Group 8: Anuj Karkare, Celine Dumas, Azeem Shaikh, David Guerreiro
Second to oil, the ‘Fashion & Apparel’ industry is one of the most polluting industries in the world. 85% of textiles end up in landfill or are incinerated when most of those materials could be re-used. The industry doesn’t have the infrastructure yet for recycling and the design choice favoring a mix of different fibers makes garments very difficult to recycle. The clothing production itself is resource-intensive, wasteful and waste-generating. This trend will be further accentuated in the next decades by the rising demand, spurred mainly by Asian countries where hundreds of millions of consumers will enter the global middle class, and by the reinforcement of the “fast fashion” phenomenon, push consumers to buy more and more clothes and keep them for less time. As it currently operates, the fashion industry is not sustainable.
However, three new business models have been emerging and transforming the current industry: Re-sell, Rental and Repair / Re-commerce. Based on circular economy principles, these business models aim at extending the product lifecycle and at maximizing their usage before reaching their end of life. They set the foundations for a new textile industry and social norms of consumption. The SDG goals these models help achieve are Responsible Consumption and Production (SDG 12) and Climate Action (SDG 13). To understand their impact, benefits and inherent challenges, we will study three real case examples exemplifying at best each of the circular business models.
Re-sell & buy peer to peer platforms are becoming increasingly popular. In such a model, the relationship only occurs between private consumers. The platform acts only as a facilitator to help shoppers and sellers promote, pay and physically transfer the goods between one another. “Vinted” is a great illustration of that model. It is peer-to-peer marketplace to sell, buy and swap clothes. Its business model is based on charging sellers a fixed and variable (percentage) fee for every transaction conducted on its platform. Furthermore, sellers can opt in to purchase additional features such as Wardrobe Spotlight or Item Bump to promote the products they sell. Vinted contributes to maximizing garments’ usage by extending its product’s lifecycle. Instead of donating or throwing garments away, sellers are offered a chance to re-sell and make money out of their old clothes. Such platform also opens-up second-hand market to consumers and creates new consuming norms, reducing the need for people to buy more.
Variations of this model can be observed to meet different consumer needs, such as luxury fashion. In line with broader fashion trends, luxury retail is shifting online, moving from an estimated 10% market share in 2018 to 25% in 2025. “TheRealReal” and “The Luxury Closet” are examples of companies where they operate an online luxury re-sale marketplace where they play the critical role of authenticatingevery item that they list on their curated platform.This requires the company to hold on to the inventory on a consignment basis, and the company operates centralized fulfillment centers with automated inventory management systems. Therefore,funds are paid to consigners only after their goods have been purchased on the marketplace. As TheRealRealperforms additional measures compared to a traditional peer-to-peer resale platform, it charges sellers or consigners a relatively higher share of sales (average of 35%) with the percentage decreasing the more actively a consigner trades on the platform (and vice-versa). A key element of the company’s success going forwardis to continue to attract and enroll consignorsas this will increase the size of the offerings availableto buyers.For this purpose, the company has also established brick-and-mortar stores in key locations with a focus on finding consignors than on increasing sales.More than half of TheRealReal’s consigners cite the environmental impact or the extension of the product lifecycle of luxury as key motivators for consigning. In addition, more than half of the consigners are also buyers and 80% of the gross merchandize value is from both repeat buyers and repeat consigners, suggesting strong brand loyalty and reinforcing the commitment to sustainability of those who use the platform. TheRealReal’s circular economy model and its success has attracted the attention of luxury brands, such as Burberry and Stella McCartney, which have agreed to form partnerships. For TheRealReal, such partnerships help the company with its core task of brand authentication. For the luxury brands, it helps them support and showcase their own sustainability efforts in a world where consumers are becoming environmentally conscious by partnering with a company that has a first mover advantage in this space.Additionally, it is important to recognize that luxury re-sale also helps position the TheRealReal’s platform for aspirational buyers who can now access brands previously beyond their price points. This helps TheRealReal tap into a broader consumer base, extending theproduct lifecycle across different classes of consumers, including younger millennials.
Another reason for the success of the business model is that it enables the company to position secondhand version of certain high-end luxury brands such as Gucci with brand new products of luxury brands operating at lower price points such as Coach. This kind of pressure may therefore encourage the luxury industry to become more environmentally conscious. To help maintain a sustainable advantage, it is essential for TheRealReal to ensure that challenges surrounding authentication are tackled given press reports about counterfeit items landing in the curated marketplace. Such news can cause consumers to lose faith in the model. This could be a key concern given the increasing complexity and scale (already 14000 unique SKUs processed a day) and the impact of even a few bad items that can slip through and land in a well-intentioned consumer’s inventory. It is therefore imperative to improve control and continuously refine authenticating procedures as the business grows further. While partnerships with luxury brands is one option, it may not always be available and, therefore, continued focus on authentication is critical.
Rentals
Another increasingly popular business model in the apparel industry is subscription-based renting. From a consumer perspective, the main benefits come from having access to thousands of items without the need to have a full wardrobe or an empty pocket. Concerns with hygiene are the most obvious issue, but a culture of ownership is also hard to confront. From a business perspective, the main challenges potentially are fighting in an already highly competitive market, as well as managing a very vascular supply chain: one same store can have hundreds of (small to medium) suppliers, thousands of clients that demand the product delivered at their door, and mailed back from a convenient venue. “Rent the Runway” is one of the fighters for the space of this new model, and currently offers 100,000 items online. Customers can gain access to those through three models: monthly subscriptions,one-time rentals and conventional sales. The success of this model has direct environmental benefits, since it relevantly increases the number of times an item is used in its lifetime, and consequently reduces the size of thousands of customers’ stock of clothes. Following the sharing culture ascension (Uber, Airbnb et al), this may progressively become a new way of clothing.
