Circular fashion business models are on the rise, but are brands on a truly non-linear path?

In brief:

• To operate within planetary boundaries, the fashion and apparel companies will need to break away from linear approach to doing business and shift to circular business models.
• More and more companies are adopting circular schemes, but few are generating more sustainable outcomes.
• For circular strategies to be effective, they need to be integrated into business strategy and maintain the perceived value of products and services.
• Brands won’t be able to deliver on their commitments if they treat them as marketing ploys. Circular business models must decouple revenue from the use of virgin materials and other resources.

Circular fashion business models are booming, with an ever-growing number of companies adopting resale, rental, recycling and repair schemes in a bid to tackle the industry’s myriad impacts and rebrand itself as a sustainability leader. Yet few of these innovative initiatives are leading to more sustainable outcomes.

Where it all comes apart at the seams is that most circular initiatives are treated more like special projects than core components of the business. It’s a divide that’s as pronounced as the difference between couture and ready-to-wear. Which begs the question: is it all conceptual flash for the benefit of the brand, or is there truly a mass-market ambition?

For circular strategies to work, brands must approach them not as quick fixes but as strategic business priorities, with clear links to company objectives and targets.

Actions aren’t translating to sustainable outcomes

Despite their potential to be truly transformational, most circular business models overpromise and underdeliver in terms of the environmental benefits they produce.

So, where are fashion brands going wrong?

They’re failing to scale

Many brands are experimenting with circular schemes, but they tend to be small in scale and pilot in nature. For circular business models to have any real impact, brands need to scale their efforts.

Standing in the way is, undoubtedly, the lack of infrastructure and logistics needed to carry out circularity-enabling processes (e.g., textile collection, sorting, recycling, etc.). Creating them is a massive challenge, and one which is beyond the realm of possibility for a single company. Industry-level collaboration is needed to redesign the system for sustainability. Increasing regulatory demands could speed up the process. But ultimately, the biggest impediment to scaling circularity are brands themselves.  

Businesses won’t scale solutions until they see real value in doing so. The current linear model is a profitable one. Most circularity schemes aren’t rooted in business reality, which makes investing in the seismic operational shifts needed to make circularity work a hard sell. Circularity schemes that are at odds with the existing business model are unlikely to succeed and will amount to nothing more than marketing ploys — or essentially, greenwashing. Either the approach to circularity needs to change, or the overarching business model itself.

They’re not decoupling revenue from production + resource use

An effective circular business model that enables fashion brands to deliver on net zero commitments and contribute to a nature-positive world is one where revenue is decoupled from product output and resource use. It requires companies to not only rethink their products (what is offered and how it is produced), but also their marketing activities and how they engage with their consumers.

To-date, many of the business models cropping up in the industry fail to achieve this decoupling or produce the environmental outcomes they seek to deliver. The reason is four-fold:

1. Brands aren’t pairing their programs with reduced production volumes or integrating them into sales strategies in a meaningful way.

Instead, they’re measuring the success of these programs through the lens of sales volumes. Circular business models, however, require brands to focus on replacement rate — the extent to which the purchase of a used or refurbished product can replace the market demand and production of a newly manufactured product. 

2. They’re not shifting consumer behavior.

Driving more consumption has been a core tenet of the global fashion industry since the mid-20th century. Fast fashion sells because the consumer has been conditioned to low prices, the breakneck pace of fashion cycles, newness and convenience. As long as sustainable practices are limited to niche product lines that are targeted to consumers of some affluence, the mass market transformation the industry so desperately needs will never become a reality. The mass market needs to be reconditioned to demand durable sustainable apparel and frankly, less of it. And that means promoting circular programs with incentives that drive up consumption (like incentivizing circular schemes with price reductions for new products) is off the table.

In a linear model, the only touchpoint with customers is when the product is being sold. New models can offer a continuous stream of opportunities to engage with customers, building loyalty and future sales.

3. Products aren’t designed for circularity.

Most clothing and footwear isn’t designed to be repaired or recycled, and even when it is, the infrastructure needed for both brands and consumers to really embrace a circular model isn’t available. For circular business models to work, brands must also address product circularity and sustainability by harnessing an ecodesign approach, which looks at the environmental impacts of products across their life cycle.

4. Current supply chains aren’t optimized for circularity. 

They were purpose-built for linear production and distribution — they’re highly globalized, fragmented and complex by design. But this makes it difficult to ensure transparency. Brands will need to enhance transparency and traceability to enable circularity, and help build local networks that facilitate circular services. 

They’re motivated by the wrong reasons

Often, brands get too focused on the need for new innovations over simply doing what’s meaningful (and hard). But the goal should never be to create a circular system for its own sake, but rather to pursue solutions and actions that both minimize environmental impacts and maximize the creation of sustainable value. That means never forcing circular principles into a system designed for the linear economy. 

Rather than bolting initiatives onto existing business models, the full product life cycle, from manufacture to disposal, needs to be taken into account. The starting stage of that life cycle — and everything in between — needs to support the desired outcome.

