Circularity and second-hand retail implications

Divergence at the Channel?

The UK and EU are diverging in their push towards the green transition touching on all sectors of real estate.

A large part of that stems from the UK not having signed up to the EU’s Green Deal. Data from the AI-powered verification platform Compare Ethics, reported by BusinessGreen, indicates that goods worth ￡193 billion could become stuck at the EU border as a result.

Concurrently, after the UK government's recent policy reversals, businesses with investments in the UK housing sector may consider moving investments overseas to markets more supportive of their sustainability goals.?

The different approaches being taken by the UK and its European counterparts is underscored by the French government's, and some regional German government’s, more environmentally-focused laws, such as legislation mandating the installation of solar panels on 50% of parking lots to boost renewable energy. At the same time, this could further demand for manufacturing and logistics of these technologies, particularly with the Net Zero Industry Act targetting 40% of the net-zero technologies being produced within the EU.

The retail sector is at the sharp end of these changes. France is increasingly steering towards a transition to a circular economy. From an Anti-Waste Law targeting household goods, to the introduction of a 'repair bonus' for clothing. The most recent proposal aims to implement penalty fees on fast-fashion items, charging up to €10 or 50% per item, with brands like Shein and Temu specifically mentioned.?

But what does a more circular retail economy mean for real estate? And where does the UK fit in? I teamed up with Emma Barnstable to answer this question.?

Recommerce on the rise?

The UK's recommerce market, the buying and selling of second-hand goods or ‘reverse commerce’, is currently valued at approximately ￡6.5 billion and is expected to nearly double to ￡12.4 billion by 2028, according to research by MPB and Retail Economics. Fashion dominates this market, accounting for 37%, followed by home & furniture at 30%, and tech at 20%, with leisure items making up the remainder.?The cost-of-living crisis is a significant driver of this growth, but sustainability concerns also play a crucial role. In fact, new figures suggest that second hand clothing will take a tenth of the global fashion market next year.

Yet, while sentiment often diverges from actual sales data, UK second-hand sales figures reveal a significantly more volatile market compared to the relative stability of overall retail sales. Notably, there was an 8.2% decline in second-hand sales in 2023, contradicting consumer sentiment and throwing into question economists' expectations of behaviour during times of crisis. This discrepancy highlights the importance of exploring the intricacies of the second-hand market to fully grasp its driving forces and consumer dynamics.?

Recommerce could even be a commercial opportunity for retailers

Concerning purchasing preferences, 90% of respondents to the MPB and Retail Economics survey favour online channels for buying used goods, while just over half (51%) opt for bricks-and-mortar stores. The rise of second-hand shops, including Sweden's second-hand mall, suggests potential revitalisation for high-street retailers. Barriers to second-hand shopping, such as concerns over cleanliness and quality, can be mitigated through in-person shopping.

The second-hand market can therefore complement and not detract from the new goods market and assist retailers in their sustainability goals. To have second-hand goods, there must first be new goods, and many companies have shown that repairing and recycling can enhance brand value.

Big brands have recently explored this concept. Amazon's 'Second Chance Store' in Brunswick Centre, sold high-quality returned goods, ranging from household appliances to books and games at discounts up to 50%. Amazon estimates that the second-hand shopping market in the UK is worth at least ￡1 billion to them.?IKEA's buyback and resell program, offering vouchers up to ￡250 for used furniture, in FY23 saw a 187% increase, with over 52,000 items re-sold.

Reverse logistics shifting requirements

There are broader implications for real estate, particularly the logistics sector. Reverse logistics, which is the movement of goods from customers back to sellers, is a key part of recommerce.

Additional processes associated with receiving, sorting and preparation of goods are involved with resale before the items can be picked and packed and sent to the customer. As a result, this type of retail requires more space, and more labour than traditional retail or ecommerce logistics. In addition, supply chains will need to be more agile and flexible. Unlike brand-new products which follow a predictable route from manufacturer to distribution, resale items often undergo complex routes involving multiple intermediaries.

Overall, the circular economy is not one to be overlooked for implications for retailers, retail property and the wider logistics supply chain. As well as aiding the UK’s transition to a lower emission economy there are opportunities for existing brands to boost physical retail locations as well as enhance their consumer loyalty and improve their own environmental footprint.

Naturally relevant

One element of the March Budget which was widely applauded was the announcement that agricultural property relief (APR) will be available on land used for environmental purposes like biodiversity net gain (BNG) or nature-friendly farming. Our Rural expert Andrew Shirley covered the reactions and mooted that those saying it could damage food security overlook the fact that the UK is about 75% self-sufficient in what we can commercially grow here, and much of the land being rewilded is pretty marginal. What the relief allows is for farmers and landowners to make the best use of their land.

That said, the UK has experienced a surge in rewilding the last three years, according to figures from?the charity?Rewilding?Britain. The charity originally launched the Rewilding Network in 2021, to support the regeneration of at least 121,406 hectares of land, plus marine areas, within three years. The latest figures show it is ahead of target, with 155,248 hectares of land, plus 506km2 of seabed, returning to nature.

But what is happening in the broader nature markets, carbon or BNG, in what has been often described as 'the wild west'? Andrew discusses in his weekly newsletter the new nature investment standards from the British Standards Institution (BSI) in conjunction with Defra, BSI Flex 701. As he notes “although not a British Standard per se yet, Flex 701 is an iterative process that provides requirements for the design and operation of high-integrity nature markets, including processes to generate, trade and store nature units.”

What else I am reading

Is the future of housebuilding AI and 3D printers? Yes, according to Austin start-up Icon, GPE is planning for more circularity in property with c.40% of the steel used in its 180 Piccadilly project, originating from its demolition of 2 Aldermanbury Square, oil and gas production must become cleaner if it can if wanting regulatory approval, and the government’s new ￡7 million Community Green Spaces fund launched to provide grants of up to ￡75,000 to help communities to plant fruits, vegetables and trees, creating orchards and kitchen gardens for all to access and enjoy.

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