A deeper look at the economics of leasing appliances to replace old and broken models.
OUR HOUSE HATES COLD WEATHER, so last February, in the thick of the coldest month ever recorded, we experienced so many things breaking, it was enough to threaten to send me to the looney bin — and/or the poor house. Among the many things that broke down (including the furnace on several occasions) was our washing machine. When the repairman came to fix it he said, “It’s a 15 year old machine. It will cost you more to fix it than to replace it, but it’s your decision. Oh, and if you do decide to replace it, don’t bother with the really upscale models with extra bells and whistles, all appliances these days are built to last 10 years.”
“…all appliances these days are built to last 10 years.“
Now, this is only one repairman, and I know if there are any high-end manufacturers reading this, you will be yelling at me that this is not the case. My own personal anecdotal evidence is to say that, on average, I agree with the repairman.
The whole event got me thinking about the future of such a business model: building appliances that only last 10 years. This model is contrary to 50 years ago when a lot of the appliances were built to last 25-30 years and beyond, and were also relatively easy to repair. If you extrapolate a 10 year life cycle, the carbon footprint of any appliance is huge. In a world with over a billion people and with a goal of getting everyone out of poverty and into decent living situations, refrigerators seem like a growth opportunity. But I’m not sure our physical resources, or the planet, can handle that kind of intensity. As appliances are built to be cheaper and cheaper, plastic gets substituted for parts that used to be metal, hoses that were durable rubber are made slightly thinner, gaskets are cheaper, etc. It is, as with many business cases, a race to the bottom. So how do we stop the downward spiral and still help businesses make money while making customers happy?
It is, as with many business cases, a race to the bottom.
There is a new business model being tried right now by one company that will install a washing machine in your home and charge you by the washload. The idea is that you are paying for the service instead of the machine, and you get to do it without leaving your home to find the nearest laundromat. This is a good idea, but it strikes me as very utilitarian. Also, because you pay by the washload, in my house there would be a tendency to overstuff the machines with the possibility of wearing down the machines early.
What if you could lease your appliances? And what if the lease contract included a service contract, so if it broke down during its lease all you had to do was call a number and someone would come and fix it without handing you a bill. Let’s say the lease was for 7 years, and at the end of the lease, the company came and took away your appliances and if you wanted and liked your supplier, supplied you with new ones. If you’d had a bad experience, you would look elsewhere — which would also send the manufacturer a significant signal.
When I ask my friends if they would be interested in this model, all of them say, “Sign me up.” The experiences that my generation has had with appliances has not been good. One of my friends said, “When we redid our kitchen we spent the equivalent of the price of a small car on our appliances. Three years later, the only one I’m happy with is the dishwasher. I was expecting them to last for 20 years or more.” Another one of my friends said, “I bought a high-end induction stove top, it cost me a bundle. When we hooked it up, one of the elements wasn’t working. After 11 visits from the repairman, it still doesn’t work.”
Kitchens and laundry rooms which were once designed only for “the help” are now focal points of our lives and dominate design magazines. We are lured in by their good looks and their promise to cook our food to restaurant quality or wash our clothes to look like new, and we’re ready to pay for the opportunity to live our dream. But once those expensive appliances don’t live up to expectations, there seems to be little recourse, and you can be stuck with a poorly functioning appliance until you can justify buying a new one, all the more jaded because of your negative experience. I also doubt you’ll return to that same manufacturer.
So, the manufacturer loses, the customer definitely loses and the environment loses the most. Appliances are sent to the recycling graveyard or landfill. Now, multiply that appliance by several billion, and you can see we cannot continue down this path.
The Business Side of Leasing
I spoke with a fellow at a conference who told me that his company, a US retailer, had tried the leasing model for all of its electronics and appliances. An audiophile might want to lease because they always want the latest sound system, an enthusiastic cook might want the latest and greatest stove. I asked him if it was a successful program and he laughed and said it was successful beyond their wildest dreams. “We were making money hand over fist.”
Yes, it’s one case study, but nonetheless, it shows there is a segment of the population that is more than happy to lease. Now, if you’re like one of my friends, you’re going to say, “But that sounds worse for the environment because the appliances are being used for less time.”
That is linear thinking. Here is the REALLY exciting part:
What if the manufacturers took back the machines after 7 years, refurbished them and leased them again?
What if the manufacturers took back the machines after 7 years, refurbished them and leased them again? You say, “There’s no market for secondhand appliances, and besides, no one wants second hand because they’ll break down faster.”
If the manufacturers used BETTER parts (say metal instead of plastic and thicker hoses, better gaskets), wouldn’t the machines last another 7 years? What if, after 7 more years, the appliances came back and were refurbished again, and this time they were sold. Now, the manufacturer and its partner-retailer have just made money off one appliance three times.
So let’s look at the benefits of leasing for the manufacturer:
- Lower capital costs. If the same machine is built for reselling several times, the manufacturers have an incentive to build it better again, while not having to invest in creating more machines.
- Information. Manufacturers get information on how well their appliance is holding up. The refurbishing and repair department can update the design and manufacturing department about what’s working and what isn’t.
- Technology updates. As technology progresses, (such as with the Internet of Things) the ability to retrofit older machines becomes easier and it may only take 7 years (or less), to retrofit, update and resell a manufacturer’s entire line — especially if technology development is considered in the design phase.
- Job creation. While machines may still be built off-shore, maintenance, repair and refurbishment would be done locally, creating more jobs within a community.
- Lower carbon footprint. Fewer natural resources are used, while still creating value for a company, further decoupling energy intensity from revenue.
- Less post-consumer waste. Appliances no longer end up in landfill or the recycling centre at end-of-life, creating safer environments for residents and lower running costs for cities.
- Customer Loyalty. If you build a product your customers are happy with, you could be selling them new appliances three, four or more times.
As for my own experience with my washer, I was not at a point where I wanted to spend more money on new appliances, especially after the repairman’s advice. I searched Craigslist, found a local repair shop that had a matching set of refurbished 5-year-old front-loading high-efficiency washer and dryer for sale with a 6-month guarantee for less than half of what a new set would have cost. They were installed in my house within 24 hours. It’s been a year and they continue to work like a charm.
For an in-depth look at the economics of building and selling a better washer, visit the Ellen MacArthur Foundation: In-depth case study: Washing Machines.PERMALINK or visit Cathy's Website