Repair / Recommerce / Lifetime Guaranties
Extending the life of clothes by just 9 extra months of active use would reduce carbon, water and waste footprints by around 20-30% each.
Repairing is another way of extending the life of a garment, in fact it gives it a new life and sometimes a new owner. However, this mechanism has its own challenges. Collection of used clothes is a logistical challenge and repairing each garment with its unique damage is labour intensive. Various companies are taking a stab at ‘repair’ as a means to extend the life of clothing and keep it in the circle of use. A few examples of those are discussed below:
Patagonia launched its ‘Worn Wear’ program in 2015 to encourage its customers to repair their clothes instead of throwing them away and land them into landfills. It started by roaming a ‘repair-van’ across the country. As it gained traction, Patagonia observed the solid response it received and realized the demand for a repair service. Currently, nine Worn Wear repair vehicles and crews exist across the globe, in Europe, Japan, Korea, and Latin America, where conversations around clothing industry ethics naturally occur and consumers receive a little education along with repaired clothes. Worn Wear collaborates with Patagonia product teams to host specific events, such as when its surf team requested a wetsuit repair tour. So far, Worn Wear tours have repaired over 15,000 garments at around 135 events. In addition, Patagonia offers Quick Fix Guides online so customers themselves can extend the life of their garments.
Through Worn Wear, Patagonia removes a primary barrier to reuse and recycling by providing consumers with an easy process. Customers who are done with their used gear can mail it to Worn Wear directly or drop it off at a retail location and, in return, receive a merchandise credit to purchase a new or used Patagonia item.
These used, yet still functional, Patagonia clothes are washed and offered for sale online at wornwear.com or at dedicated locations. The online thrift store launched in 2017 and quickly sold out its initial inventory; in 2018, sales grew 40%. As of 2019, more than 130,000 used garments have been resold, giving them a second life. Reselling used gear quickly became profitable, providing an option for the consumer who prefers to buy pre-owned for both the lower price and environmental benefits. It also serves as a model for other brands to follow and, by showing that buying back and selling used gear makes good business sense, Patagonia hopes that other brands will launch their own recommerce programs.
Patagonia partnered with Yerdle, a Tin Shed Ventures-funded company, to launch its recommerce side. Yerdle created and operated reuse e-commerce platforms for large apparel brands so they can manage their own resale market.
While a success story, the ‘Worn Wear’ online platform is labor intensive. Garments must be transported, sorted, rated by quality, repaired, classified by season, posted online and mailed to consumers. In addition to operations and logistics, storage is an issue. Materials and used gear that are not 100 percent functional are stored at Patagonia’s warehouse in Reno, Nevada. However, certain types of materials are easier to recycle or upcycle than others, causing some materials to pileup. Patagonia is actively seeking upcycling and recycling solutions for over 100,000 low-quality items stored in Reno that can’t be sold online. Patagonia wants to scale recommerce to continue to prove to the outdoor and greater apparel industries that buying back and reselling used products is good for the planet and for business.
Recently, other outdoor brands have adopted similar models: Arc’teryx purchases used clothing to refurbish and resell, The North Face buys back clothing to donate to people in need, and REI’s Used Gear program selects its best returned apparel and gear to resell on its website with messaging about reducing waste and conserving natural resources. Mammut has an in-house repair department which gave more than 15,000 items a new lease on life in 2018.
Repairing clothing and standing behind its durable garments have been part of Patagonia since its beginning. It formalized those values with Worn Wear and the Ironclad Guarantee, which promises to repair or replace any garment that doesn’t last the customer’s lifetime due to poor design. Customers who want their damaged clothing repaired can mail it or bring it to a store where Patagonia repair technicians can repair and return it. In total, Patagonia repaired more than 100,000 garments in 2018.
Observations:
These three business models all aim at extending the life cycle of clothes. However, is it enough to make the fashion industry more sustainable?
As highlighted in the beginning of this post, the way garments are produced, and the old clothes’ collection infrastructure can have significant impact on the environment. Several actions must be therefore be taken to make the overall industry more responsible.
First, designers and manufacturers should revisit the way they source and design all their products. On the sourcing side, the production of raw materials (like cotton or synthetic fiber like polyester) is responsible for a large share of the environmental impact of the textile and clothing industry. The fashion manufacturers should re-evaluate and replace their current input materials to alternative eco-friendly fibers. On the design side, companies could aim to produce clothes in a way that would make re-use and recycling easier by design. As an example, the usage of single-molecule fabrics would facilitate the decomposition of garments at the end of its lifecycle.
Second, the industry players need to coordinate their efforts to make the full industry shift towards sustainability. The SAC coalition is a great example. They have been implementing the HIGG Index to « label » the environmental impact on each garment. By aggregating all the impacts from the upstream full value chain, it educates consumers and guides them towards more sustainable choice. Additionally, consortium and alliances for recycling will also help the creation of a stronger recollection system. It could also help brands to scale their refurbishing and recycling capacity. By sharing their repair center facility across brands, they could maximize used garments flow and production efficiency.
References: “Waste not, want not: Eliminating Patagonia’s Pre- and Post-Consumer Textile Waste” by Rachel Dzombak, Clayton Critcher, Henry Chesborough, Kate O’neill, Seren Pendleton-Knoll, Chris Rosen, Robert Strand.