Profitability & Sustainability in Fashion: Is No Growth the Way Forward?
The industry’s business model is one of waste and woe. A new one is needed to meet consumer demands and keep brands profitable.
The fashion industry is renowned for pushing boundaries and embracing new trends, with the latest designs, cuts, prints and styles. When it comes to its business model, however, it’s always been stuck in the same formula: the linear model.
The linear model is a traditional business approach that operates on the principles of continuous production and growth. In fashion, this model prioritizes bigger sales volumes as the key to success, with companies constantly producing new products to meet consumer demand. It assumes that resources are infinite and that the planet can handle the waste generated by the production and disposal of these products.
This model has led to over-consumption, over-production, and the waste of resources. Clothing sales have doubled from 100 billion units a year to 200 billion, but the number of uses per item has decreased by 40%. Since 2000, this inverse relationship has drastically and quickly increased over the past 20 years, now generating over 92 million tons of fabric waste every year. And with an increase in production and consumption, precious resources also take a hit. The industry is estimated to be responsible for over 20% of water waste due to textile dyeing, further exacerbating the environmental impact.
The Path Less Traveled
The path that we are on, following the linear model, is leading us straight towards ecological ruin. But there is another path to take, one that is both more sustainable and more profitable. Enter the circular economy. This innovative approach reimagines the traditional “take-make-dispose” model, instead promoting the concept of a closed-loop system in which waste is minimized and resources are kept in use for as long as possible. By embracing the circular economy, brands can lend a hand in creating a world in which they no longer produce waste but instead produce value.
The circular economy is all about maximizing the use of existing materials and products and emphasizing the importance of reducing waste and minimizing the use of resources. One way to achieve this is through the adoption of alternative circular business models that can decouple revenue streams from production and resource use. There are four main business models that are gaining popularity in the economy: resale, rental, repair, and remaking.
Going Around in Circularity
Resale involves the peer-to-peer sale of second-hand items or the use of third-party marketplaces for re-commerce and take-back initiatives. Rental models allow for one-off peer-to-peer rentals as well as large-scale rental and subscription models by multi-brand platforms or individual brands. Repair involves returning faulty or broken products or components to a usable state, while remaking involves creating new products from existing ones through disassembling, re-dyeing, and repurposing. These models offer businesses and individuals the opportunity to reduce waste, save resources, and build a more sustainable future.
Circular business models are a win-win for both the environment and companies. In Europe, transitioning to a circular economy could reduce carbon dioxide emissions by 50% by 2030, while businesses can generate revenue without the need to produce new items from scratch. This shift to circular activities could bring in an estimated USD 700 billion by 2030, which is equivalent to 23% of the global fashion market. Additionally, by making more efficient use of resources, companies can lower their production costs.
The fashion industry needs to reduce emissions by 50% or 1.1 billion tons by 2030 to contribute to limiting global heating to 1.5 degrees, as set out by the Intergovernmental Panel on Climate Change (IPCC) and ratified in the 2015 Paris agreement. Resale, rental, repair, and remaking could significantly contribute to reducing the industry’s emissions, with a potential overall reduction of up to 16% if these models reach a 23% market share by 2030. Achieving more uses with fewer products can also help reduce the negative impacts on biodiversity associated with virgin fiber production and disposal. By doing so, it could increase product utilization from 25 uses per item to 45 uses per item on average.
The Proof Is in Serving the Pudding
To fully embrace the circular economy, brands need to rethink their operating models, including performance indicators (KPIs), customer incentives, and experiences. Setting targets to stop using virgin resources and tracking revenue and production ratios demonstrates a commitment to environmental goals and meets customer requirements. Additionally, incentivizing customer engagement in circular models through loyalty programs and offering certain products exclusively through circular models is crucial. To ensure the success of the circular business model, companies must also invest in convenient user experiences, establish lifestyle community platforms, and design marketing campaigns that make circular models as easy and common as traditional linear ones.
To further involve consumers in the circular economy, brands can provide repair, mending, and washing services, as well as offer “do-it-at-home” tips and inspire customers to make fashion last longer. By doing so, customers develop a stronger attachment to their clothes, which leads to brand loyalty.
Some brands have already taken steps in this direction. For example, FARFETCH‘s online platform offers users a variety of options for sustainable fashion, including vintage pieces, donations for resale, and prolonging the life of shoes and handbags. ThredUP, a US online consignment thrift store, simplifies the resale process with clean-out kits and handling of sorting, listing, and delivery, resulting in 80% of orders coming from repeat buyers. The ECONYL® e-shop showcases a collection of products made with the circular, infinitely regenerable nylon and whose production followed sustainable practices.
To maximize the economic and environmental potential of circular business models, companies need to design products that are physically and emotionally durable and can be remade and recycled at the end of their use. Physical durability includes choosing materials and constructing products to resist damage and wear over long periods of time, ensuring they remain in demand among customers. Emotional durability is about increasing and maintaining a product’s relevance and desirability to users, making it a more attractive option to use for a longer time. Remaking and recycling involve designing products so that their components and materials can be disassembled and used to make new products, which can prevent products from turning into waste and can enhance the positive environmental effects to an even greater extent.
