Case study: Sharing economy & product-as-a-service — a leading company's implementation and lessons learned

IKEA launched its furniture-as-a-service leasing programme across 30 markets by the end of 2024, including the United Kingdom, after piloting the model in Switzerland, the Netherlands, Sweden, and Belgium starting in 2019. The programme allows customers to lease office furniture, children's furniture, and select living room ranges on 12- to 48-month contracts, with IKEA retaining ownership and responsibility for end-of-life refurbishment or recycling. By mid-2025, IKEA reported that its circular services division, encompassing leasing, buy-back, and resale, had diverted 47 million products from landfill globally since 2020, with furniture leasing alone accounting for over 180,000 active contracts across Europe (Inter IKEA Group, 2025). For sustainability leads evaluating product-as-a-service (PaaS) models, IKEA's experience offers a detailed blueprint of what works, what does not, and what the economics actually look like at scale.

Why It Matters

The UK furniture market generates approximately 22 million pieces of discarded furniture annually, of which only 17% is recycled or reused, according to WRAP's 2024 assessment. The remaining 83% goes to landfill or incineration, contributing an estimated 6.4 million tonnes of CO2 equivalent per year when upstream manufacturing emissions are included (WRAP, 2024). Product-as-a-service models directly address this waste stream by incentivising manufacturers to design for durability, repairability, and multiple use cycles, because the manufacturer retains financial exposure to the product throughout its life.

The UK government's Resources and Waste Strategy, updated in 2025, explicitly identifies PaaS and leasing models as priority interventions for reducing material consumption. Extended Producer Responsibility (EPR) regulations expanding to furniture and textiles by 2027 will impose per-unit end-of-life management costs on producers, creating a financial incentive to extend product lifespans. Companies that have already built the reverse logistics and refurbishment infrastructure required for PaaS will be significantly better positioned when these regulations take effect.

The financial case is also compelling. The Ellen MacArthur Foundation estimates that circular business models, including PaaS, could unlock $4.5 trillion in economic value globally by 2030, with furniture and home goods representing one of the five highest-opportunity sectors (Ellen MacArthur Foundation, 2024). For individual companies, PaaS creates recurring revenue streams, deeper customer relationships, and proprietary data on product usage patterns that inform design improvements.

Key Concepts

Product-as-a-service shifts the value proposition from selling a physical object to delivering the function that object provides. In the furniture context, this means selling "workspace" or "children's bedroom" rather than desks, chairs, and beds. Several foundational concepts underpin successful PaaS implementations.

Residual value management refers to the ability to predict and capture the remaining economic value in a product at the end of a lease term. IKEA's model depends on its capacity to refurbish returned furniture to a sellable standard at a cost lower than the refurbished item's resale price. This requires design-for-disassembly principles built into products from the outset, standardised components that can be replaced individually, and finishes that can be refreshed without full remanufacturing.

Reverse logistics encompasses the physical systems for collecting, transporting, inspecting, and processing returned products. Unlike forward logistics, which moves uniform new products from centralised warehouses to dispersed customers, reverse logistics handles heterogeneous used products moving from dispersed locations to processing centres. The cost structure is fundamentally different, and underestimating reverse logistics complexity is the single most common failure point in PaaS implementations.

Total cost of ownership (TCO) modelling allows companies to price leases accurately by accounting for acquisition cost, expected maintenance and repair during the lease term, transportation costs for delivery and collection, refurbishment costs, and the expected residual value at each lifecycle stage. Errors in TCO modelling directly translate to margin erosion or uncompetitive pricing.

What's Working

IKEA's UK furniture leasing programme has demonstrated several successful strategies that other organisations can learn from.

Phased product selection based on circular readiness. Rather than offering its entire catalogue for lease, IKEA began with product categories that already had high refurbishment potential. Office furniture, particularly the BEKANT and TROTTEN desk ranges, was the initial launch category because these products use modular steel frames with replaceable tabletops and have standardised dimensions that simplify warehousing. Children's furniture followed because it has a natural use-cycle endpoint: children outgrow furniture every 3 to 5 years, creating a built-in return trigger. By 2025, IKEA had expanded to include 340 products across 12 categories in the UK market, but the top three categories (office, children's, and storage) accounted for 78% of lease volume (Inter IKEA Group, 2025).

