"The impetus to act on the environment is emphasised by shifting consumer attitudes. More than three in five consumers in a recent McKinsey survey said environmental impact is an important factor in making purchasing decisions. Regulators and policy-makers are also on board, amid a raft of upcoming initiatives to promote circular practices (such as in the EU) and prohibit the destruction of luxury goods, as can be seen in France. More generally, measures such as the EU’s carbon border tax will promote circularity by making the economics of onshore recycling and other circular models more attractive.
An industry-wide circular business model is a lofty ambition — and is a long way from being realised. Despite efforts by some players, as much as 12 percent of fibres are still discarded on the factory floor, 25 percent of garments remain unsold, and less than 1 percent of products are recycled into new garments. Given these metrics, action is an imperative and an inevitability. Indeed, circularity may become the biggest disruptor to the fashion industry over the next decade.
As the industry makes progress with the “Rs” — reducing, recycling, refurbishing, reselling, renting and repairing — few decision-makers are under any illusion about the scale of the challenge. Despite good intentions on the part of some players, garment production volumes are predicted to grow by 2.7 percent annually between now and 2030. The priority, therefore, must be to set circular strategies, tackle scalability challenges and take concerted action to scale solutions.
The Challenges in Scaling Circularity
The way in which value is created in circular systems is radically different to the way it is created in linear systems. In essence, a single garment can create value repeatedly — through sale and resale, repeated rental, or being sold, repaired, returned, refurbished or recycled, and resold again to start the loop over. This value-multiplier effect has prompted several leading retailers to get involved. Selfridges’ Project Earth initiative aims to help customers buy “pre-loved” items (in its Resellfridges range) or rent (through partner Hurr Collective) and repair. Peer-to-peer social shopping resale app Depop saw a 300 percent year-over-year increase in items sold during the Covid-19 pandemic, reflecting rising consumer demand for pre-owned purchases.
More than three in five consumers said environmental impact is an important factor in making purchasing decisions.
With some of the industry’s leading names showing interest, there is little doubt that circularity is gaining momentum. However, three key barriers are preventing adoption at scale:
Capturing value requires durability or recyclability. Without durability or recyclability, there is likely to be significant erosion of product value. Refurbished products can command relatively high prices if the refurbishment is carried out reliably, which is not always easy when clothes are stretched or stained and accessories scratched or marked. Similarly, with most garments composed of a mix of materials, recycling is not easy.
Enabling circularity involves a complex web of logistics. Resale transactions are currently mostly peer-to-peer, with individuals deciding whether the resale value is worth the time and energy required to wash, photograph, describe, package and send. In “Fashion on Climate,” our analysis showed that, to align with the 1.5-degree pathway in 2030, 20 percent of garments need to be traded through circular business models, so greater scale is required. The subscription rental model, for example, requires many users for the economics to make sense — and again, the key challenges are logistical, including laundry and delivery.
Engaging consumers requires overcoming stigmas. While circularity is winning fans among some consumer groups, it is still an abstract idea to most and terms such as recycled, upcycled, repaired and refurbished still have negative connotations. Similarly, consumers are willing to return recent purchases with the incentive of a refund, but struggle when a garment of unknown value sits forgotten at the back of a wardrobe.
What Will It Take to Scale Circularity?
The apparel ecosystem is fragmented, with no single player accounting for more than 1 percent of the market. Standardised solutions, therefore, are unlikely to emerge anytime soon. More probably, we will see a variety of strategies led by a diverse cast of actors and predicated on three foundational capabilities:
Embracing Sustainable Design. Circularity starts on the drawing board, and with the textiles and materials that designers use for their creations. One company that has embraced the sustainable design ethic is London-based Dai Wear, which employs recycled and recyclable fabrics to produce performancewear. The company uses biodegradable yarns for seams and air-dried fabrics to reduce washing needs.
“Sustainability is obviously more important than ever, but it is also becoming the baseline requirement for all apparel companies,” Dai Wear Chief Executive Joanna Dai said. “We find increased organic engagement and followers slightly outside of our core target niche who align with our values and buy into our brand.”
As much as 12 percent of fibres are still discarded on the factory floor, 25 percent of garments remain unsold, and less than 1 percent of products are recycled into new garments.
