Rise of the Sharing Economy — What’s in it for Retail?

Let’s begin by understanding what a sharing economy actually is. The term stands for a peer-to-peer, access-driven business¹ where a single product or service is reused by multiple customers — renting homes or cars; borrowing clothes; or offering micro-skills for money. Airbnb, Uber, SoundCloud, and Spotify are prime examples of sharing economy businesses.

Not everyone is completely familiar with this term, but there’s a great chance that you’ve interacted and engaged with a sharing economy business already. And that’s precisely what makes such a business model all the more interesting. Given that customers are always on the lookout for first-hand, untouched, unused goods; how is it that the same customers are driving the growth of the sharing economy? And that’s not it. A report by PwC states that roughly 78% of shoppers, largely comprising Millennials, prefer sharing goods and services.

Between 2013 and 2014 alone, there was a 46% growth2 in the sharing of used goods. In the year 2015, around €28bn worth of transactions was witnessed within Europe in over 5 key sectors of the sharing economy viz. transportation, accommodation, household goods, collaborative finance, and on-demand professional services. Predictions also state that by 2025, over 42%4 of urban shoppers in India — one of the largest emerging markets — will use services built on the sharing economy model.

While this trend might seem irrelevant to many a retailer, this shift in consumer behavior is hard to ignore. Although Millennials do not settle easily on the services or goods offered blindly, when it comes to a brand that they trust, there is no second thought. This leaves retailers with a lot of room to build their strategy around ‘trust’. User experience and affordability are driving customer decisions everywhere and in such a scenario, being part of the sharing economy can help brands reap greater profits. IKEA was among the many brands that noticed this shift. In 2013, the company set up a Virtual Flea Market — in conjunction with the promotion of the company’s new catalogue — to help customers sell their used furniture. Companies such as Home Depot, Avis, and Mercedes too have jumped onto this bandwagon. I’ve cited all popular brands in order to make a point, but the prime movers of the sharing economy are start-ups. According to a 2015 report, the investment — globally for start-ups involved in sharing has crossed more than $12 billion4. A large chunk of successful sharing economy business models has been built by start-ups; ideas that were previously considered unviable. Change is faster in sectors like Accommodation, Transport, Music & Services.

The advent and rise of on-demand transportation, coupled with the fast-paced growth of mobile apps has revealed the many benefits of engaging with the sharing economy and thereby, made it easier for customers to embrace the same. Dynamic pricing is another reason for the success of this model. AirBnB, one of the world’s largest accommodation aggregators provides price recommendations based on location, likeness, and a host of other parameters. The ability to find services and products at the right price is a strong factor that makes the sharing economy all the more desirable.

When you consider each of these points, it’s hard to dismiss the high probability of this trend disrupting the world of retail as well.

A host of retailers has already jumped onto this bandwagon. Several among them have partnered with Uber, TaskRabbit, and other sharing-oriented start-ups. Wal-mart Stores Inc. offers its customers a chance to trade with each other in its used video game business. At this stage, you might think that the sharing economy is designed to support established brands, but there’s a lot in it that even small retailers can benefit from. As the purchasing decisions of the consumers have drastically changed from owning products to lending and borrowing, retailers have yet another reason to take a fresh look at the business and incorporate the concept of sharing. In the Netherlands, a company called Floow2 provides a platform for businesses to share equipment ranging from fax machines to forklifts. You can also reach out to a wider audience by marketing your products on sharing websites such as rentomo.com, grabonrent.com, and furlenco.com, to name a few. These are the kind of websites where Millennials go hunting for products and services to satisfy their everyday needs and wants.

The trend has also led to a surge in innovative start-ups modeled around ‘peer-to-peer’ sharing. India, home to a large Millennial population, has made great leaps in this regard. Companies such as Local Ramu, HouseJoy, Rentsher, etc. have not only simplified access to everyday products and services, but also afforded several service providers and retailers a chance to promote their business to a larger number of customers at once. This new wave has also helped retailers benefit on the monetary front. The growth of crowdfunding websites has enabled them to bypass traditional banks and find willing contributors to support and fund their ideas.

Let’s face it. The sharing economy is here to stay. In less than a few years, consumer behaviors and attitudes have changed drastically, and it is only wise to be watchful about the transformation and be ready to act.

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Sources:

  1. The Sharing Economy — Consumer Intelligence Series: PwC
  2. Retail Category Consultants: retailconsultant.ca
  3. Megatrends
  4. Deloitte
  5. E&Y

Disclaimer: This is a personal weblog. The opinions expressed here represent my own and not those of my employer.

Tags:

affordable, customers, environment, IKEA, millennial, retail, sharing economy, social media, trends

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