Think Tank: A Circular Future for Fashion

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Global fashion production has more than doubled in the past 15 years, with consumers buying 60 percent more clothes than they did in 2002, but keeping them for only half the amount of time. While trends have, and always will be, the lifeblood of the fashion industry — satisfying consumer appetite for variety and newness — sustainability is now a top priority for brands.

Fashion’s environmental footprint has grown in recent years as a direct result of increased consumption of raw materials, greater waste and pollution. On its current trajectory, the industry is set to use 25 percent of the world’s carbon budget by 2050.

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The urgency of change is not lost on brands and retailers — many are now setting bold targets for sustainability and sharing progress publicly. For example, Nike recently announced that it has signed the Fashion Industry Charter for Climate Action, joining the U.N. Climate Change and other leading brands, retailers and suppliers around the world to accelerate some of the industry’s most aggressive climate targets yet.

Consumers, too, are also playing a role in accelerating change. Today, nearly two-thirds of consumers globally are buying from companies that are actively reducing plastic usage and are committed to improving the environment, and three-quarters want greater transparency in how companies responsibly source their materials.

To make it easier for consumers to identify the brands and products that are mindful of the planet, luxury fashion retailer Net-a-porter recently announced its new platform, Net Sustain, an edit that highlights brands which meet certain criteria regarding sustainability, making ethical luxury shopping easier.

Consumers have always had a strong desire not to be seen in the same outfit twice — on Instagram, at least — but this is now coupled with an increasingly strong environmental conscience. This has allowed for several new business models to come into play in the fashion industry.

Time to go circular

While the shift to a circular fashion system has already begun, more needs to be done. Today, just 1 percent of clothing is recycled and almost three-quarters (73 percent) ends up in landfill.

Circular business models can enable companies to decouple growth from the use of scarce and finite resources. By combining new technologies with innovative business models, a circular fashion industry could maintain its competitiveness while improving its impact on the planet. To date, progress in exploring these new models has been largely the preserve of start-ups. Larger, established businesses have been challenged to adopt them at scale, with one of the most significant barriers being uncertainty around the models’ financial viability.

To address this issue, Accenture Strategy and Fashion for Good conducted an analysis of three circular business models most relevant to the fashion industry — rental, subscription rental and re-commerce — to assess their commercial viability across four industry segments: value, mid-market, premium and luxury. The findings suggest that each of the models could work for existing retailers in all segments. There are some clear variations that suggest each segment of the industry will need to adopt the right model to achieve optimal returns.

Fashion’s circular opportunity

The report found that all three of the models explored can be financially viable for existing fashion retailers, presenting a strong case to build circular business models.

Rental is very attractive in higher-value segments, with a potential margin of more than 60 percent per garment. For the mid-market and premium segments, specific product characteristics that influence rentability, for instance, how often a garment is worn, could drive improved viability. The opportunity for rental in the value market is challenging given the high variable costs incurred per rental, relative to the low price-point for purchase as new which puts a ceiling on the feasible rental price.

The rental model is beginning to enjoy success. For example, Rent the Runway now represents 76 percent of all zip codes in the U.S., providing rental for some of the most popular brands. In addition, retailers like Patagonia, Urban Outfitters and Express are involved in rental as a way to reach new consumers in a “try before you buy” model.

Subscription rental has consistently strong potential, from 9 percent to 30 percent above operating margin for mid-market, premium and luxury. Meanwhile, re-commerce appears to be the most financially attractive of the models analyzed, especially within the luxury segment, where the biggest opportunities and profits (a potential margin of 39 percent) were observed. When you look at re-commerce, ThredUp, The RealReal and Poshmark are all growing in terms of popularity in the consumer-to-consumer or re-commerce market.

In this model, consumers are able to get a portion of their spend back — effectively leasing or renting for a period of time before allowing others to use the product. Making room in one’s closet, by either selling it to someone else or returning it due to rental, makes perfect sense to pragmatic consumers.

The variation in costs associated with each model proved to be a particular challenge for the value market, where additional costs for postage and packaging, garment longevity and rental price for example, may exceed revenue opportunities.

In addition to direct financial returns, each circular business model presents fashion retailers with additional opportunities. These include engagement with new customers, often at lower price points, and deepening relationships with existing customers. Retaining an engaged customer base and learning more about their product usage habits could be a key long-term, structural advantage for circular models over traditional retail.

A circular future

Each of these models have the potential to make the fashion industry fundamentally more sustainable by reducing the net volume of new garments produced over time. But this outcome will only be achieved if it is made an explicit aim.

For all models, retailers should track the extent to which they displace the purchase of new goods, engaging the customer to provide feedback and data at every stage of the process. There is also an imperative to ensure garments that are sold through these channels are made in a way that easily allows for reuse and maximizes longevity.

Finally, all new activities required to make these models work should be designed to ensure they are delivered in the most sustainable way possible, for example, chemical-free cleaning, or electric vehicles for last-mile delivery.

There has never been a better time to commit to the circular economy. Technological advances, infrastructure improvements, innovative start-ups, new circular design practices, shifting consumer preferences and increasing regulatory pressure are creating an environment in which established fashion retailers can pursue circular economy initiatives with confidence.

Circular business models will play an integral role in the sustainable transformation of the fashion industry. Alongside rapid innovation and the emergence of start-ups, there has been a clear commitment from the industry to better understand their impact and to implement new models. The time for innovation and progress on circular models is now.

Jill Standish is senior managing director and global head of retail at Accenture, and Harry Morrison, managing director, sustainability, Accenture Strategy.

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