BY ERIK SANDBERG AND ARNE ANDERSSON
Successful circular business models require not only sustainable products and engaged customers—but also well-functioning, cost-effective logistics. This is especially true for all the Swedish retail companies that in recent years have supplemented their linear business models with one or more circular initiatives.
In this article, which is based on a recently completed research project funded by ASTER—the Alliance for Sustainable E-commerce—we share our insights on the importance of logistics in driving profitability during the retail sector’s transition to a circular economy. An important step toward more sustainable commerce is to introduce and scale up circular business models. This applies not least to consumer- and retail-oriented models that focus on extending a product’s lifespan or expanding its use—for example, through secondhand sales, rentals, or repairs. Interest in these models has grown exponentially in recent years, and according to the Swedish Trade Federation’s “Preloved” indicator, the Swedish secondhand market, for example, generated sales of 7.4 billion SEK in the first half of 2025.
Difficult to Scale Circular Initiatives
This development is driven by a wide range of actors, such as various marketplaces and a growing number of ”born circular” companies. Another type of player we’ve examined more closely as part of our research project is all the retail companies with a traditional linear business model that have supplemented it with one or more circular initiatives. We believe we are seeing a growing interest among these companies in taking a serious step toward a more circular economy, but also that it is difficult for these players to scale up their circular operations to become a natural and profitable part of their core business. Often, these efforts remain limited to pilot projects or side ventures. A crucial question for the Swedish retail sector is therefore how to achieve financial profitability in circular business models, which in turn can lead to the circular transition gaining real momentum.
Logistics Is Key
Our starting point is that a large part of the answer to this question lies in logistics. It is through the various core activities of logistics—namely, transportation, handling, and storage—that circular flows are realized. These activities not only play an obviously significant role in the actual realization of circular flows, but also in making them profitable and competitive. Well-functioning logistics are important for achieving cost-effectiveness, but also for creating various types of customer value, such as convenient pickup options and a broader, more varied product offering. During the project, we interviewed and visited a number of Swedish retail companies—including Polarn O. Pyret, Stadium, Care of Carl, Cervera, MQ, Elgiganten, and Aplace—which have, in various ways, supplemented their linear business models with different circular initiatives. Through these case studies, we have identified a number of key logistics challenges that impact the profitability of circular business models. Seriously transitioning to a more circular economy is often challenging from a logistics perspective. In a linear business, logistics have often been carefully optimized to move large volumes of new goods quickly and cost-effectively from producer to consumer. In circular business models, the flows begin with consumers, which does not provide the same opportunities for economies of scale. Unique products with varying degrees of wear, age, and functionality must be collected, assessed, and possibly repaired or refurbished before being sold, rented out, or donated. This presents significant logistical challenges in a more complex, more unpredictable, and less standardized environment.
Circular logistics activities
Circular logistics flows can be divided into four broad activities, each with its own challenges: collection, sorting, recovery, and redistribution; see Figure 1 above. We can view them as links in a chain that, together, determine whether a circular business model will be profitable. Each link must function efficiently—but it must also work in tandem with the others.
Fundraising
When it comes to collection, this is critical for getting products out of customers’ closets and garages and thereby getting the circular business up and running. Convenience is a key success factor here, and logistics often play a decisive role. By offering a wide range of collection options—such as curbside pickup or drop-off at stores—the conditions for a successful circular business can be established. At the same time, collection logistics must also be cost-effective. Transportation and labor costs can quickly become high relative to the value of the products being collected. Furthermore, volumes are often small and irregular, making it difficult to achieve economies of scale.
Sorting
Once the products have been collected, they undergo one or more stages of sorting. This is where the fate of the collected products is determined—that is, whether they will be resold, repaired, or recycled. From a logistical perspective, sorting involves both creating efficient processes for quality assessment, pricing, and handling, and determining where the sorting should take place. For example, some retail companies choose to sort directly in local stores, if available, which reduces transportation needs but requires time and, not least, expertise on the part of store staff. In other cases, sorting is organized centrally at dedicated facilities, which enables economies of scale and specialized expertise, but at the same time also increases transportation costs.
Reset
In the next step, recovery, the physical restoration of the products takes place, such as repair, cleaning, component replacement, or other processing. For many retail companies, this means that entirely new processes must be established, sometimes within the company but often in collaboration with external partners, such as specialized repair companies. A recurring challenge when building these chains is often the uncertainty regarding the supply of collected products, both in terms of volume and quality. This makes planning, capacity utilization, and resource allocation more complex compared to the (often) more predictable linear flows.