Designing for zero waste requires material and product innovation. Scotland-based Johnstons of Elgin recently introduced EveryYarn, a material made from used yarns. “Our objective is that every yarn that we make is made into a finished product,” says Chief Executive Simon Cotton. “Demand for the range has certainly passed our expectations, but it requires channels where the limited-edition nature of the product is accepted and the availability of colours drives a certain idiosyncratic design. That said, we do get some brilliant designs working this way but it’s not suitable for conventional merchandising or stock-supported wholesale models.”
Invest in, incubate, pilot and test alternative materials and processes for a circular system;
Radically reduce production waste and support, train and incentivise suppliers to reduce and reuse fibre, chemicals and packaging;
Reskill designers and stimulate circular design innovation;
Create momentum by collaborating and developing tools.
Ramping-Up Reverse Logistics. Through reverse logistics, companies can recover items from disposal or secondary resale and thereby continue to derive value. Brands often partner with intermediaries to operationalise the process. Patagonia works with start-up Trove to buy-back items and sell them at a reduced price. Trove can purchase, process, price and photograph second-hand goods before putting them up for sale on clients’ websites. Used-clothing platform ThredUp has partnered with companies including Reformation and Amour Vert to enable customers to send clothes (from any label) in exchange for shopping credits. In the rental space, US-based logistics company CaaStle manages the entire process for companies, from warehousing and cleaning garments to gathering customer feedback.
Some companies are leveraging their own store networks for circularity, although very few also rent, repair or resell in store. UK-based Mulberry has maintained a leather library since it launched in 1971, offering repair and refurbishment for all its products. In 2020, the company launched Mulberry Exchange, a buy-back initiative under which customers can return bags to be repaired and resold alongside the current collection.
Design reverse logistics to optimise value retention, either by partnering with a trusted intermediary or — more likely in the luxury space — taking direct control;
Leverage store networks to create in-store circularity hubs;
Build out non-store collection points and home pick-ups to improve accessibility;
Optimise sorting facilities and recycling technology, either in-house or with partners;
Eliminate single-use packaging.
Supporting Customer Adoption. For younger consumers born into the sharing economy, adopting circularity is a natural step. However, older consumers may require education and encouragement. Some consumers believe there is a hygiene issue with second-hand clothes, and others struggle to translate their sustainable values into actions for a wide range of reasons.
Circularity is likely to be one of the key business trends of the next decade. However, it is not the kind of revolution that can be led by a few leaders, while others wait and see.
Some brands are responding by marketing circular items alongside conventional ranges, for example Patagonia. Zalando and Selfridges, meanwhile, are scaling a range of circular offerings in their core businesses, helping to normalise circularity in the minds of shoppers.
As circularity grows, digital enablement will be critical. As the traditional linear fashion value chain transitions into a circular system, consumers will be incentivised to engage beyond an initial purchase in order to engage in circular business models, which in turn will support data collection that can shape a brand’s business going forward.
Offer rental options such as subscription services and the option to buy rented products at a discount;
Borrow online marketplace techniques to filter, sort and group assortments, or leverage retailer-curated collections;
Enable peer-to-peer business, including resale and rental, and sweeten the deal with logistics and digital solutions;
Create timeless collections, reflecting the declining prominence of seasonality;
Offer tips for care and repair;
Enable returns and recycling;
Develop data strategies to inform business decisions.
Driving the Future of Circularity
Circularity is likely to be one of the key business trends of the next decade. However, it is not the kind of revolution that can be led by a few leaders, while others wait and see. Rather, a collective effort is required, in which fashion companies, customers and all participants in the value chain collaborate.
To date, players that feature sustainability in the centre of their branding have been at the forefront of circular practices, as well as some established luxury brands owing more so, perhaps, to the resale value of their stock rather than their eco aspirations. However, looking forward, we expect mass-market brands to scale their efforts. In addition, aggregators are well-placed to launch resale and repair programmes, combined with an enhanced in-store experience. Marketplaces can build on their size and logistical capabilities. As consumers become more engaged with sustainability issues, circularity will be the key that unlocks the door to a more sustainable future.
The authors of this article focus on Sustainability in Apparel, Fashion and Luxury, including McKinsey’s research partnership with the Global Fashion Agenda on ‘Redesigning Growth’.
This article appeared first in The State of Fashion 2021, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here"
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