Deep Dive: Circular Design & Product-as-a-Service — What's Working, What Isn't, and What's Next

The promise of circular economy business models—keeping products in use longer, reducing virgin resource extraction, and decoupling revenue from material throughput—has attracted billions in investment. Yet the reality is more complex than the pitch decks suggested. While some product-as-a-service (PaaS) and subscription models have achieved meaningful scale and profitability, many have struggled or failed. This analysis examines what separates the successes from the failures, with particular attention to the economics of apparel rental, subscription services, and the operational challenges of returns, cleaning, and margins.

Why This Matters

The environmental case for circular business models is compelling. The Ellen MacArthur Foundation estimates that transitioning to circular economy models could reduce global emissions by 45% in hard-to-abate sectors including fashion, food, and built environment. Product-as-a-service models that extend product life, enable repair and refurbishment, and capture end-of-life value represent a primary pathway to this transition.

Yet the business model innovation required is substantial. Traditional product companies optimize for high-volume sales with planned obsolescence; circular models require durability, serviceability, and reverse logistics capabilities that most companies lack. The economics differ fundamentally: linear models front-load revenue at point of sale; circular models distribute revenue over product lifetime, requiring different capital structures and success metrics.

For product and design teams, understanding what makes circular models work—and what causes them to fail—is essential for innovation strategy. For investors, distinguishing viable circular investments from hype is critical. For policymakers, particularly in the EU where the Digital Product Passport and extended producer responsibility requirements will reshape markets, understanding model economics informs regulatory design.

What's Working

High-Value Durable Goods Subscription

Product-as-a-service models work best for high-value durable goods where:

• Unit economics support the cost of retrieval, refurbishment, and redeployment
• Product value justifies customer willingness to pay for service rather than ownership
• Usage patterns are predictable enough to enable utilization optimization
• Technical complexity creates service value beyond product access

Industrial equipment demonstrates this model at mature scale. Rolls-Royce's "Power by the Hour" model for jet engines—where airlines pay per flight hour rather than purchasing engines—has operated profitably for over two decades. The model aligns incentives: Rolls-Royce is motivated to maximize engine reliability and efficiency, reducing both customer costs and environmental impact. Similar models have scaled in commercial vehicles, construction equipment, and printing/copying.

Furniture-as-a-service is emerging successfully in B2B contexts. Steelcase, Herman Miller, and dedicated circular furniture companies like Fernish offer subscription models for office furniture. The model addresses shifting workspace needs (remote work, flexible offices) while enabling end-of-life capture and refurbishment. B2B customers accept higher per-unit costs in exchange for flexibility and reduced capital commitment.

Key success factors:

• High product value relative to service costs (ideally product value exceeds $500)
• Long product life enabling multiple use cycles
• B2B customers with predictable needs and creditworthiness
• Technical complexity justifying ongoing service relationship
• Products designed for durability, modularity, and repair

Consumer Electronics Lease/Upgrade Programs

Consumer electronics companies have developed circular models that address the tension between customer desire for latest technology and the environmental cost of rapid replacement:

Smartphone upgrade programs: Apple, Samsung, and carriers offer subscription-style programs where customers receive new devices at fixed intervals while returning previous devices for refurbishment and resale. Apple's Trade-In program processes millions of devices annually, with refurbished products sold through Apple Certified Refurbished channels. The model captures residual value, reduces e-waste, and maintains customer relationships.

Gaming console subscriptions: Microsoft's Xbox All Access combines console hardware, game subscription, and upgrade rights in a monthly payment. The model extends customer lifetime value while creating pathways for device return and reuse.

Key success factors:

• Strong residual value for returned products
• Established refurbishment and resale channels
• Customer desire for regular upgrades (creating return motivation)
• Brand value that supports certified refurbished pricing

B2B Workwear and Industrial Textile Services

Commercial laundry and rental services for workwear, uniforms, and industrial textiles represent a mature circular model operating at massive scale:

Cintas, Aramark, and Alsco operate integrated models: manufacturing garments designed for industrial laundering, managing inventory across customer locations, laundering and repairing items throughout lifecycle, and capturing end-of-life textiles for recycling.

These services succeed because:

• Industrial laundering is dramatically more efficient than distributed consumer laundering
• B2B customers value outsourcing non-core functions
• Centralized operations enable quality control and optimization
• Long-term contracts provide revenue predictability
• Products are designed for the use case (durability, launderability, repairability)

The model demonstrates that circular textiles are viable—but under specific conditions that don't translate directly to consumer fashion.

What Isn't Working

Consumer Fashion Rental at Scale

The consumer fashion rental sector has produced more high-profile failures than successes. Rent the Runway, the sector's largest player, has struggled toward profitability despite $400+ million in cumulative funding. The Tulerie, Le Tote, and numerous smaller players have shut down or dramatically scaled back.