Integration with existing buy-back and resale infrastructure. IKEA did not build its leasing reverse logistics from scratch. Instead, it layered leasing returns onto the buy-back and resell programme launched in 2020, which had already established return processing capabilities at 38 UK stores. Returned lease items enter the same inspection and refurbishment pipeline as buy-back items, sharing labour, space, and equipment costs. This integration reduced the per-unit reverse logistics cost for leased items by an estimated 35% compared to a standalone leasing operation (Ingka Group, 2024).

B2B market entry before B2C. IKEA's UK leasing programme initially targeted small and medium-sized businesses furnishing offices. B2B customers are more predictable in their leasing behaviour: they lease standardised quantities, maintain furniture to higher standards (reducing refurbishment costs), and value the balance-sheet benefits of operating leases over capital purchases. The UK B2B leasing programme achieved a 92% return rate at lease end, compared to 74% for the B2C pilot, and B2B lease margins were approximately 8 percentage points higher than B2C (Ingka Group, 2024).

Philips Lighting-as-a-Service parallel. Philips (now Signify) pioneered a comparable PaaS model in commercial lighting, retaining ownership of fixtures installed in buildings and charging customers per lux of illumination delivered. The Schiphol Airport installation in the Netherlands, covering 3,700 luminaires, demonstrated a 50% energy reduction and eliminated lighting waste from the airport's operations. Signify expanded this model to over 1,500 commercial sites across Europe by 2025, proving that PaaS economics improve dramatically when the provider can also optimise energy consumption during the use phase (Signify, 2025).

What's Not Working

IKEA's experience has also revealed significant challenges that temper the optimism around PaaS models.

Consumer-market lease economics remain marginal. In the UK B2C market, IKEA's furniture leasing has struggled to achieve positive unit economics. The combination of delivery costs (averaging £49 per trip), collection costs (averaging £65 per trip, higher due to access challenges and scheduling variability), and damage rates during the use phase (32% of returned B2C items require refurbishment costing more than 25% of original product value) has compressed margins to near breakeven on many product lines. For lower-priced items below £200 retail value, the logistics costs alone can exceed the total lease revenue over a 24-month term (Ingka Group, 2024).

Customer behaviour divergence from assumptions. IKEA's TCO models assumed that leased furniture would be returned in condition consistent with "normal wear and tear." In practice, B2C customers treated leased furniture no differently from owned furniture, resulting in damage rates 2.3 times higher than the models predicted. Pet damage, liquid stains, and structural abuse (children jumping on beds, for example) were the primary categories. IKEA has since introduced a tiered deposit system and offers optional damage protection insurance at £3 to £8 per month, but adoption of the insurance product has been only 28%, well below the 60% target.

Regulatory ambiguity around product liability. In the UK, the question of who bears product safety liability for leased and refurbished furniture remains partially unresolved. The Product Safety and Metrology Bill introduced in 2024 does not explicitly address the liability allocation for products that have been refurbished and re-leased by the original manufacturer. IKEA currently carries full product liability on all leased and refurbished items, adding insurance costs of approximately 1.8% of revenue from the circular services division (IKEA UK, 2025).

Scaling reverse logistics beyond urban centres. IKEA's UK leasing programme performs well in London, Manchester, Birmingham, and other major metropolitan areas where store density enables efficient collection routes. In rural and semi-rural areas, collection costs increase by 80 to 120%, making leasing uneconomic for most product categories. This geographic limitation restricts the addressable market and creates equity concerns about access to circular consumption models.

Key Players

Established companies: IKEA (furniture leasing and buy-back across 30+ markets), Signify (formerly Philips Lighting, lighting-as-a-service for commercial buildings), Rolls-Royce (Power by the Hour jet engine leasing model), Caterpillar (Cat Reman remanufactured parts and equipment leasing), Michelin (tyre-as-a-service for commercial fleets)

Startups: Grover (consumer electronics subscription service, Berlin-based, operating in the UK since 2022), Fat Llama (peer-to-peer rental platform for equipment and goods, London-based), Bundles (home appliance leasing, Netherlands-based), Mud Jeans (denim-as-a-service with circular lifecycle, Netherlands-based), Hurr (fashion rental platform, London-based)

