Reading the fine print: Ensuring Circular Business Models are truly sustainable
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Business
Amsterdam - It is no secret that when it comes to circularity, the fashion industry faces multiple issues from overproduction to underutilisation to the growing textiles waste mountain. A shift towards fast fashion in the past two decades has led to the dramatic decrease of the practical service life of clothes (how long they are actually worn) compared to their technical service life (how long they could be worn). McKinsey estimates that between 2000 and 2014, consumers started buying 60 percent more and keeping their clothing for half as long, and that up to 70 percent of closets go unworn. The fast cycle of buying and disposing of clothes drives demand for nonstop manufacturing and contributes to the fashion industries wastefulness and polluting impact. Between 2005 and 2016, the industry’s climate change impact increased by 35 percent, with increased consumption per capita as a key driver. Under a business as usual scenario we can expect a further increase of 49 percent in climate change impact by 2030 according to a report by Quantis.
Extending the active service life of garments is considered one of the most effective ways to reduce the overall impact of the clothing industry. In the last few years, many resale and rental initiatives have sprouted, as a response to these challenges, and with the aim of prolonging the life of existing clothing and reducing the need for new resources extraction and manufacturing.
It is no surprise that many innovators and brands, who are leading the movement, want to communicate about how their initiative helps people and the planet. And rightly so - the consumer should be informed, in a transparent and clear manner, on how rental and resale curbs the industry’s total impact.
ThredUp - 2019 Fashion Resale Market and Trend Report
But calculating, validating and communicating the true impact of rental and resale models is not so straightforward. This can be demonstrated, perhaps, by the myriad of ways in which those pioneering the movement choose to communicate. Resale platform Thredup claims on their website that “if everyone bought 1 used item instead of new this year, we would save: 5.7B lbs of CO2 emissions, 11B kWh of energy, 25B gallons of water and 449M lbs of waste.“ As part of Patagonia’s Worn Wear initiative, the company asserted that “buying used gear means one less new item that had to be made, lightening the load on our planet“. Platforms such as The RealReal and Rent the Runway have made similar claims about resources saved per resold and rented item. The RealReal calculated that “13, 3000 metric tons of carbon and 608 millions liters of water have been saved with the help of shoppers and consignors since The RealReal’s founding.“ Meanwhile, Rent the Runway suggested that “every time you rent, you are participating in the shared clothing economy. We hope this reduces the amount of clothing that ends up at the back of our members’ closets and in landfills.”
The use of the word hope here by Rent the Runway points nicely to the crux of the challenge. As we briefly explored in our last blog, there is a need to read - and align on - the fine print. While the impact potential of circular business models is compelling and has been recognised by both industry and non-profit stakeholders, we should remain critical and estimate and assess the true impact that each of these models actually delivers, to make sure they uphold their circular promise. In doing so, four critical factors should be considered.
1. Addressing the assumption of displacement and utilisation
When designed and executed with intention, rental and resale models
could contribute to a decrease in production and consumption of new
garments, allowing us to do more with less -
Firstly, there is the question of utilisation - that is, the number of times a garment is worn before it ceases to be used. The total utilisation of an item can be estimated by multiplying the average number of wears of a garment per year by the number of years that a garment is kept for.
Clothing today is massively underutilised. According to research by the Ellen MacArthur Foundation, clothing utilisation has decreased by 36 percent worldwide compared to 15 years ago. How do we ensure that reuse and rental models do, in fact, increase garment utilisation, compared to the current (linear) baseline? In other words, that garments circulating via resale and rental models have a higher ‘number of wears’, and preferably, over a longer active service life?
Secondly, comes the critically important question of displacement. Many brands currently claim that the purchase of a secondhand garment or the renting of an item happens instead of the purchase of a new garment. They therefore assume that reuse displaces new consumption and production 1-to-1, and offsets any related impacts accordingly. But how do we know that customers who buy a secondhand item, or rent an item, do not also purchase new clothing, in addition? Furthermore, could certain reuse models actually stimulate increased consumption per capita - for instance, by rewarding resellers with store credits or discounts, and thus, incentivising further purchasing, or by whetting the customer appetite for ‘more’ through high-convenience, low-commitment rental models? In these instances, reuse business models could paradoxically drive growth of the primary sales of a brand, and undo any ambitions for reduced impact.
