How Start-ups Put Sustainability at the Core of Their Business Model
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As one of the world’s most polluting industries responsible for around 10 percent of global carbon emissions and 20 percent of all industrial water pollution, the fashion industry has increasingly come under scrutiny for its environmental practices (or lack thereof). Perhaps unsurprisingly then, sustainability was one of the buzziest terms in fashion last year. Almost 5 million posts with the hashtag sustainability on Instagram alone are a testimony to this, as is the fact that google searches for “sustainable fashion” increased by 61 percent in the past four years.
Sustainability-focused direct-to-consumer brands have profited from this interest, with a sales increase of 450 percent between 2016 and 2018.
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These developments have not gone unnoticed, with big fashion conglomerates such as Inditex and Nike announcing sustainability initiatives last year. Sustainability, it seems, has finally entered the fashion mainstream.
Yet when looking beyond the headlines, many of those buzzy campaigns reveal a lack of real world impact. Nike’s much celebrated announcement to switch toward green energy in its production facilities quickly becomes less impressive when realizing that 90 percent of the brand’s carbon footprint is made up of facilities that Nike neither owns nor operates.
The complexity of the fashion supply chain — which theoretically entails everything from the soil used for cotton production to the packaging used for last mile delivery — makes one thing painfully obvious: sustainability needs to be more than just an afterthought.
Instead, it needs to be a core part of a company’s business model. This is where many fashion start-ups have excelled, working their way back from the consumer in a strategic way. It is easier to establish sustainable structures from scratch than to overhaul a complex existing system. But some of the personalization, prediction and production technologies these start-ups deploy will likely shape the fashion industry at large — hopefully creating a more sustainable future along the way.
Personalization
Online shopping has provided fashion companies with a wealth of consumer information over the past years. This opens up a lot of new opportunities for changing the product design and development cycle, with a strong emphasis on personalization.
Online personal styling start-up Stitch Fix already employs an AI algorithm that produces “hybrid design” garments, based on consumers’ favorite colors, patterns and textiles. These AI designers will become even more sophisticated, last year one of them already won the People’s Choice Award at a Chinese fashion design competition.
Another example is the start-up True Fit, which has raised $102 million in venture capital to date and uses AI to make individual recommendations on the exact fit of shoes and clothing.
Forty percent of online orders are currently returned, with a devastating environmental impact. Centering their offerings around consumer tastes, preferences and measurements can help fashion companies to significantly decrease their return rates.
Prediction
This brings us to another key aspects in which many start-ups differ from traditional fashion brands — smart demand forecasting. Direct-to-consumer brands such as Everlane deliberately manufacture less products, which allows them to get customer feedback and accurately predict demand. Premium men’s wear brand Gustin takes this approach even further by only kicking off production once the demand for a product has reached a critical mass.
At the moment, it is common practice for brands to overproduce by about 40 percent, mainly to avoid supply shortages and frustrated customers, which has consequences. Last year, reports revealed that Burberry burned $38 million worth of so-called “deadstock” and that H&M had $4.3. billion worth of unsold inventory. Demand forecasting can play a key role in avoiding deadstock and hence creating an overall more sustainable fashion cycle.
Production
Changes in personalization and predictions will in turn have a big impact on production. As consulting company McKinsey points out in its latest report, there is a shift from products being “pushed” into the market by companies to being “pulled” in there by consumers.
An agile, fast production is key for companies to respond to this shift. Berlin-based fashion start-up Lesara, for example, produces 90 percent of its garments in-house, with a 10-day turnaround time. The start-up is able to do this cost efficiently due to automation and new technologies such as digital printing and 3-D knitting.
This so-called “nearshoring” will significantly alter logistics, reducing transportation distances and hence the overall carbon footprint of the fashion industry — according to a recent study, by as much as 47 percent.
Many of these transitions will likely be painful for incumbents, but they also provide opportunities to stay ahead in a radically changing industry. Because if these start-ups prove one thing, it is that sustainability is not just an altruistic act: it’s good business.
Katrin Zimmermann is the managing director, Americas, at TLGG Consulting.
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