Trend watch: Circular design & product-as-a-service in 2026 — signals, winners, and red flags

The circular economy is projected to reach $712 billion globally by 2026, with product-as-a-service (PaaS) models growing at nearly 30% annually across sectors from industrial equipment to consumer electronics. For executives evaluating where circular design intersects with commercial strategy, 2026 marks a turning point: regulatory mandates in the EU are forcing design-for-disassembly into product development cycles, major manufacturers are embedding modularity as a core engineering principle, and PaaS revenue models are proving they can outperform traditional sales on both margin and customer retention.

Why It Matters

Linear "take-make-dispose" business models face mounting economic, regulatory, and reputational pressure. The Ellen MacArthur Foundation estimates that the global economy currently circulates only 7.2% of materials back into productive use, down from 9.1% in 2018. This circularity gap represents both an environmental crisis and a commercial opportunity worth trillions of dollars in underutilized material value.

The regulatory environment has shifted decisively. The EU Ecodesign for Sustainable Products Regulation (ESPR), which entered into force in mid-2024, empowers the European Commission to set mandatory durability, repairability, and recyclability requirements across virtually all product categories sold in the EU market. The first delegated acts covering textiles, furniture, and electronics are expected in 2026 and 2027. Companies that have not redesigned products for disassembly, repair, and material recovery will face market access barriers across the world's second-largest consumer market.

Beyond compliance, the financial logic of circular design is becoming undeniable. Remanufactured products typically cost 40% to 60% less to produce than new equivalents while selling at 60% to 80% of new product prices, creating substantial margin expansion. Meanwhile, PaaS models convert one-time capital expenditures into recurring revenue streams, improving cash flow predictability and deepening customer relationships. Rolls-Royce's "Power by the Hour" program, which charges airlines per flight hour rather than selling engines outright, now accounts for over half the company's civil aerospace revenue and generates margins significantly higher than engine sales alone.

For organizations that manufacture, sell, or procure physical products, the question is no longer whether to adopt circular design principles, but how quickly they can embed these principles before competitors and regulators force their hand.

Signals to Watch

Design for Disassembly Becomes a Procurement Standard

Major corporate buyers are beginning to require design-for-disassembly (DfD) specifications in procurement contracts. The Dutch government's circular procurement program, which mandates circular criteria for all public purchases exceeding EUR 50,000, has driven suppliers across construction, furniture, and IT to redesign products with standardized fasteners, labeled materials, and published disassembly instructions. Similar procurement mandates are emerging in Denmark, France, and several Canadian provinces. Watch for multinational corporations to adopt comparable requirements in private-sector supply contracts during 2026, particularly in office furniture, IT equipment, and commercial HVAC systems.

Modular Electronics Gain Mainstream Traction

Fairphone has sold over 500,000 devices since launching its modular smartphone concept, proving consumer appetite for repairable electronics exists at scale. In 2025, the company expanded into corporate fleet programs, targeting enterprise customers who benefit from reduced e-waste costs and extended device lifecycles. Framework Computer's modular laptop has generated similar momentum, with its second-generation Laptop 16 attracting partnerships with enterprise IT departments seeking to reduce hardware refresh cycles from three years to five or more. The critical signal in 2026 is whether major OEMs such as Dell, HP, or Samsung launch modular product lines to defend market share, or whether they continue to resist repairability in favor of planned obsolescence.

PaaS Models Expand Beyond Industrial Equipment

Product-as-a-service originated in heavy industrial contexts (jet engines, elevators, industrial lighting), but the model is rapidly migrating into consumer-facing categories. Mud Jeans leases denim for a monthly subscription and has collected over 15,000 pairs for recycling since inception. Bundles offers washing machine subscriptions with maintenance included, achieving customer retention rates above 90%. Signify (formerly Philips Lighting) operates Lighting as a Service contracts with Schiphol Airport, the City of Buenos Aires, and dozens of commercial clients, retaining ownership of fixtures and guaranteeing lumen output rather than selling bulbs. Track the expansion of PaaS into categories like office furniture, commercial flooring, and consumer appliances during 2026 as indicators of mainstream adoption.

