Circular business models offer a 700 billion US dollar opportunity

New research from the Ellen MacArthur Foundation reveals that circular business models, in sectors such as rental and resale, have the potential to grow from 3.5 percent of the global fashion market today to 23 percent by 2030, representing a 700 billion US dollar opportunity.

Currently, the rental, resale, repair, and remaking sectors are valued at more than 73 billion US dollars, with the foundation expecting these circular business models to continue to grow as customers become increasingly motivated by affordability, convenience, and environmental awareness.

However, the foundation warns that these models do not always lead to environmental benefits if they are seen purely as ‘add-ons’ to a traditional wasteful model. Such as when fashion retailers incentivise product take-back for resale, remaking or recycling by offering vouchers for new products, which it adds may fuel more production. Also, not all rental models offer clothes designed to withstand many wears and cleaning cycles, which increases the chances of that model being economically and environmentally unviable.

In its latest report, ‘Circular Business Models: Redefining Growth for a Thriving Fashion Industry,’ the foundation shows that circular business models can offer significant potential for greater revenue while cutting the volume of new clothing and accessories produced, but only if the circular economy has been designed to be part of the system in which it sits, otherwise clothing will end up in landfill after very few uses.

Ellen MacArthur Foundation warns that circular business models don’t always lead to environmental benefits

To maximise the positive outcomes of circular business models and realise their full potential for better economic growth and environmental impacts the foundation has recommended four key actions.

To rethink performance indicators, customer incentives, and customer experiences by shifting to a business model based on increasing the use of products, rather than producing and selling more products. This it adds requires businesses to rethink how it measures success, and to encourage its customers to opt for its circular offering through carefully designed incentives and enhanced customer experiences.

The second action point is for all brands and retailers to design products that can be used more and for longer. As to maximise the economic and environmental potential of circular business models, products need to be designed and made to be physically durable, emotionally durable, and able to be remade and recycled at the end of their use.

The foundation also suggests that fashion company’s co-create supply networks able to circulate products locally as well as globally. To successfully keep products in circulation, fashion supply chains, currently designed for a predictable one-way flow of products, need to be transformed into supply networks capable of circulating products locally and globally, through collaboration and the use of digital technologies.

The final suggestion is to invest in scaling a variety of circular business models that generate revenue without producing new products, which the foundation adds can increase the overall economic and environmental opportunity long term.

These models it states can help the fashion industry shift towards a better growth model where revenue does not rely on production and resource use.

Marilyn Martinez, fashion initiative project manager at the Ellen MacArthur Foundation, said in a statement: “Not only do circular business models have massive potential to become mainstream, they provide new and better growth for the fashion industry. Clothing production doubled between 2000 and 2015, while the time we use clothes fell by more than a third.

“Circular business models can help turn this around and create a thriving industry that takes a lead on tackling global challenges such as climate change and biodiversity loss.”