INDITEX makes fast fashion sustainable

(by: Erietta TOSIDOU, Flavio DE ALMEIDA MOTA, Jacqui VANOS, Lea KIRIAKOS SAAD)

Globally, the fashion industry is valued at about 2.5 trillion dollars and is growing at a rate of between 3-5% due largely to the expansion of the middle classes in emerging markets. A huge subsection of this business which entered the scene in the late 1990s is fast fashion. Fast fashion revolutionized the apparel industry by introducing low-cost, fashionable clothing, created in multiple micro-seasons to consumers; the idea was of course for consumers to buy more items more frequently. Today fast-fashion players represent a major share of the market and include Zara, an INDITEX brand, which is both the world’s largest fashion retailer and the third most valuable brand on the planet.  The INDITEX family of brands specialize in fast-fashion and have a market capitalization of roughly $122B. While fast-fashion has taken the apparel industry by storm over the past twenty years, providers have been widely criticized for their lack of sustainable conscientiousness. Many of the largest retailers have faced challenges surrounding energy and water usage, pollution, fair labor, transparency, and waste. While many companies like INDITEX and H&M have evolved to address public concerns, significant change is still needed for fast-fashion to become a sustainable business.

Fast-fashion industry and sustainability are definitely at odds with one another as the whole business model revolves around of the idea of providing customers with more clothes, more often. Companies use slick supply-chains and low-cost materials to give customers the latest fashions at very low prices. Inherently with more production, more resources are used, more people are involved and more waste is generated. The goals of the fast fashion industry should be to continue delivering relatively low priced fashion regularly to customers, however do so while minimizing negative impacts on the environment and communities. Ideally the fast fashion industry should improve the use of natural resources, improve conditions of workers and communities, and reduce overall waste.

1. Improved the use of natural resources: As the fast fashion industry grows, more stores and products result in an increase in the consumption of natural resources. Since resources like water and oil won’t last forever, an increase in their use is not sustainable, neither is it sustainable to anticipate that the current land and carbon footprint expansions can continue at their current rates. Fast-fashion players should focus on the following initiatives to achieve this goal.
   1. Decrease water consumption overall.
   2. Decrease amount of non-renewable energy consumed in transport and production.
   3. Decrease carbon footprint along the supply chain.
   4. Decrease land footprint required to generate materials and support company.
2. More positive impact for workers, suppliers, customers, and communities: Everyone has heard a story of poor-working conditions associated with companies like H&M, or of communities left worse-off by Uniqlo. While many retailers endeavor to protect workers and communities, some gaps remain and corporations need to take responsibility for the workers and communities of their entire supply chain. Pristine health and safety KPIs and fair wages are of utmost importance as they will encourage a productive workforce and boost local the economies- both critical for the long-term sustainability of fast-fashion. To create better workplaces and strong future workforces these companies should also strive to be honest and ethical, and contribute positively to local communities. Specific goals for fast fashion should be;
   1. Guarantee health and safety standards for workers and customers.
   2. Ensure fair wages and transparency throughout the value supply chain.
   3. Contribute positively to communities where labor is ongoing.
3. Reduce waste: While the goals listed above will apply to almost all global companies today, reducing waste is a goal which applies very specifically to the fast fashion sector. It is estimated in the US and Canada alone that each year approximately 12B kg of clothes are thrown away with only approximately 15% of these clothes being recycled. This trend is not isolated to North America, and studies show that in Europe an item of clothes is typically worn only 7 times before being thrown-out. Fast fashion is an obvious cause for the bulk of this waste given that it is designed from non-recyclable materials and to be worn only a few times. The space in landfills is only one part of the of this waste problem- think of the number of resources being used to create these textiles in the first place. How to reduce waste in fashion without reducing sales is the million-dollar-question though, for which the most likely answer is recycling more materials and reducing the number of items which go unsold. For both initiatives to be successful however the end customer needs to be involved so consumer awareness needs to increase.
   1. Increase customer awareness regarding waste and impact.
   2. Increase portion of clothes which are recycled and portion of recyclable garments made.
   3. Decrease production by meeting demand more accurately.

The three goals listed above are not particularly new or unique. Sustainability is a hot topic in fashion and many coalitions and partnerships targeting fair labor and climate change already exist. INDITEX is no exception to the fair labor cause and has created a clear set of goals called Right to Wear. They consist of guarantees including to provide safe clothes to customers, to be honest and transparent in the way they conduct business, to guarantee that all workers along the supply chain have fair rights and conditions, to add social value in the communities where they work and to strive to make their brands greener. Furthermore, to create positive impact for workers they have committed to economic partnerships with local communities, training and development of employees and enforcing a Human Rights Pledge along their entire supply chain.  As for environmental impact, INDITEX is working on a series of initiatives many of which are planned to be complete by 2020. To improve the impact on natural resources they have put in place a global water and energy management strategy which includes zero discharge of hazardous chemicals by 2020, planned implementation of low-carbon use technologies, and the ceased of use of wood-based fibers from ecologically important trees as of 2017.

