefit from dipping their toes in rental, before deciding whether to roll it out to the broader business. Given traction in the US (which tends to be one step ahead of Europe in consumer trends), and the sharp appetite for resale adjacently, we believe rental will be the next wave of disruption in Europe too.

So why are own-brand rental offerings not more widespread? While consignment rental models via third-party platforms (Hirestreet, Hurr, Rotaro, Rent the Runway) bridge a temporary gap for consumers, direct rental offerings are still met with hesitation by brands.

There are a number of reasons for this:

• A fear of cannibalising full-price stock and, as a result, brand equity.

• The need for bespoke software built from the ground up: a large cost beyond a brand’s standard ecommerce play (but essential to prevent the faux pas of double bookings, plus leave enough time for late returns and cleaning time).

• Trepidation around maintaining unit economics, coupled with infrastructure barriers (such as specialist warehouses and cleaning facilities).

Our investment in Zoa’s B2B rental software tackles these problems head-on, enabling brands to directly share in a piece of the circular clothing revolution. The founder, Isabella, understands first-hand the struggles of operating a rental business, having also successfully founded Hirestreet. Seeing no existing off-the-shelf rental software solution in the market herself, Zoa was born.

Concerns over unit economics are appeased by dynamic pricing features and a ‘resale’ option for items crossing predefined depreciation points, keeping a brand in control. Complicated logistics are handled by a specialist third-party warehouse. Live booking availability, customisable rental settings, theming and cleaning time, are all baked into the software.

And as for brand equity and cannibalisation? The benefits a brand stands to gain from reaching new audiences through rental is huge in a D2C environment where CACs (Customer Acquisition Costs) are rising with increasing online competition. Gen Z consumers, who have sustainability credentials at their core, also have increasing purchasing power (accounting for 40% of consumers in 2020). For retailers to remain relevant to new generations, and trade with longevity, having a rental offering to reach new audiences is key.

Resale

The global resale market is growing at 11x the rate of the traditional retail sector (from a $7bn market size in 2019 to $44bn forecast in 2029) and could be worth 2x the fast fashion market by 2030.

There are a few catalysts driving this rapid growth. The first, and perhaps most pronounced, is the continued shift to e-commerce. Online marketplaces open up a much wider pool of buyers and sellers (and therefore inspiration - a key ingredient to drive both listings and conversion) than physical resale, which is bound by geography. “Technology is accelerating the pace of change of consumer behaviour when it comes to retail," explains Dominic Rose, ex-COO of Depop and Founders Factory Retail Sector Director.

The second driver is the pandemic, which has sparked a surge in new shopping habits as consumers prioritise both thrift and sustainability amidst an uncertain backdrop. 33 million consumers bought secondhand apparel for the first time in 2020 and this habit is expected to stick, as 76% plan to further increase their spend.

The third, and perhaps most ‘circular’, is the influx of funding into the space. Consumers have shown willingness to adopt new behaviours around sharing possessions, with appetite for resale models skyrocketing over the past few years. A quick look at VC funding and exit activity acts as a proxy for the output of this consumer willingness. This, in turn, ignites a domino effect, as businesses deploy this capital into digital marketing, new hires and platform investment, creating a virtuous flywheel.

The success of large resale players - such as Depop, Poshmark and Vinted - has also laid the foundation for consumers to seamlessly transpose their own purchasing behaviours onto the way they purchase clothes for their children. As audiences on these platforms mature, we expect them to move over to alternative platforms offering more relevant communities for their stage of life.

Our final ‘R’ investment is therefore Dotte; a peer-to-peer children's clothing resale marketplace. In Dotte, we saw a huge opportunity to back a startup to become a market leader in the more fragmented children's resale landscape, with no one player yet dominating the peer-to-peer space.

We’re proud to be backing the next generation of tech startups helping to bridge today’s gap which prevents refill, rental and resale from being adopted widely. While macro factors — such as France’s recent bill for large supermarkets to dedicate 20% of their stores to refills — go one step of the way, we believe technology solutions are essential to go the remainder.