Sustainable Fashion Industry – From Fast Fashion to Resale
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Weissknight Corporate Finance
The sustainable fashion trend
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A shift in consumer behavior with impact and forthcoming legislation
The retail industry is in the process of undergoing a radical transformation, whereby sustainability has redefined consumer preferences and values and become a competitive advantage among retailers.
By embracing sustainability, the retail industry can respond to the pressure from consumers, legislation and other stakeholders and, at the same time, make their business more profitable by attracting Millennial and Generation Z consumers, saving costs and increasing efficiencies.
Sustainability in retail has become a prominent issue leading retail trends with its transversal relevance across a wide range of fields, such as environmental sciences, business, and social sciences, and terms such as sustainable development, asset waste, sustainable supply chain, supply chain management, and corporate social responsibility.
In particular, the fashion industry saw the most significant changes within the retail sector, as outcries against wasteful consumption and fast fashion gave rise to an alternative model known as the circular fashion system.
Consequently, critical factors such as the spread of environmental and ethical consciousness and the related legislation had triggered a new trend for both fashion retailers and brands, namely secondhand resale services. Fashion brands are now looking into resale strategies in order to benefit from the fast-growing secondhand market.
The textile industry is in a paradigm shift due to increasing awareness and demand for more sustainable ways of producing our clothes.
A big part of the problem is the low utilisation rate of clothes already made. This demand for more tolerable ways is rising from many fronts – consumers, authorities and legislation.
In 2019, the second-hand market expanded 21 times faster than conventional apparel retail. Also, the second-hand clothing market is projected to more than triple in value in the next 10 years – from $ 28 billion in 2019 to $ 80 billion in 2029.
The most considerable growth is estimated to come from new resale models, including online second-hand.
Overview of the Textile Industry
The fashion market statistics show that the apparel and textile sector is the 4th biggest globally: the industry has a labour force of 3,384.1 million. Its value is equivalent to 3 trillion dollars. That means it corresponds to 2% of the world’s Gross Domestic Product (GDP).
Almost 75% of the world’s fashion market is concentrated in Europe, the USA, China and Japan.
After nearly two years of disruption, the global fashion industry is once again finding its feet: Companies are adapting to new consumer priorities, and digital is providing a nexus for growth. Still, the industry faces significant challenges amid supply-chain disruption, patchy demand, and persistent pressure on the bottom line.
The fashion industry is one of the most challenging industries impacted by hundreds of factors, including economic uncertainties and digital transformation. In response to this new digital wave, consumer expectations have reached an all-time high. Shoppers are no longer content with the simple purchase transaction; they want to have an experience attached to it. For fashion brands, this means that they have to become digitally savvy to be flourishing.
Sustainability dominates consumer priorities and the fashion agenda.
Shoppers want to know where materials come from, how products are made, and whether the people involved are treated fairly.
In response, more and more companies are expanding their sustainable assortments and working to boost the sustainability of their supply chains.
As part of those efforts, some are leveraging digital product passports. These can be embedded in items to support after-use activities such as resale and
Sustainability pressure comes not only from consumers but now more and more also from legislation.
Fast fashion – the constant production of new styles at very low prices – has led to a big increase in the quantity of clothes produced and thrown away. This impact is often felt in third countries, where most production takes place. The production of raw materials, fabrics and dyeing require enormous amounts of water and chemicals, including pesticides for growing raw materials such as cotton. Consumer use also has a large environmental footprint due to the water, energy and chemicals used in washing, tumble drying and ironing, as well as to microplastics shed into the environment.
It is estimated that the fashion industry is responsible for 10% of global carbon emissions. That is more than international flights and maritime shipping combined.
Used clothes mostly end up in landfills. Various ways to address these issues have been proposed, including developing new business models for clothing rental, designing products in a way that would make re-use and recycling easier, convincing consumers to buy fewer clothes of better quality, and steering consumer behaviour towards choosing more sustainable options.