Digital Product Passports Enable Circular Value Chains

The EU's Digital Product Passport (DPP) framework, mandated under the ESPR, will require manufacturers to provide machine-readable data on material composition, repair instructions, and recycling pathways for regulated product categories starting in 2027. Battery passports are already required under the EU Battery Regulation. Companies investing in DPP infrastructure now will have first-mover advantages in secondary materials markets, warranty management, and remanufacturing operations. Watch for industry consortia forming around interoperable DPP standards, particularly in automotive, electronics, and textiles, as leading indicators of how quickly circular value chains will materialize.

Winners and Red Flags

Winners

Companies with vertically integrated reverse logistics are positioned to capture the highest margins in circular business models. IKEA's buyback and resale program, which launched across 33 markets, has processed over 45 million pieces of used furniture since 2020. By controlling the collection, refurbishment, and resale pipeline, IKEA captures value at every stage while strengthening customer loyalty. Similarly, Caterpillar's Cat Reman program remanufactures over 2 million components annually, generating estimated revenues exceeding $2 billion at margins substantially above new-part manufacturing.

PaaS pioneers with proven unit economics will attract disproportionate capital as investors seek recurring-revenue models with sustainability credentials. Signify's Lighting as a Service contracts demonstrate 15% to 25% energy savings for clients while generating predictable multi-year revenue streams for the company. Hilti's fleet management model for power tools, which covers over 2 million tools globally, achieves customer retention rates above 95% and higher lifetime revenue per customer than traditional sales.

Design-for-disassembly software and tooling providers stand to benefit as DfD requirements cascade through supply chains. Companies such as Makersite and Granta Design (part of ANSYS) that provide lifecycle assessment and material selection platforms integrated into CAD workflows are seeing growing demand from product engineering teams preparing for ESPR compliance.

Red Flags

Manufacturers treating circular design as a marketing exercise rather than an engineering discipline face regulatory and competitive risk. Products labeled "sustainable" without substantive changes to material choices, fastener systems, or end-of-life pathways will fail to meet ESPR requirements and will draw scrutiny under the EU Green Claims Directive, which establishes penalties for unsubstantiated environmental claims.

PaaS models without robust asset tracking and recovery systems risk inventory write-offs and negative unit economics. Companies launching subscription or leasing programs without investing in reverse logistics infrastructure, asset condition monitoring, and refurbishment capabilities often discover that recovery rates below 70% destroy the economic advantage of the model.

Organizations ignoring the skilled labor gap in repair and remanufacturing will struggle to scale circular operations. The remanufacturing sector faces persistent shortages of technicians trained in disassembly, quality assessment, and reassembly. Companies that invest in workforce development and certification programs will have a structural advantage over competitors that assume labor availability.

Sector-Specific KPI Benchmarks

Sector	KPI	Laggard	Average	Leader	Notes
Consumer Electronics	Product lifespan (years of supported use)	<3	4-5	>7	Modular design extending lifecycles
Consumer Electronics	Repair completion rate (% of repairs vs. replacements)	<15%	25-35%	>60%	Right-to-repair legislation accelerating
Industrial Equipment	Remanufactured content (% of components)	<10%	20-30%	>50%	Caterpillar, Cummins leading
Furniture	Buyback participation rate (% of sold units returned)	<5%	10-15%	>25%	IKEA's model benchmarking sector
Lighting	PaaS contract energy savings vs. baseline	<10%	15-20%	>30%	LED plus smart controls
Textiles	Post-consumer recycled content (%)	<5%	10-15%	>30%	Fiber-to-fiber recycling scaling

What's Working

Remanufacturing at industrial scale is delivering proven economics. Caterpillar's Cat Reman division has operated for over 50 years, processing more than 2 million components annually across engines, transmissions, hydraulics, and electronic modules. Remanufactured products carry the same warranty as new parts while requiring 80% less energy and 85% fewer raw materials to produce. This program demonstrates that circular design at scale is not aspirational but operational, generating billions in revenue while reducing the company's Scope 3 emissions.