The fundamental challenges:

Reverse logistics costs: Each rental cycle requires shipping to customer, return shipping, inspection, and cleaning. For fashion items averaging $50-150 rental value, these costs consume 40-60% of revenue. The math works for occasional high-value rentals (formal wear, designer pieces) but fails for everyday clothing.

Cleaning and refurbishment: Fashion items require cleaning between uses. Unlike industrial workwear, consumer fashion wasn't designed for repeated professional cleaning—garments degrade faster, colors fade, and finishes wear. Cleaning costs of $5-15 per item are sustainable for high-value pieces but prohibitive for everyday clothing.

Utilization rates: Rental models require high asset utilization to amortize fixed costs. Fashion's seasonality, style volatility, and customer preference for variety mean rental inventory often sits idle. Rent the Runway reported utilization rates of only 30-40% for significant inventory portions.

Size and style fragmentation: Fashion rental must maintain inventory across sizes, colors, and styles. This fragmentation makes it nearly impossible to achieve the inventory density that would enable efficient operations.

Customer behavior: Despite stated preferences for sustainability, consumers often don't translate intention into rental adoption. The friction of shipping, timing, and fit uncertainty suppresses trial and repeat usage.

Subscription Models for Low-Ticket Items

Subscription models for consumables and low-value items face fundamental unit economics challenges:

Subscription box fatigue: The wave of subscription boxes for beauty, food, and household products has seen significant churn and consolidation. Customer acquisition costs of $50-150 require 6-12 months of retention to break even—but average retention is often shorter. Many subscription boxes deliver novelty rather than sustainability value.

Consumables subscription: While successful for specific categories (razors, coffee), most consumables subscriptions don't address circular economy objectives. The subscription delivery of new products may actually increase packaging and shipping impact compared to consolidated store purchases.

Key failure pattern: Subscription for subscription's sake, without addressing genuine customer pain points or achieving genuine circular benefits.

Peer-to-Peer Rental Platforms

Peer-to-peer rental platforms enabling consumers to rent items to each other have largely failed to scale:

Trust and reliability: Transactions between strangers create trust barriers that platform guarantees struggle to overcome. Item condition, availability, and return timing are unpredictable.

Inventory fragmentation: Unlike centralized rental services, P2P platforms have fragmented inventory with inconsistent availability. Customers seeking specific items frequently can't find what they need when they need it.

Transaction friction: The coordination required for pickup/dropoff between individuals creates friction that suppresses repeat usage.

Fat Llama, Spinlister, and others have either shut down or pivoted to B2B models where transaction economics and reliability are more manageable.

The Economics: A Closer Look

Apparel Rental Unit Economics (Illustrative)

For a typical mid-market fashion rental item:

• Garment acquisition cost: $80
• Target rental cycles before retirement: 15
• Rental price per cycle: $25
• Gross revenue per garment lifetime: $375

Costs per cycle:

• Outbound shipping: $5
• Return shipping: $5
• Cleaning: $8
• Inspection and repackaging: $2
• Customer service allocation: $2
• Total per-cycle cost: $22

Net margin per cycle: $3 (12%)

Garment lifetime margin: $45 (before overhead)

Challenge: This margin must cover platform operations, customer acquisition (typically $30-50 per customer), inventory management, technology, and capital costs. For most operators, the math doesn't work at current price points.

What would make it work:

• Higher rental prices (limited by customer willingness to pay)
• Lower cleaning costs (requires different garment design or technology)
• Higher utilization (requires demand aggregation or different inventory strategy)
• Longer garment life (requires durability-focused design)
• Lower customer acquisition costs (requires organic growth or category shift)

Design for Circularity: The Missing Link

Many circular business model failures trace to products designed for linear models being forced into circular use cases. Apparel designed for a few washes fails in rental models requiring dozens. Electronics designed for obsolescence can't support extended service models.

Design requirements for successful circular models:

• Durability: Products must survive multiple use cycles without degradation
• Repairability: Modular design enabling component replacement
• Standardization: Consistent sizing, fitting, and interfaces reducing inventory complexity
• Material selection: Materials suitable for repeated cleaning, refurbishment, or recycling
• Data integration: Digital product passports enabling tracking of use history, maintenance, and end-of-life

Companies designing products specifically for circular models—MUD Jeans for denim, Gerrard Street for headphones, Grover for electronics—show better unit economics than companies retrofitting circular models onto linear products.

What's Next: Emerging Models

Recommerce and Resale Platforms

The fastest-growing segment of circular commerce is branded resale—platforms enabling sale of used products with brand authentication and quality guarantees:

ThredUp, The RealReal, and Vestiaire Collective have reached meaningful scale in fashion. These platforms address many rental challenges: single transaction (not repeated logistics), customer ownership (reducing care requirements), and price elasticity (enabling market-clearing prices).

