Failing to acknowledge the endpoint indicators that circularity strategies can influence (climate, water, biodiversity, etc.) can lead to missed opportunities or unintended impact transfer.
Circularity is top-of-mind for many fashion and sporting goods brands as they explore ways to reduce impacts and make good on climate, biodiversity, water and waste commitments. Opportunities for disruption and transformational change abound, but aligning the industry with planetary boundaries will be less about how we adapt our current system and more about how brands will challenge their current business models to shape a new future for fashion. This is the third in a series of articles (here and there) exploring the different approaches for system-level transformation in the industry.
There’s no trendier topic in the fashion and sporting goods industry right now than circularity. The concept holds the key to a sustainable future for fashion and has given rise to a new ambition for the industry: ensuring clothes and gear never become waste. But to shape a circular economy for fashion, the industry will need to shift its focus from “where do we need to go” to “how are we going to get there” — the heavy-lifting work to refashion the way products are designed, made and used.
As sustainability professionals, this question of “how” is top of mind — how we initiate, prioritize, measure and track circularity. Here, we explore some of the common circularity-related discussions we’ve been having lately with clients.
Circularity — is it a standalone practice? Or should it be integrated into climate, water, biodiversity and plastic strategies?
A common question we receive from clients — and an ongoing source of debate within the industry — is how circularity is, or should be, connected to an organization’s sustainability or ESG strategy. While some look at circularity as a mass balance/material capture issue, failing to acknowledge the endpoint indicators that circularity strategies can influence (climate, water, biodiversity, plastic, etc.), whether positively or negatively, can lead to missed opportunities or unintended impact transfer.
As a standalone practice, circularity can be tracked through leakage rates, return rates and percentage recycled content. However, it paints an incomplete picture. Brands need to understand the endpoint impacts of their circularity strategies (especially at a systems level).
The most classic example of why this matters is in the case of reverse logistics. If brands are not intentional about how used products are transported back to sorting or repair centers, much of the climate benefits associated with the extended use of these products are likely to be canceled out by logistics emissions. This is often the case in circular systems where only leakage rates are tracked. Further, simply keeping your products in the hands of consumers for longer won’t reduce a brand’s annual carbon footprint. Actual climate reductions are only found when the revenue associated with second-hand products increases at the same rate as revenue from the production of new garments decreases. Otherwise, brands should expect that simply adding circularity to their existing business strategy will only increase their footprint. But depending on the other climate strategies an organization deploys, this isn’t necessarily a bad result. How you view — and address — these endpoint impacts is determined by how you answer the following questions:
- To what extent do we want to use circular business models to decouple revenue and production growth?
- How do we, as an organization, weigh the circularity of materials and products against our environmental goals for climate, water, and biodiversity?
No matter how you answer these questions, circularity can add another dimension to your environmental strategy. The difference is whether circularity is going to be used as a strategy to drive and bolster climate/water/biodiversity improvements (determined by question 1) OR if it is going to be implemented and balanced alongside other environmental goals. In other words, if you aren’t going to use circular business models as a transformative tool for your business, how do you weigh the potential tradeoffs of circularity against your other established goals? Regardless, organizations need to understand that these strategies are connected and should be tracked in congruence with one another to avoid unknown consequences.
How does traceability enable circularity, both upstream and downstream?
Tracking and improving circularity systems is nearly impossible without a formal traceability structure in place. Digital IDs, watermarking, QR codes and RFIDs are just some of the possible solutions brands have at their disposal for enhancing traceability. Choosing the right fit will depend on the nature of the product being traced, the market(s) it is offered in, and the adaptability required of recyclers and sorters. Both upstream and downstream supply chains can be improved by traceability tech:
- Upstream: Guarantee of origin and percent post-consumer recycled (PCR) material
- Downstream: Reduced leakage rates (verification of materials), improved authentication (especially important for luxury goods), and creation of detailed transcripts outlining ownership history (similar to a Carfax) which can help maintain resale value
Is engaging in secondary markets profitable?
The answer to this question isn’t quite so straightforward and, curiously, there’s some divergence between brands and their third-party service providers.
If you ask providers, they’ll tell you that there are tremendous opportunities for brands that get on board, including increase in market size and leaps in revenue YOY. The biggest selling point, however, seems to be that consumers are going to buy and sell clothing regardless of whether or not brands actively participate in secondary markets, so it then becomes a question of whether brands want a piece of the pie. There’s a lot of truth here. Secondary markets are outgrowing traditional retail commerce for the first time, revenue on resale is becoming a six-digit business for leaders in the space, and consumers are indeed selling their garments and gear whether there is a brand-backed site or not.
If you talk to brands, however, they tell a slightly different story. The conversation becomes about how they’re not making a profit from these programs. Many say they’re only continuing in resale because they feel it is the right thing to do from an environmental standpoint. For this reason, brands, retailers and traders often ask us if we expect resale to become more profitable than traditional business models, and if so when. The answer? Well, it depends. How brands answer the following questions will, to a large extent, dictate how closely their experience in secondary markets mirrors that of providers’:
- In addition to added revenue, can we leverage this as a consumer engagement opportunity (and what is the financial value of that to our brand)?
- And what are the environmental benefits of this system? How can we leverage resale and rental in other ways (like improving consumer behavior orienting it away from over-consumption)?
Similar to the discussion about whether to have a standalone or integrated circularity strategy, there is no universal approach. Brands will need to do some soul searching to determine not only what they want to accomplish from a resale or rental strategy, but also whether it will help or hinder their environmental ambitions, and if there is enough added value from a consumer engagement, brand loyalty and brand recognition perspective. Oftentimes, the answer here is yes— it’s just a matter of selecting the right system to match your ambitions as a brand.
It’s time for a new paradigm
With consumers, stakeholders and entire markets increasingly viewing circularity as an urgent imperative, brands in the fashion and sporting goods industry must accept that inaction is likely to be far more damaging than beneficial. It’s time to shift away from the linear take-make-waste approach and begin shaping new business models better aligned with sustainability goals.
The approach we suggest to industry players is both strategic and tactical. Strategic in that we recommend that brands embed a circular approach into both their company’s sustainability vision and organizational culture. Tactical in the sense that brands should integrate circularity into a comprehensive environmental strategy that goes beyond carbon. These are two key priorities for us at Quantis as we partner with organizations to align business with nature and shape a future that works for people, planet and business.