“The point of a business is to grow revenue, not to grow the number of things we manufacture every year. We absolutely are trying to cannibalize the first price sales of our brand partners, because we want to change the entire system of how we engage in apparel, the design, production, sale and recapture of products. We do not want a linear apparel system that we tack a circular ball at the end of. We want to bend the entire system to become circular.” Jeff Denby, Co-founder of The Renewal Workshop.
A widely adopted statistic from the ‘Valuing our Clothes’ report by WRAP
A statistic that has been widely adopted within the industry to support this is from the 2012 ‘Valuing our Clothes’ report by The Waste and Resources Action Programme (WRAP) stating that “extending the life of clothes by an extra nine months of active use would reduce the carbon, water, and waste footprints by around 20-30 percent each.” Promising statistics indeed, that might sound like music to both a brand’s, and consumer’s, ears. However, it is important for brands to take into account the underlying assumptions and calculations on which this (and any similar) industry statistic is built - and consequently, to understand that these same impact savings may not apply to their specific resale/rental model. In this instance, the statistics assumes a displacement rate of 60 percent, i.e. if 10 garments are used longer, it replaces the purchase of 6 new garments. Furthermore, brands should strive to use the most up-to-date numbers. WRAP have since improved their method - updating the displacement rate to 30 percent, as well as the corresponding impact. However many businesses and NGOs continue to use the outdated 2012 information.
“Credible impact metrics are imperative for building trust with key stakeholders. Whether board-members or investors, policy-makers or consumers, they all want and need to know that the company is helping rather than hindering progress toward our shared goals, like the SDGs. The vision of a circular economy is a good one but we need to prove it.” Sam Gillick-Daniels, Senior Analyst at WRAP
2. Building a low-impact, high-value end-of-use supply chain
Rental and resale models require elaborate capacities in collection, cleaning, sorting, repair, laundry, secondhand merchandising and more, and each step of this new circular value chain comes with a corresponding impact.
The environmental impact of dry cleaning should be considered in designing circular business models. Courtesy of Unsplash.
Environmental impacts that might be associated with the operational design of the model - for example, water, chemical and GHG emissions resulting from increased reverse logistics, laundry and packaging - should be estimated and modelled upfront, in order to design the most efficient process for recovery. This could involve, for instance, the use of low-impact ozone technologies for sanitisation, or strict take-back criteria in order to reduce single-item shipping.
However, attention should also be paid to the social dimension of the model, taking into account both the direct effect on employment, in the creation of new circular jobs and skills, and the trickle-down effect, along the linear supply chain.
Much like the production value chain, the end-of-use value chain is incredibly dependent on manual labour. The value chain for used textiles currently hosts a significant amount and variety of jobs and skills in the areas of collection, sorting, repair, remanufacturing, remerchandising and so on. Currently, an estimated 20 jobs are created for every 1.000 tonnes of used textiles collected and sorted for reuse and recycling in social enterprises across Europe. CE Delft independent research and consultancy estimates that every additional kilo tonne of recycled textiles could create an additional 6–7 jobs, making textiles the most job-intensive recycling sector in the Netherlands.
These vary from traditional collectors and sorters of post-consumer textiles to, for instance, the in-store repair activities that Nudie Jeans offers, or the scale-remanufacturing that The Renewal Workshop’s latest Amsterdam facility is pioneering. As new circular supply chains start to germinate across Europe, and globally, we must ensure that the reuse and recycling sector proactively tackles issues in relation to quality of those jobs, including health and safety, decent wages, representation and social dialogue.
Furthermore, aside from counting job opportunities created through the development of new circular supply chains, it is essential to consider where corresponding jobs in the current ‘linear’ supply chain may be lost. Increased reuse and recycling could displace new production and associated jobs. We must prioritise a just transition, that guides at-risk workers into new employment, and furthermore, consider how the economic benefits of circular business models could be remunerated across the entire value chain.
3. Incentivising circular design, with a circular system
The hope is that circular business models incentivise better design - design based on principles of durability, repairability and so on. In order to effectively increase garment utilisation, and continually cycle garments through rental or resale business models, the product in question must be suitable. Higher utilisation rates require increased longevity and durability of a garment, as well as a certain design versatility or enduring style.