Many businesses are putting these design considerations into practice. For example, W.L. Gore & Associates, an American multinational best known for its Gore-Tex brand of waterproof, breathable fabric, assesses the real-life performance of its products and collects feedback to inform the design of outerwear garments that can withstand more use. Vintage retailer, Beyond Retro, creates uniqueness in its products, such as remade products from selected used items, and curates unique products in its retail stores to enhance people’s connection with used clothes. The fashion brand, For Days, makes garments from 100% cellulosic fibers, primarily organic cotton, so that they can easily be remade into new garments or recycled once they are worn out. Italian brand Napapijri creates circular outerwear all made with 100% ECONYL® nylon, an eco-friendly and circular material created by transforming discarded nylon waste, which would otherwise pollute the Earth, into brand-new nylon that can be recycled, reshaped, and reused numerous times without losing its quality or requiring additional resources. ECONYL® regenerated nylon is used by various brands such as noho and WAO, which also produce products that can be easily separated at the end of their useful life, leaving the materials available for infinite reuse.
Other brands, like ACE, Outfyt, and Karün that also use ECONYL® regenerable nylon, enable take-back programs. At ACE and Karün, customers can return their end-of-life products to be recycled and redesigned into new products, while Outfyt resells your items in good condition and donates the proceeds to Healthy Seas, a foundation that tackles the ghost fishing phenomenon which is responsible for the needless deaths of marine animals.
Companies are also partnering with others to make limited-edition bags and apparel products from pre-consumer and post-consumer materials, such as used uniforms or excess sports equipment material, to avoid waste while providing them with a better understanding of how to redesign their products.
Chain Reaction: Rethreading the Fashion Supply Line
To reach the full potential that circular business models can offer, supply chains would require a complete overhaul. A transformation of the fashion supply chain would need to consider a mutually beneficial network that can circulate products both locally and globally. It won’t be simple. A transformation of this scale requires the involvement of all players in the industry, from manufacturers to retailers, end-users, collectors, and policymakers. The role of governments is particularly crucial in fostering public-private collaboration to remove barriers for businesses and offer localized, diversified, and distributed services such as repair, reuse, and remaking. To facilitate an inclusive transition to the circular economy, governments can also provide investments to develop the infrastructures required for this transition and bridge innovation gaps through research.
Several businesses have already started to put this approach into practice. The Restory, for example, offers high-end shoe and handbag restoration services and is expanding through partnerships with retailers, enabling brands to offer after-care services to customers. Everybody.World is another company that is bridging the gap between customers, suppliers, and brands by co-creating designs, such as their unisex “untitled” shoes, which are based on crowdsourced designs, made locally, and come with a lifetime repair policy.
Technology is also a determining factor in the transformation. It can play a significant role in enabling circularity in the fashion industry. Leveraging technologies such as AI and blockchain can improve transparency and facilitate multi-way collaborations, tracking, and traceability, leaving behind traditional one-directional transactions. Cloud computing has also opened up new avenues for collaborative local and global work, enabling factories and fashion businesses to work together at the same time, access relevant data, and communicate in a more efficient way.
Several businesses are ahead of the game, innovating and investing their way into the future. EON, a New York-based start-up, has launched a circular ID that provides each new fashion item with a digital “birth certificate” containing details such as its origin, creation date, and materials. This information is connected to a virtual duplicate of the actual item, called a “digital twin,” and a digital passport that monitors the product’s lifecycle. This digital identification aids in the rental, resale, and recycling of clothing and accessories.
Hirestreet, a rental platform, has partnered with reverse logistics provider Advanced Clothing Solutions (ACS) to manage its warehousing. They have also developed their own white-label technology solution for rentals, called Zoa. This technology allows fashion brands to offer rental options alongside traditional purchasing, with Zoa handling the rental technology, cleaning, logistics, and customer service aspects. Brands can even integrate their warehousing service with ACS.
Business of Fashion and McKinsey’s State of Fashion Report 2022 found 43% of Gen-Z say they actively seek out companies that have a solid sustainability reputation. The sentiment doesn’t just end with Gen-Z. According to a 2022 Nosto and Censuswide survey of North American and British consumers, more than half of the respondents want the fashion industry to become more sustainable, and 58% of today’s consumers actually try to keep clothes for longer to help the environment, though 1 in 2 respondents believe they aren’t built to last. And the sentiment is gaining traction year after year. This data is showing that there are huge opportunities waiting for fashion brands.
The fashion industry will need to undergo a paradigm shift from its traditional linear model to a more sustainable, circular economy. What could brands achieve from this shift? They can achieve sustainability goals and maximize economic and environmental outcomes. The environment needs it. The consumer demands it. That means brands have to adapt it. As consumers seek out more sustainable options, as mentioned earlier, economic gains are waiting to be taken. It’s a win-win-win situation. The question is, when are you going to be ready to embark on this journey?
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Author: Giuseppe Scandariato