Subscription models are outperforming sales on customer lifetime value. Hilti's fleet management program, which provides professional construction teams with tool access, maintenance, and replacement through a monthly fee, has grown to cover more than 2 million tools across 120 countries. Customer retention rates exceed 95%, and the model generates significantly higher lifetime revenue per customer than one-time tool purchases. The company's net promoter scores for fleet customers consistently exceed those for traditional buyers, indicating that the service wrapper creates genuine differentiation.

Right-to-repair legislation is creating market pull for modular design. The EU's updated right-to-repair directive, adopted in 2024, requires manufacturers of consumer electronics, appliances, and selected product categories to make spare parts and repair manuals available for up to 10 years after the last unit is sold. In the United States, 30 states had introduced right-to-repair legislation by 2025, with California, New York, Minnesota, and Colorado enacting laws. This regulatory momentum is shifting OEM engineering priorities toward designs that facilitate component replacement rather than full-unit disposal.

What Isn't Working

Consumer willingness to pay for durability remains inconsistent. While surveys consistently show that 60% to 70% of consumers express preference for durable and repairable products, purchasing behavior tells a different story. Price sensitivity continues to dominate buying decisions in mass-market categories, and consumers frequently choose cheaper, less durable options over modular alternatives that cost 15% to 30% more upfront. Companies must close this value gap through total-cost-of-ownership messaging, trade-in incentives, or subscription models that eliminate upfront price premiums.

Fiber-to-fiber textile recycling remains technically limited. Despite significant investment, the technology to recycle blended-fiber garments (which represent over 60% of global textile production) at commercial scale does not yet exist. Companies like Renewcell and Worn Again Technologies have made progress with cellulosic and polyester separation, but throughput remains a fraction of what is needed to meaningfully reduce textile waste. Renewcell's bankruptcy filing in early 2025 highlighted the gap between technological promise and commercial viability in this segment.

Cross-border reverse logistics adds prohibitive complexity. Collecting, sorting, and returning products across international borders for refurbishment or remanufacturing involves customs duties, waste classification regulations, and shipping costs that often exceed the recovered material value. Companies operating PaaS models across multiple jurisdictions face compliance burdens that single-market operators avoid, limiting the scalability of otherwise attractive circular business models.

Key Players

Established Leaders

• IKEA operates buyback and resale programs across 33 markets and has committed to becoming fully circular by 2030, with investments in material innovation, product design, and reverse logistics infrastructure.
• Caterpillar runs the world's largest industrial remanufacturing operation through its Cat Reman division, processing over 2 million components annually across multiple product categories.
• Signify pioneered Lighting as a Service and operates circular lighting contracts with major airports, municipalities, and commercial buildings in over 70 countries.
• Hilti manages a tool fleet exceeding 2 million devices through its subscription model, achieving industry-leading customer retention and lifetime value metrics.

Emerging Challengers

• Fairphone has sold over 500,000 modular smartphones and expanded into corporate fleet management, demonstrating that modular consumer electronics can achieve meaningful scale.
• Mud Jeans operates a lease-a-jeans subscription model with integrated collection and recycling, processing over 15,000 pairs through its circular system.
• Framework Computer produces modular, upgradeable laptops that extend hardware lifecycles from three years to five or more, attracting enterprise IT customers focused on e-waste reduction.
• Makersite provides product lifecycle intelligence software that enables engineering teams to evaluate circularity, cost, and environmental impact during the design phase.

Key Investors and Funders

• Closed Loop Partners manages over $700 million in assets dedicated to circular economy investments across materials recovery, packaging, and product design.
• European Investment Bank has committed over EUR 1 billion to circular economy projects under its Climate Bank Roadmap, financing remanufacturing, recycling, and PaaS ventures.
• Circularity Capital focuses exclusively on circular economy growth-stage companies, with portfolio investments spanning industrial remanufacturing, digital platforms, and sustainable packaging.

