Why the future shape of fashion has to be circular

The fashion industry has always thrived on the new. But today, trends arise more frequently than ever, and consumers expect instant availability of the latest ‘must-haves’. The result is an industry that has more than doubled production in 15 years, with consumers buying 60% more clothes than they did in 2002 but keeping them for only half the amount of time.

Unsustainable growth

The problem here? The fashion industry is simply not sustainable as it is. The environmental footprint it creates is growing as a result of increased consumption of raw materials, more pollution and greater waste. In fact, on its current trajectory, the industry is set to use 25% of the world’s carbon budget by 2050. The urgency of change is not lost on the industry. Many retailers are setting bold targets for sustainability. Consumers, too, are increasingly aware of and concerned about the environmental impacts of what they buy, and they are looking to retailers for solutions.  

To date, some retailers have responded to concerns by focusing on the beginning and end of the value chain. They’re developing and using more sustainable materials for production and introducing ways to take back garments at the end of their life and provide recycling infrastructure. Yet these initiatives, while important, are barely scratching the surface. Only 1% of clothing today is recycled – 73% percent ends up in landfill.

Time to go circular

There’s clearly a need for a more radical approach. And that means exploring the concept of the circular economy. Essentially, a circular economy “decouples growth from the use of finite resources by eliminating waste at every stage of the value chain”. By combining new technologies with innovative business models, a circular fashion industry could maintain its competitiveness and drive value for consumers, citizens and the planet. Circular business models most relevant to fashion include rental, subscription-rental and ‘recommerce’. To date, however, 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.

Running the numbers on circular fashion

To address that issue, Accenture Strategy and Fashion for Good conducted analysis of three circular business models – rental, subscription-rental and recommerce  – to assess their commercial viability across different industry segments, from value to luxury. The findings suggest that each of the models could work for existing retailers in all segments. However, there are some clear variations that suggest each segment of the industry will need to adopt the right model to achieve optimal returns.

The rental model, a one-off hire of a garment with no option to purchase, appears to be the most attractive option in the luxury market, with a potential margin of more than 60% per garment. For mid-market and premium segments, the attractiveness of this model would depend on considerations such as garment durability, as well as on strategic considerations that enable economies of scale to reduce costs, for example, in logistics.

The subscription-rental model allows consumers to pay a monthly fee for access to four items, which they can swap at any time or exercise an option to purchase at a reduced price. This model proves positive for most segments.

Finally, the recommerce model – the recovery and resale of garments previously sold by the retailer – is the most financially viable across the board for all segments. But it’s also the model with the most established competition. To make it work, retailers would need to ensure that their offer was sufficiently attractive to persuade users to return garments to them, as opposed to selling them via other second-hand marketplaces.

As well as financial returns, each of these models also creates the opportunity for greater engagement with consumers, learning more about their preferences and behaviour to develop more valuable relationships.

The future direction of travel for all retailers looks clear. Innovation and adoption of new business models are set to grow – Urban Outfitters recently became the first to announce a clothing rental service – and others will follow. If established retailers don’t mobilise they risk losing out to others who are already taking the initiative and moving the fashion industry in a new, circular, direction.  The time to act really is now.