Designing circular fashion business models for impact

Shaping an effective circular fashion business model is a delicate balancing act that requires brands to take a holistic approach. It’s not enough to consider the environment — a successful circular business model must also:

• Contribute to revenue streams and the brand’s financial success
• Deepen consumer engagement
• Be operationally viable

To do that, brands need to start by first understanding where change is needed and how they generate value. This information is critical for identifying the most appropriate way forward and developing a circular business model that supports positive outcomes for both the environment and the business.

Minimize environmental drivers

To serve as a transformative tool, circular strategies must be linked to an organization’s overall sustainability strategy and consider the full range of its impacts on nature — not only climate, but also water, biodiversity, plastic pollution, land-use change, etc. Developed in a vacuum, circular strategies can lead to missed opportunities or, worse, unintended impact transfers.

Brands should start by assessing the full scope of their environmental impacts (at corporate and product level) and use the results to identify and prioritize key environmental drivers. This can serve as a jumping off point for determining what brands want their circularity strategies to achieve and which goals they should be working towards to get there. 

And speaking of measurement, brands will need new ways to demonstrate that their circular schemes produce real environmental benefits. Take a company’s carbon footprint. In theory, it might seem obvious that a new model that extends the life of a garment is also reducing its carbon footprint. But to be certain, other factors must also be measured, such as transportation and energy use.

At the moment, not enough is being done to measure whether the negative elements of a project actually outweigh the positive. Circularity’s impacts need to be measurable and integrated into the overall sustainability strategy and commitments such as meeting the goals of the Paris Agreement and science-based targets for nature.

Find new ways to generate value

Businesses exist to make a profit. It’s the elephant in the room. Circular models need to be as profitable as traditional, linear ones; much of that hinges on selecting a system that matches a brand’s ambition.

If a brand’s circularity program maintains the perceived value of products and services — whether that’s convenience, quality, trendiness, sustainability or exclusivity — the more likely it is to be successful in both environmental and financial terms. Helping customers live their values while still maintaining their self-expression and self-image is a challenge the fashion industry is uniquely positioned to solve. There will always be new ways to deliver value because value is created.

To do that, brands need to consider the value they bring to consumers and how they deliver it, then use this information to identify potential pathways forward. For example, brands valued for performance may want to explore repair, refurbishment and maintenance services to keep clothing and gear going for longer. Brands beloved for low prices and the latest trends may look towards solutions like rental or resale that cater to more transient ownership behaviors and can offer brands a way to maximize use without overproducing to meet demand. 

Only in finding new ways to generate value will brands be able to bring about real change.

To bolster these efforts, customers should be rewarded in ways that encourage them to buy into circular business models, rather than linear ones. That means using tactics that engage consumers in ways that increase clothing use, such as designing exclusive items for users of the brand’s rental platform or allowing users of peer-to-peer platforms to swap products in addition to selling them.

Optimize for (re)circulation

For circularity to work, fashion brands should first prioritize creating garments that will live on to have second lives. Using higher-quality materials and robust stitching techniques to reinforce areas that are prone to wear and tear can go a long way in the pursuit of circularity-suitable garments. 

Additionally, where possible, fashion brands should consider modular and versatile designs such as interchangeable, standard or detachable components. Not only will this simplify refurbishment for circularity, it also allows customers to more easily repair their garments to extend their useful life. This could also create a knock-on benefit for brand reputation. 

Naturally, using recyclable materials is the lowest hanging fruit. Favoring mono-materials or materials that avoid complex blends that can be easily separated at the end of their life will have the best chance of staying in circulation and out of landfills. Brands should also consider minimizing trims and fastenings that can complicate the recycling process. 

Careful consideration of product construction and design is a critical success factor for circularity to take hold. Without customer engagement though, even the sturdiest garment could find itself in a landfill. Fashion brands need to educate the consumer on what they are buying and its potential for a sustainable outcome.

Comply with the latest regulations 

New regulations are on their way, particularly in the European Union, where a mandatory extended producer responsibility (EPR) scheme for textiles, designed specifically to tackle the excesses of fast fashion, is being discussed. 

Fashion businesses need to accept that these regulations are coming. Further, they should anticipate and prepare for it: the longer they wait, the more expensive it’s going to be. 

As counter-intuitive as supporting regulation can be, it can level the playing field by removing competitive advantage challenges and providing a strong foundation for innovation. Companies have an opportunity to shape them by being part of the conversation.

Don’t stand still

The industry’s practices and how it generates value are deeply tied to its identity. Yet, the entire industry is headed for an identity crisis of its own. Fashion needs a new look. 

Unless fashion brands ditch the outmoded take-make-waste model and find a new way to generate value, they’ll find themselves ill-prepared and unequipped to deal with the oncoming wave of sustainability regulations coming their way.

Fashion needs to accept that “doing less bad” is not sustainable. Companies need to continue to scale new business models, keep innovating and keep moving towards what is good and necessary wherever it can. There will be no perfect or painless solutions, so the focus needs to be on actionable solutions.