INDITEX has also began talking about the elephant in the room, WASTE, and is setting concrete goals to make waste management sustainable. Their Closing the Loop program is another series of goals that strive to increase the amount of sustainable materials on offering as well as to create a recycling/upcycling arm. By 2020, the company aims to be sending zero products to landfills from its headquarters, stores, factories and logistics centres. Investing in upcycling/recycling strategic initiatives as well as building improved redistribution capabilities is without doubt the way to go, but how attainable is the 2020 goal given what we currently see in the company’s strategy? Are the company’s waste management efforts and initiatives sufficiently embedded in its supply chain? Are consumers being sufficiently made aware of the company’s initiatives and their importance to environmental sustainability? Can INDITEX shift consumer behaviour to both engage its customers with its sustainability efforts but also win market share from other fast fashion brands?

A major impediment and at the same time key enabler for the success of INDITEX’s waste management sustainability goals is influencing consumer behaviour. Yes, smarter fabrics and better upcycling/recycling processes are core milestones but unless customers become involved in the process the 2020 goal might prove overoptimistic. This is where INDITEX falls short. Customers are not sufficiently aware of the problem and of the real option that the retailer offers them by accepting returns of used items instore or via online processes. Furthermore, customers are not incentivised to become active agents and ambassadors of sustainability initiatives. Last but not least, the strategic steps the company is taking to address the issue of upcycling/recycling, innovating through greener fabrics and ultimately ‘closing the loop’ cannot yet be seen as fully embedded in its supply chain.

But here’s how the industry leader can tackle these shortcomings:

Raising awareness is not an easy task, especially for a company that has consistently abstained from advertising. Yet, in the same way INDITEX has used its stores to conduct its marketing strategy, it can continue to use its stores to inform its customers about the importance of waste management. Raising awareness will be challenging. The idea is not to make customers feel guilty about the impact their buying patterns have on the environment, but to make them aware of the option to a more responsible shopping behaviour starting from what they choose to buy and how they choose to dispose of apparel they no longer use to what to do with other items such as packaging, hangers, shoes and accessories. Developing a specific line of products that is dedicated to prompt customers to shop, return after use and contribute to waste reduction by helping the retailer ‘close the loop’ can push awareness and create a minimum viable product approach through which the company can learn by doing on how to best ‘close the loop’ and optimally accelerate the adoption of efficient waste reduction and management practises.

The idea does not end here though. Through a sophisticated pricing policy that gives products carried in this line a price premium, which would be turned into store credit each time a customer successfully returns used items for recycling/upcycling, INDITEX can create incentives for customers to participate in its sustainability efforts. Furthermore, through such an initiative the retailer could educate customers to not simply look for items that carry the lowest possible price but to seek for items that offer the option to a more responsible shopping behaviour. This could hold for clothing lines that are made of upcycled materials or for those made of the innovative, green textiles in whose development INDITEX is investing in. Consumers would thus be incentivized to minimize waste rather than just facilitated to donate used items. This is an ambitious, yet pivotal goal.

In-store merchandising, sales techniques, e-shop interfaces and user journeys can be optimally redesigned to push the company’s waste management efforts rather slowly pull consumers to them. Supply chain management can be revisited and to make all distinct pillars equally informed and adjusted to serve the end goal. Stores should have more used item depos, sales people should be trained to prompt/remind consumers to return their used items, clothing tags and packaging materials should include relevant calls for action and external stakeholders, such as shipping partners, should be incentivised to support the recycling processes via lower rates and stricter KPI targets. Across all geographies, in a truly global manner.

The impact of these changes in the financial bottom line of the conglomerate will be burdensome, especially because INDITEX is the first among fast fashion to push for such a shift and invest in processes and products that serve the goal of sustainable waste management. ‘Closing the loop’ requires investment in research and development (something that INDITEX is already heavily vested in) but also in the marketing tools that can directly influence consumer behaviour and make all company brands relevant to the future, ‘responsible’, global economy. Specifically to the store credit system, there is a lot to learn from similar practises followed in the recycling of aluminium or glass products whereby consumers get money back when they collect and return bottles or cans for recycling. Why can’t apparel follow this example?

At the same time, the development of innovative, green textiles like the Refibra can open up a future revenue source for the company since other industry players will inevitably need to join the race for sustainability. Given the inherent over consumption nature of fast fashion, adopting the use of environmentally friendly textiles by other fast fashion brands is a matter of time. Hence, in the long run, INDITEX’s sustainability goals have a high chance of becoming key value/profit drivers.

One can be optimistic about the fact that INDITEX, as the founder of fast fashion, will continue to take the lead in its industry by becoming the first mover in the adoption of a fully-fledged sustainability practise.  The company is already taking significant action to develop initiatives that serve the United Nations’ 17 Sustainable Development Goals, but there is still much work to be done to get customers’ buy in and energize an ecosystem that thinks sustainably and, ultimately, keeps INDITEX at the top for the years to come.

 

References

http://www.mckinsey.com/industries/retail/our-insights/the-state-of-fashion

https://www.forbes.com/sites/walterloeb/2015/10/23/who-are-the-fast-fashion-leaders-and-why-does-it-matter/#23fc115e1555

https://www.statista.com/statistics/412567/value-of-the-leading-global-apparel-brands/

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11172562/How-Inditex-became-the-worlds-biggest-fashion-retailer.html

http://www.takepart.com/article/2016/06/10/why-we-trash-26-billion-pounds-clothing-year

http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/style-thats-sustainable-a-new-fast-fashion-formula

https://www.inditex.com/en/sustainability/managing_sustainability