How to Tap the Shared Economy with Your Retail Business
Tapping into the shared economy is beneficial for retail business. From monitoring expenses to targeting new markets, learn more with Fifth Third Bank.
When you started your business, did you ever imagine a world in which customers would be able to rent a side table and exchange it for something more en vogue when their decorating muse took off in a new direction?
Now you—and millions of others—can facilitate a transaction like this: a growing sub-sector of businesses is emerging across the globe, centered entirely on short- or long-term rentals of products—or even shared ownership among customers. A great fit for retail shops that sell products including clothing, furniture, appliances, transportation and beyond, this business model has the potential to boost the bottom line of companies across multiple retail sectors, creating lucrative opportunities for business owners and kicking limited-use assets into gear.
And this trend may very well still be in its infancy: PWC projects that the sharing economy will grow from $15 billion in 2014 to $335 billion in 2025.
Is your retail business ready to be part of this revolutionary commercial and cultural zeitgeist?
If so, this guide can help you update your business model and potentially expand your reach in ways you previously may not have believed possible.
Tapping into the Shared Economy
Even if your retail business is traditional in its model, you may want to consider integrating—or even pivoting entirely—to a model based on the sharing economy.
- Cost: Sharing can bring down the cost of goods for consumers. Perhaps, for example, you're able to offer a customer access to a $2,500 handbag for a mere $250 if they'll only be renting it for a week.
- Sustainability: Shared inventory often leads to fewer, higher-quality items being produced, less waste and a new spin on recycling, promoting a green mentality.
- Market size: Because you're able to lower costs for customers and appeal to an eco-conscious customer base, engaging in the sharing economy may open your market size. This includes consumers ordinarily priced out by standard MSRP or who might otherwise skip a purchase because of its limited utility.
How to Pivot Your Company Toward Sharing
These four tips can help you gear up for a new chapter of your retail business:
1. Build up your inventory with high-quality products.
If you manufacture your own goods, consider upgrading materials to more durable alternatives. After all, you’ll want to ensure your items can withstand changing hands between multiple customers. Additionally, if you stock other brands, look into higher-value items, which can entice customers. This may raise your upfront costs, but under the right circumstances those can be offset by increased demand. You also have the option to apply for help with inventory financing—i.e. securing capital for a PO when you don't have the liquidity to finance it yourself.
2. Rework your operations and logistics.
You'll need to tackle some nuts-and-bolts issues—how to price your rentals, pick up and return procedures, late fees policies and how you'll deal with a customer if something comes back damaged or broken, to name but a few.
3. Update your technology to accommodate reservations.
Most customers accustomed to the sharing economy complete rentals and reservations online or through an app. To begin your transition, update your website so customers can easily look through your inventory and secure a reservation. Sound complicated? It’s not: Several plug-and-play software solutions for these needs are already on the market.
4. Pay attention to your cash flow.
It's highly likely that the move to a sharing model will change your cash flow patterns. Work with your business accountant to understand how many items you need to lease at once in order to have dependable cash flow and strong cash margin. Determine when you’ll charge for rentals and whether you’ll require a security deposit. Remember that business lines of credit—which you can tap in emergency situations—are always an option for a cash flow crunch.
A pivot toward sharing can be exciting and gratifying—especially if you have the right partners in your corner. Remember, being properly capitalized can enable you to update your business model efficiently and correctly, setting your enterprise up for success. What better way to enter the sharing space than to find those willing to “share” expertise, knowledge and resources?