Investors: Circularity Capital (Edinburgh-based fund focused on circular economy businesses), Ellen MacArthur Foundation (catalytic funding and ecosystem development), SYSTEMIQ (advisory and investment in circular business models), Closed Loop Partners (circular economy investment fund, US-based with European portfolio)

Action Checklist

• Conduct a circular readiness assessment of your product portfolio, scoring each product on durability, modularity, refurbishability, and residual value retention
• Model total cost of ownership for leasing across at least three product categories, including delivery, collection, inspection, refurbishment, and second-life resale revenue
• Begin with B2B customers where lease volumes, return rates, and product condition at return are more predictable than B2C
• Integrate reverse logistics with existing return or after-sales service infrastructure rather than building standalone systems
• Design lease contracts with clear condition standards, tiered deposit structures, and optional damage protection to manage refurbishment cost risk
• Establish a refurbishment centre or partnership with a contract refurbisher, with quality standards that enable re-leasing or resale at a defined percentage of original retail price
• Track and report circular KPIs including return rate, refurbishment yield (percentage of returns achieving resale-grade quality), product lifecycle extensions (average number of use cycles), and material diverted from landfill
• Engage with EPR policy developments in your sector to ensure PaaS infrastructure investments align with forthcoming regulatory requirements

FAQ

Q: What return rate should a PaaS programme target to be economically viable? A: Return rates above 85% are generally required for PaaS economics to work, assuming that 70% or more of returned products can be refurbished to a condition that supports re-leasing or resale at 40% or more of original value. IKEA's B2B programme achieves 92% return rates, which supports positive unit economics, while the B2C programme at 74% does not. Companies should model their breakeven return rate explicitly and design contract terms, deposit structures, and customer communication to drive returns above that threshold.

Q: How should companies price PaaS offerings relative to outright purchase? A: Successful PaaS pricing typically lands at 1.3 to 1.8 times the outright purchase price over the total lease term, reflecting the added value of flexibility, maintenance, and end-of-life management. Pricing below 1.3 times generally fails to cover reverse logistics and refurbishment costs. Pricing above 1.8 times pushes customers toward purchase. IKEA's UK pricing sits at approximately 1.4 to 1.5 times purchase price for a 24-month lease, which is competitive for B2B customers who value the operating expenditure treatment but less compelling for price-sensitive B2C customers.

Q: What product characteristics make an item suitable for PaaS? A: The strongest PaaS candidates share four characteristics: durable construction that supports multiple use cycles with manageable refurbishment costs, original retail price above £200 (to ensure logistics costs are a minority of total lease revenue), modular design allowing component-level replacement rather than whole-product disposal, and a use case with natural transition points (office relocations, children growing up, technology refresh cycles) that create organic return triggers. Products failing on two or more of these criteria are unlikely to achieve viable PaaS economics.

Q: How does PaaS interact with upcoming Extended Producer Responsibility regulations? A: EPR regulations imposing end-of-life management costs on producers create a direct financial advantage for PaaS operators. When a producer retains ownership and manages the return and refurbishment process, the per-unit EPR cost is effectively offset by the value captured through refurbishment and resale. Companies already operating PaaS programmes when EPR takes effect will have established the reverse logistics infrastructure that competitors must build from scratch, creating a 2- to 3-year competitive advantage in compliance readiness and cost structure.

Sources

• Inter IKEA Group. (2025). Circular Services Performance Report 2024: Leasing, Buy-Back, and Resale. Delft, Netherlands: Inter IKEA Group.
• WRAP. (2024). Furniture Flows: Mapping the UK Furniture Waste Stream. Banbury, UK: WRAP.
• Ellen MacArthur Foundation. (2024). The Circular Economy Opportunity: Sector Analysis and Value Creation Pathways. Cowes, UK: Ellen MacArthur Foundation.
• Ingka Group. (2024). Circular Business Models at Scale: Lessons from IKEA Furniture Leasing Pilots. Leiden, Netherlands: Ingka Group.
• IKEA UK. (2025). Sustainability Report 2024: Circular Products and Services. London, UK: IKEA UK Ltd.
• Signify. (2025). Light-as-a-Service: Commercial Performance and Environmental Impact Review 2024. Eindhoven, Netherlands: Signify NV.
• UK Department for Environment, Food and Rural Affairs. (2025). Resources and Waste Strategy Progress Report. London, UK: DEFRA.