Guiding Brands towards Circular Business Models in the Fashion Industry
One of 10 key trends for the fashion industry in 2019, spotted by McKinsey & BoF in their 2019 State of Fashion Report, is the ‘End of Ownership’. It’s routine, in our epoch, to talk about radical changes just around the corner. In fashion and apparel, a paradigm shift is hiding in plain sight.
Disruptive business models enable access to clothing instead of ownership. Innovations such as rental and recommerce are gaining momentum. Traditional ways of doing business may have to be redefined in the near future.
If you think about your everyday life, these service-based business models have already taken over a great deal of your consumption practices — maybe you haven’t even noticed.
From listening to music on Spotify, watching your favourite Netflix series, riding your Swapfiets bike to work, or renting the Airbnb apartment for that special weekend trip — service-based businesses have established a strong presence in diverse markets. Our own fashion closet may be next!
In the mainstream linear economy of Make-Take-Waste, fashion is currently bought and disposed of at accelerating rates. The average consumer buys 60% more than 15 years ago, and keeps their clothing for half as long.
These fast cycles drive demand for ever-increasing production, which in turn contributes to more textiles waste, pollution and other negative environmental impacts. Between 2005 and 2016, the impact on climate change of the fashion industry increased by 35%. On the current trajectory, this will increase by a further 49% by 2030 under a business-as-usual scenario, driven by increased consumption per capita.
Today, we own more clothes but wear them less. While consumption is rising fast, up to 70% of the average consumers’ closets go unworn. Among women, an estimated one in three wear new items only five times or fewer before discarding.
At the same time patterns of consumption are shifting, especially among younger generations. McKinsey & BoF report that the strong appetite for newness among young consumers is coupled to greater interest in sustainability. This is reflected in their purchasing decisions.
Brands have a clear opportunity to understand and leverage these changing desires, while maximising the lifecycle of clothes to its full potential. The business case for service-based models is gaining awareness and credibility.
In the near future, brand values will reflect a combination of novel and familiar factors, likely to include: newness, variety, circularity and affordability.
Disrupting traditional clothing businesses presents an opportunity for brand alignment to new consumer preferences. By extending the active life of clothes, these types of services can slow the rate of consumption growth, limit demand for new clothing production and reduce the growing volumes of textile waste.
Six leading brands join Circle Economy on a circular innovation journey
Circle Economy has been exploring disruptive business models, such as clothing recommerce or rental to optimise the active service life of clothes.
Currently, we are onboarding brands to our recently launched ‘Switching Gear’ project, , one of 4 global initiatives supported by the C&A Foundation to ‘Bridge the Implementation Gap in the Apparel Sector’.
The initiative will have a clear focus on two areas of service-based business models: recommerce and rental. To date, the emerging market within these business models is clearly dominated by start-ups and disruptors. Its true potential is exponentially larger. ThredUp has recently reported that the second hand clothing market is expected to double its size by 2023.
Over the next two years, the CE Textiles team will work with 6 leading brands to develop a circular innovation process. Each brand will receive 1-to-1 guidance and support to follow a bespoke brand training programme on the circular economy. This process will lead the selected brands towards the design and launch of renting and recommerce business pilots.
The programme will explore the scope for Business Model Innovation and Change Leadership, led by a multi disciplinary team of circularity experts, design thinkers and researchers. Participating brands will gain access o a network of enabling circular solution providers and experts.
MARKET AND SCALE
The global market for recommerce — that is, the resale of used clothes or items — is estimated at $20 billion with estimated annual growth of 15% over the coming five years.
Initiatives by brands such as Eileen Fisher, Nudie Jeans, and Patagonia have existed, for several years now, alongside traditional retail operations. In parallel, relatively new players such as Thredup, Yerdle Recommerce and The RealReal have adopted this service model to make it the core of their value proposition.
Renting — access to clothes or items for a certain amount of time, also presents several commercial opportunities for brands to tap into. On average, reusing a garment extends its lifecycle by 2.2 years, potentially reducing its water, carbon and waste footprint substantially .
The online rental market, although smaller than recommerce, is set to reach 2 billion dollars with estimated 10% annual growth over the next 5 years. This segment is dominated by online renting platforms such as Rent The Runway, Gwynnie Bee, LeTote, Chic by Choice, and Rentez-vous.
More work needs to be done on the impact reduction scenarios for these and other rental business models. The details need scrutiny, for example to assess the impact of — say — transportation, laundry and other factors in comparison to traditional retail. Available data on renting models suggests that if these models optimise the ‘active service life’ of clothes, then other impacts from transport, laundry or packaging can be managed to achieve a substantial overall impact reduction.
Awareness of new recommerce and rental markets is spreading from disruptors into established fashion and clothing businesses. At Circle Economy, we expect this trend to continue, as brands compete to stay up-to-date and relevant for their consumers.
Some brands are leading on this journey by forging partnerships with third parties to deliver the renewal, repair and logistics capabilities for a convenient and scalable service. Reformation and ThredUp Upcycle and The North Face and The Renewal Workshop are just some examples of many collaborations popping up lately. More will tune in soon.
The wider relevance of new ownership models to established fashion brands is subject to (increasingly public) debate. Their relevance to consumers may not be the decisive benefit. As a business model, other benefits are likely to include opportunities to earn improved margins per item, and synergies from the convergence of existing second hand markets and new customer segments.
If the long-term picture remains complex, the potential advantages are obvious.
By reducing the overall environmental impact of their operations, industry pioneers are building an ecosystem of expert problem-solvers and creative visionaries to scale a burgeoning market for recommerce and rental in fashion. Join us in our path towards circular textiles!