The design stage determines an estimated 80 percent of all product-related environmental impacts according to EU Research. Image: Unsplash
It is not a coincidence that many of the most established and successful circular business models in the industry are from brands like Houdini, The North Face and Eileen Fisher, whose products are designed for long-life, and made with performance and timelessness in mind. In these cases, their respective business models act as a testament to the product quality, and vice versa, the model itself incentivises continual improvement of the product. Each upholds the other.
For brands operating in the lower-value or trend-sensitive market segments, physical and/or emotional durability might act as a barrier to entry. Accenture and Fashion for Good’s latest report echoes this sentiment, and points out that product quality is also a critical lever for the overall business case of a circular rental or resale model - how much revenue you can generate per garment depends on how many wears or owners that garment can practically withstand, ie. the life-time revenue potential of your garment.
4. Diverting used clothing from the textiles waste mountain
Finally, while utilisation rates, displacement rates and embedded operational impacts may vary, one thing is certain - rental and resale models divert used garments from landfill and incineration by extending their active service life.
The significance of this impact area should not be underestimated. According to research by the Ellen MacArthur Foundation more than half of fast fashion items produced are disposed of in under a year, while the global textile and clothing industry is presently responsible for 92 million tons of waste annually - a figure which is projected to grow to 148 million tonnes by 2030 writes the Global Fashion Agenda. The current COVID-19 pandemic is heightening this challenge, and ushering in a corresponding waste pandemic, across the entire supply chain. The estimated 980 million items (source: Brac.net) that were cancelled in Bangladesh (enough for three articles of clothing for each person in the United States) will undoubtedly equate to a growing mountain of unsold pre-consumer stock. Meanwhile, international lockdowns have put a halt to the export of post-consumer textiles, into key reuse markets across Africa and Eastern Europe, and the sortation of used textiles has also ground to a halt in many countries. Both pre and post-consumer textile waste will stockpile indefinitely, and there is a considerable risk that these volumes will be landfilled or incinerated, once volumes peak, market prices collapse and local storage runs out.
That is to say, although the impact of resale and rental has unmet potential - for example in displacing normal consumption - these models will always contribute to reducing the textile waste mountain, and this is no neglectable service, especially in a post-COVID-19 industry, but also given the overall speed at which we currently discard of our clothing.
A collective way forward
As we have examined, it is not a given that circular business models will have an overall positive impact. We have to remain critical and self-reflective when designing and trialing these emerging circular models. Brands who are launching such models, should design with the intent of a positive impact for people and planet and build-in effective means to monitor and evaluate what the real outcomes are.
Brands should make a concerted effort to measure the extent to which their recommerce or rental/subscription model displaces the purchase of new items, assess the garment utilisation rates compared to a baseline, anticipate and calculate the operational impacts associated with the process and embed circular design principles to improve garment quality and durability.
With regards to the question of displacement and utilisation, ideally, brands or independent resale / rental platforms would get this data from their customers. Assessing this through direct customer surveys is a huge effort however, and there is no industry standard or guideline available (yet) to support this endeavour. WRAP and the World Resources Institute (WRI) are developing guidance on this topic due to be published later in 2020 but it’s an emerging area with unresolved challenges. For example, the consumer's ability to realistically report on how they use their clothing has been questioned. It will require a collaborative industry effort to align on the best way to track data on displacement and utilisation and communicate about impact moving forward. What existing data is available and how should this be used as a reference in the right way? What responsibility lies with the brands and platforms to assess their own impact and how will they gather data on these metrics? What role can technology (eg. smart labeling, AI) play in tracking data? These are all questions that the industry needs to collectively address and get ahead of - and quickly - as the rental and resale market continues to grow, and will potentially outpace even fast fashion, within the next 10 years.
“Switching Gear: Towards a Circular Business Model”, is a Laudes Foundation supported project, led by Circle Economy, that guides four apparel brands on a circular innovation process towards the design and launch of rental and resale business model pilots by 2021.
To support the practical implementation of these pilots, and enable the wider uptake of circular business models in the apparel Industry, Circle Economy have joined forces with strategic partner Fashion For Good. Through this partnership, Circle Economy and Fashion for Good will work together to drive the formation of a powerful global Enabling Network of over 50 circular solution providers and innovators, frontrunning brands and relevant experts, until the end of 2021. Should you be interested to join the Enabling Network, please get in touch through the Circle Economy website here.
Homepage image: Unsplash