Brands are building their own resale channels: Patagonia Worn Wear, Eileen Fisher Renew, Levi's SecondHand. These capture customer data, maintain brand experience, and create closed-loop product flows.

Key advantages over rental:

• Single logistics cycle per sale
• No cleaning/refurbishment between uses (customer responsibility)
• Customer self-selects appropriate sizing and style
• Price mechanism clears inventory regardless of utilization

Repair and Refurbishment Services

As products become more complex and the Right to Repair movement advances, repair-as-a-service models are emerging:

iFixit has built a substantial business around repair guides, parts, and tools. The platform demonstrates consumer appetite for repair when barriers are reduced.

Apple's Self-Service Repair program, while criticized as limited, represents acknowledgment from a major manufacturer that repair services have commercial potential.

Key success factors:

• Genuine cost savings for customers versus replacement
• Availability of parts and documentation
• Technical simplicity or support enabling customer/technician success
• Regulatory tailwinds (Right to Repair legislation)

Digital Product Passports and Traceability

The EU Digital Product Passport requirement will create infrastructure enabling new circular models:

Full lifecycle tracking: Products carry verifiable history of manufacturing, ownership, maintenance, and repair Condition verification: Enables trusted resale and rental by documenting product history Materials information: Facilitates end-of-life recycling by providing material composition data Compliance documentation: Automates extended producer responsibility and recycling obligation tracking

This infrastructure will lower transaction costs for circular models and enable new value propositions around verified provenance and condition.

Real-World Examples

1. MUD Jeans: Circular Denim by Design

Dutch company MUD Jeans offers jeans through a lease model: customers pay monthly fees, can swap for new styles, and return jeans at end of use for recycling into new fibers. Key to the model:

• Jeans designed for longevity and recyclability from the start
• Closed-loop fiber recycling achieving 40%+ recycled content in new products
• Customer relationship extending beyond single purchase
• Premium pricing supporting the additional cost structure

2. Grover: Electronics Subscription at Scale

Berlin-based Grover offers electronics (smartphones, laptops, gaming consoles) on subscription. The model works because:

• High product value supports service economics
• Electronics retain significant residual value
• Refurbishment processes are well-established
• Customer segment (younger, urban) accepts subscription model
• Over 3 million devices under management by 2024

3. Patagonia Worn Wear: Brand-Owned Resale

Patagonia's Worn Wear program buys back used Patagonia products, repairs and refurbishes them, and resells through dedicated channels. Success factors:

• Strong brand loyalty supporting used product demand
• In-house repair capabilities built over decades
• Integration with new product design (durability focus)
• Mission alignment with customer values

Action Checklist

• Assess current product portfolio for circular model compatibility (durability, repairability, residual value)
• Model unit economics of circular alternatives using realistic cost assumptions for logistics, cleaning, and refurbishment
• Identify product redesign requirements to enable viable circular economics
• Evaluate resale/recommerce as lower-friction alternative to rental models
• Develop digital product passport readiness ahead of EU requirements
• Test circular models in B2B contexts before attempting consumer scale
• Build or partner for reverse logistics and refurbishment capabilities

Frequently Asked Questions

Q: Why have so many fashion rental companies failed?

A: The unit economics don't work for most fashion categories. Cleaning costs, logistics costs, and low utilization rates consume most or all of rental revenue. The model works for high-value occasion wear (wedding dresses, formal wear) but fails for everyday clothing. Products designed for linear use degrade too quickly for rental economics.

Q: What product categories are best suited for circular models?

A: High-value durable goods with long useful life, predictable usage patterns, and established refurbishment processes. Industrial equipment, commercial furniture, electronics, and professional textiles have proven viable. Consumer fashion and low-value consumables are challenging.

Q: How should we think about circular models versus resale?

A: Resale (recommerce) has lower operational complexity than rental: single logistics cycle, customer responsibility for care, and price mechanisms that clear inventory. For many companies, facilitating resale of their products is a faster path to circular impact than building rental operations.

Q: What role does product design play?

A: Critical. Circular models fail when applied to products designed for linear use. Designing for durability, repairability, and recyclability from the start is prerequisite for viable circular economics. The EU Digital Product Passport will accelerate this shift by requiring documentation of design choices affecting circularity.

Sources

• Ellen MacArthur Foundation. (2024). Circular Economy in Fashion. Available at: https://ellenmacarthurfoundation.org/
• ThredUp. (2024). Resale Report 2024. Available at: https://www.thredup.com/resale
• Rent the Runway. (2024). SEC Filings and Investor Reports. Available at: https://investor.renttherunway.com/
• European Commission. (2024). Digital Product Passport Implementation Guidance. Available at: https://ec.europa.eu/
• Accenture. (2023). The Circular Economy Handbook. Accenture Strategy.
• MUD Jeans. (2024). Impact Report 2024. Available at: https://www.mudjeans.eu/
• Grover. (2024). Company Sustainability Report. Available at: https://www.grover.com/