Redistribution
In conclusion, redistribution—or return—is also an important activity that involves returning the collected products or materials to the market so that the circular loop is closed. Just as with collection, many companies strive to integrate circular distribution into their existing linear flows—for example, by selling used products in the same stores as new ones, or through the same e-commerce platforms. This allows existing infrastructure, staff, and logistics processes to be utilized, which can reduce overall costs. However, this also presents many challenges. One example highlighted in our study is the dual uncertainty regarding both demand and the availability of products to sell. When forecasting, it is also necessary to understand the interplay in demand between linear and circular products, as a combination of the two can contribute to both increased sales and a certain degree of cannibalization.
Insights from the project
The main findings of our study can be summarized in four fundamental insights (see Figure 2 above), which we briefly discuss below.
1. Dig where you stand
An important initial insight is that the existing, linear logistics system plays a key role in the design of circular flows. Linear logistics often provides a stable foundation that can be adapted and built upon. Any existing stores, warehouses, IT systems, and partnerships with logistics providers can also be utilized for the collection, sorting, and handling of circular products. By integrating the new flows with the old ones, synergies and cost savings can be achieved. At the same time, it is important to note that the existing logistics system also sets the limits for which circular business models are realistic and feasible to implement; it is therefore essential to understand how the linear operations can be utilized.
2. Understand Your Role in the Ecosystem
Circular business models and their underlying logistics solutions should never be designed in a vacuum. In addition to analyzing the existing linear logistics framework, it is also essential to understand the company’s unique circumstances, products, and partnerships within the circular economy. This is crucial for quickly establishing the ”right” circular business model. Customers and their preferences and expectations, other circular actors already present in the surrounding circular ecosystem (both competitors and potential partners), and new tech solutions are examples of some factors that need to be understood. Just as in the design of linear business models, this involves understanding the ”rationale” for the proposed business model and thus being able to see how value can be created—economically, socially, and environmentally. Within the framework of this analysis, logistics issues often play a major role, for example, in establishing appropriate partnerships and designing information flows that support the business model.
3. Test, Learn, and Reflect
Another insight from our project is that even small pilot projects in the circular economy, such as a small-scale secondhand sale, highlight a range of logistics-related issues concerning, for example, the division of responsibilities, what should actually be collected and sold, inventory management, partnerships, and pricing. It is therefore important to incorporate logistics early in the development process—otherwise, the initiatives risk becoming ineffective and difficult to scale up. At the same time, these small initiatives serve as important learning platforms. They make it possible to test and understand different logistics models, analyze customer behavior, and understand cost structures before making larger investments. We believe that companies that dare to experiment on a small scale, while systematically documenting and analyzing their lessons learned, are best positioned to build larger, sustainable circular logistics solutions in the long term.
4. Make costs transparent
Finally, another lesson we’ve observed among many of the companies we’ve interviewed is that it’s often difficult to demonstrate concretely whether and how the circular business model is profitable. A typical reason for this is that certain costs—such as those for transportation, personnel, and handling associated with circular operations cannot easily be separated from linear operations—some costs tend to be hidden within more or less fixed costs that primarily stem from linear operations. In practice, this may not matter much, but we can conclude that making the associated costs visible helps identify issues and facilitates more systematic improvement efforts. It is also important to consider profitability from a broader perspective, where profitability is addressed at various levels—for example, at the product and order level, the category level, the business model level, or the company as a whole. The ”right” level to address this issue likely varies—the important thing is to highlight profitability at least at some level. In this context, it is also important to point out that logistics contributes to profitability not only through reduced costs but also through increased revenue, which, if possible, is even more difficult to estimate. For example, through new, convenient customer solutions, logistics creates opportunities for increased revenue and attracts new customer segments; from an environmental perspective, logistics enables longer product life cycles and reduces the need for new raw materials.
Closing Remarks
For circular business models in the retail sector to become (more) profitable, more knowledge and a greater focus on the underlying logistics are needed. Companies that succeed in incorporating logistics considerations into their circular development efforts early on are better equipped to create competitive advantages, both economically and environmentally. Our hope is that the insights provided by this project will inspire more people to view logistics not as an obstacle, but as a key to seriously tackling the transition to a more circular economy.
Further Research
The recently completed ASTER-funded project has benefited greatly from another parallel research project funded by the Swedish Trade Council during the years 2025–2026. Within the framework of this project, we will not only examine the current logistics of the retail sector but also look ahead to determine what logistics capabilities Swedish retail companies will need to develop competitive, profitable circular business models in the future. This will be done through a Delphi study to be conducted during the winter of 2025–2026. Anyone interested is, of course, warmly welcome to get in touch.
Erik Sandberg is a professor of logistics at Linköping University.
Arne Andersson is a senior e-commerce expert at Svensk Handel.
