Is Ikea’s New Rental Model Sustainable?

Ikea wants to become more sustainable. It also wants be a circular business, assuming that being a circular business can support its sustainability goals. But, are circular models necessarily more sustainable? A new furniture rental scheme Ikea is about to launch in Switzerland may provide some answers.

Ikea is on an ongoing journey to become more sustainable. “We will only be successful when we succeed to create a better world, which is why sustainability is a key focus for the IKEA business,” Torbjorn Loof, Ikea CEO writes in the company’s 2017 sustainability report. The latest milestone in this journey is a new rental model that the company is about to launch in Switzerland. Initially, this trial rental scheme will be limited to office furniture, and later it may be expanded to kitchens and other products.

The new rental scheme is pretty straightforward. Loof explains: “When that leasing period is over, you hand it back and you might lease something else. And instead of throwing those away, we refurbish them a little and we could sell them, prolonging the life cycle of the products.”

The application of a product-as-a-service (PaaS) concept is also aligned with Ikea’s interest in circular economy models and its ambition is to transform into a circular business. This ambition makes sense given Ikea’s goal to become climate positive by 2030, not to mention the fact that circular business models can offer business opportunities for companies which depend heavily on raw materials like Ikea. As some analysts suggest, it is also a way for Ikea to hedge its own model that may not be such a good fit for a new age where consumers embrace access over ownership to meet their needs.

So far so good, but is a rental model necessarily more sustainable? Or in other words: Will a circular model such as the one Ikea plans to apply result in a more sustainable Ikea?

Before answering this question, I want to point out that from my perspective these conversations should take place only in the case of companies that are truly committed to meet the Paris Agreement goals. Companies that do so show that they are serious about sustainability, and thus we can have a genuine conversation around their efforts and how effective they are. In the case of companies that don’t make this commitment, I don’t see much point in this discussion because it is as useless as asking whether someone can run before they can even walk. Just like you can’t run before you walk, you can’t have your sustainability efforts considered seriously unless you have committed to the Paris Agreement.

In this case I’m happy to report that Ikea is committed to comply with the Paris Agreement. Last June the company announced that its climate goals have been approved by the Science-Based Targets initiative, which works with companies to comply with the Paris Agreement.

Now that we’ve cleared this point, we can go back to our question about how sustainable is the rental model. The answer is that it depends, or to be more precise, a rental model does not have necessarily environmental benefits comparing to a purchase model. While this model can provide clear benefits — “decreasing the need for primary production, whether through substitution by secondary production or increased efficiency in fulfilling the demand with fewer resources” — there are certain terms that need to be addressed to guarantee the creation of similar or more value for the customer with a smaller ecological footprint.

A key question, as Junnila et al. suggest, is whether “the manufacturer can… maximize the number of times an individual product unit can be offered, the utilization rate, and product performance.” To do so the manufacturer needs to use in the first place quality raw materials that could enable longer product life time and re-use, design the products for multiple life cycles, create effective take-back strategies and reverse logistics, and finally incentivize the customers to take a good care of their rented products.

If all of these pieces are not in place there’s a smaller chance the rental scheme will generate environmental benefits [there’s also the possibility of a rebound effect, where customers can use savings from the rental model to buy/use other products that can offset the benefits of the model, but I don’t believe this is the case here as it doesn’t look like the savings will be substantial].

So, what does Ikea needs to do in order to make its rental model sustainable?

Long(er)-lasting furniture
For Ikea ensuring its model is sustainable means first and foremost that it needs to start considering how to design for longevity. As Marie Hebrok points out: “Increasing the lifespan of products is in most cases regarded as reducing the environmental impact of consumerism”. The environmental benefits of longer product lifespan are pretty straightforward and include slower rate of raw material extraction and waste reduction.

Ikea is not famous for the durability of its furniture to say the least. Maybe it’s the use of materials like “compressed wood chips sandwiched between plastic veneer”, or because”flat-pack furniture is not meant to last”. So far it hasn’t been a huge issue for the company and perhaps it’s even part of the charm Ikea furniture have — what Lionel Shriver describes as their “glaringly temporary nature”. Now, nevertheless, it may become a problem if Ikea wants to truly adopt a sustainable model.

Let’s be realistic here — I assume Ikea probably won’t transform into a company selling furniture that you will leave to your grandchildren, but it definitely needs to to design longer lasting furniture. How long? In “Policies for Longevity” Tim Cooper suggests that “doubling the life span of most consumer durables will halve their environmental impact”. Therefore, given Ikea’s overall plans to achieve “a 70% reduced climate footprint on average per IKEA product” and the share of raw materials in the carbon footprint of ikea’s products (about 40%), Ikea will need to triple the lifespan of its furniture at minimum.

Build & prioritize a circular supply chain
Ludeke-Freund et al. write the following in a new paper about the circular economy (“A Review and Typology of Circular Economy Business Model Patterns”): “We argue that companies’ fundamental challenge in implementing CE principles is to rethink their supply chains, and as a consequence the way they create and deliver value through their business models.”

This is not easy as we’re not talking about building a system from scratch. “Generations of engineers, operations managers, and business administrators spent decades or even centuries on optimizing forward supply chains that conduct resources and goods “from cradle to grave”,” the authors write. And they’re right. The challenge is not only to build a new, circular supply chain, but also to prioritize it over the current, linear one. This is, eventually, not about a offering customers a new option, but about recreating the company’s value chain. It requires to consider how to effectively handle reverse material flows, from (frictionless!) take-back plans to disassembly and refurbishment of products.

If Ikea wants this scheme to create environmental benefits it needs to redesign its system, and while it’s clear that it won’t put an end to its linear supply chain right away, it should be clear to everyone which supply chain represents the past and which one represents the future of this company.

Make them a better offer
Ikea also needs to make the rental scheme appealing to customers. A few weeks ago I was walking with my daughter next to a Starbucks and I asked her what we can do to help people stop using Starbucks’ single-use cups. “Make them a better offer,” she said. This smart advice is also applicable in this case, and perhaps most important from an affordability point of view — it has to be affordable. Ikea’s rental scheme can’t be another evidence supporting the notion that only the rich can afford greener options.

I would suggest a simple rule that I hope can be applied to every product offered via the rental platform — renting a product for up to its average customer use will always be cheaper than buying the product. For example, if offices use Ikea desks and chairs for 5 years on average it will be cheaper for them to rent the desks and the chairs for 5 years. If after 5 years the customer wants to purchase the desk/chair they can do it through a rent-to-own model that will still be cheaper than purchasing the desk/chair in the first place. Also, Ikea should offer a sliding scale to incentivize longer rental terms to increase the lifespan of the products.

Making rental a better offer doesn’t end with making it more affordable. Ikea needs to consider our addiction to convenience and that convenience is a powerful force that shapes our everyday life decisions and preferences. Thus, the rental scheme should be designed with attention to friction and a goal to make it as frictionless as possible, including an effort to reframe rental option as a new type of convenience.

Overall, Ikea is taking the right step by conducting a small scale experiment to test the new rental model. However, it needs to learn quickly and move fast to scale this model, especially if it would like it to support its efforts to comply with the Paris Agreement goals. It won’t be an easy task given the need to ensure this scheme not only supports the company’s sustainability aspirations, but also its bottom line, but I believe Ikea can do it. Still, it should be very mindful on how it approaches the new scheme or else it will find itself shifting to a new business model that may be more circular but not more sustainable.