Action Checklist

• Conduct a circularity audit of your top-revenue product lines, assessing material choices, fastener types, disassembly time, and end-of-life recovery pathways against ESPR requirements
• Evaluate at least one product category for PaaS conversion by modeling subscription pricing, reverse logistics costs, refurbishment economics, and customer lifetime value against current sales performance
• Establish design-for-disassembly guidelines for product engineering teams, specifying requirements for standardized fasteners, material labeling, and published disassembly instructions
• Engage with Digital Product Passport standards initiatives in your industry to ensure interoperability and prepare data systems for compliance timelines beginning in 2027
• Pilot a buyback or trade-in program for one product category to test customer participation rates, recovery logistics costs, and refurbishment economics before broader rollout
• Assess workforce needs for repair, refurbishment, and remanufacturing operations, and invest in technician training programs to address the skilled labor gap
• Review procurement specifications to include circular design requirements for key suppliers, following the Dutch government's model of embedding circularity criteria into purchasing contracts

FAQ

Q: Is product-as-a-service profitable at scale, or is it still experimental? A: PaaS is commercially proven in multiple sectors. Rolls-Royce's Power by the Hour program generates over half the company's civil aerospace revenue. Hilti's fleet management model covers more than 2 million tools with 95%+ retention rates. Signify operates profitable Lighting as a Service contracts across 70+ countries. The model requires significant upfront investment in reverse logistics and asset management, but mature PaaS programs consistently outperform traditional sales on margin and customer lifetime value.

Q: How will the EU Ecodesign for Sustainable Products Regulation affect product design? A: The ESPR empowers the European Commission to set mandatory requirements for durability, repairability, recyclability, and recycled content across virtually all physical products sold in the EU. The first product-specific rules are expected in 2026 and 2027, covering textiles, furniture, electronics, and other categories. Companies selling into the EU market must begin redesigning products now to meet these requirements or risk losing market access.

Q: What is the business case for design for disassembly? A: Products designed for easy disassembly enable cost-effective repair, component reuse, and material recovery at end of life. Caterpillar's remanufacturing program demonstrates that DfD products can be rebuilt at 40% to 60% lower cost than new manufacturing while carrying equivalent warranties. Additionally, DfD reduces warranty service costs (faster repairs), improves recycling yields (cleaner material streams), and positions products for compliance with emerging regulatory requirements.

Q: How do companies handle the upfront cost gap when circular products cost more to manufacture? A: Successful companies close the gap through three strategies. First, PaaS or subscription models eliminate upfront price premiums for customers by spreading costs over time. Second, trade-in and buyback programs create customer incentives while recovering valuable materials and components. Third, total-cost-of-ownership marketing demonstrates that higher upfront costs are offset by longer lifespans, lower maintenance expenses, and residual value retention.

Sources

• Ellen MacArthur Foundation. (2025). "The Circularity Gap Report 2025." https://www.circularity-gap.world
• European Commission. (2024). "Ecodesign for Sustainable Products Regulation (ESPR)." Official Journal of the European Union. https://environment.ec.europa.eu/topics/circular-economy/ecodesign-sustainable-products-regulation_en
• Caterpillar Inc. (2025). "Cat Reman: Sustainability Through Remanufacturing." https://www.caterpillar.com/en/company/sustainability/remanufacturing.html
• Signify. (2025). "Light as a Service: Circular Lighting Solutions." https://www.signify.com/global/lighting-services/managed-services/light-as-a-service
• Hilti Group. (2025). "Fleet Management Annual Report 2024." https://www.hilti.com/content/hilti/corporate/en/company/fleet-management.html
• Fairphone. (2025). "Impact Report 2024: Five Years of Modular Design." https://www.fairphone.com/en/impact
• IKEA. (2025). "Circular Products and Services Progress Report." https://www.ikea.com/global/en/our-business/people-planet/circular-products
• European Parliament. (2024). "Directive on the Right to Repair." https://www.europarl.europa.eu/topics/en/article/right-to-repair