Sales of fashionable clothing and goods, as well as related services represent approximately the overall so-called Fast Fashion Market.
Fast fashion refers to items that are quickly transitioned from the runway to the store in order to keep up with the latest trends.
Fast fashion is defined as the supply of the most recent runway trends at a low cost of production and little upkeep, making it accessible to the general public. To put it another way, fast fashion refers to the capacity to catch the most recent fashion trends and convey them to people in the same amount of time as fast food.
Fast fashion has risen from out-of-the-box thinking that departs from convention, which includes a shift from planned production to quick response production, a transition from local business to global business, a change from following trends to leading trends, and a shift from media-centric marketing to spatial marketing. The major advantages of fast fashion are short production time, more styles, and lower quantities. The disadvantages are an imitation of original products and false price notion.
The global fast fashion market is relatively fragmented, with a large number of small players. The top ten competitors in that space made up 29.13% of the total market in 2020. Notable players include Inditex (Zara SA), H&M Group, Fast Retailing (Uniqlo), The Gap, Inc., and ASOS Plc.
However, and more than ever, sustainability dominates consumer priorities and the fashion agenda.
Sustainability Challenge of the Textile Industry
A 2021 report from the World Economic Forum identified fashion, and its supply chain, as the planet’s third-largest polluter (after food and construction).
United Nations Climate Change News states that the fashion industry contributes around 10% of global greenhouse gas emissions due to its extended supply chains and energy-intensive production, more than all international flights and maritime shipping combined.
In terms of waste and recycling:
Single-use outfits generated 208M lbs. of waste in 2019.
1 in 2 people are throwing their unwanted clothes straight in the trash. The result? 64% of the 32B garments produced each year end up in the landfill.
The Environmental Protection Agency reports that Americans generate 16 million tons of textile waste a year, equalling just over six per cent of total municipal waste (for context, plastics make up 13 per cent of America’s waste stream).
Between 2000 and 2014, clothing production doubled, with the average consumer buying 60 per cent more pieces of garment compared to 15 years ago. Yet, each clothing item is now kept half as long.
The fashion industry produces nearly 20% of global wastewater.
According to Green America, textile dyeing is the second-largest water polluter globally.
The textile industry is one of China’s top 3 water-wasting industries, discharging over 2.5 billion tons of wastewater every year.
Consumers throw away shoes and clothing (versus recycle), an average of 70 pounds per person, annually.
Up to 95% of the textiles that are landfilled each year could be recycled.
Growth of the Secondhand Market
Since 1996, the amount of clothes bought in the EU per person has increased by 40% following a sharp fall in prices, which has reduced the life span of clothing. The way people get rid of unwanted clothes has changed, with items being thrown away rather than donated. Europeans use nearly 26 kilos of textiles and discard about 11 kilos of them every year. Used clothes are mostly (87%) incinerated or landfilled.
Recent studies indicate that the most efficient way to minimise the environmental impact of the textile industry is to increase the number of times each garment is used. This has led to the promotion of circular economies and the secondhand market.
In 2019, secondhand market expanded 21 times faster than conventional apparel retail. Furthermore, the global secondhand clothing market is projected to grow 127% in just 5 years. The biggest growth is estimated to come from new resale models including online secondhand.
Consumers have become increasingly interested in eco-friendly clothing options. Focus on sustainability, and a higher degree of consciousness have propelled the second-hand apparel market growth.
Customers and companies are becoming aware of the need for fashion renovation, with consumers expecting transparent procedures.
Fast fashion, which contributes to pollution, climate change, and unethical labour practices, has given way to the sustainable fashion movement.
Consumer demands, circular economies and online marketplaces are driving the growth of the second-hand market. This has led to an increased monetary value of secondhand items – good quality clothes are no longer considered as trash.
Legislation as a New Driver
Legislation is starting to put more and more of the pressure on textile industry. In March 2022, EU Commission launched a new Circular Economy action plan.
The Action Plan presents new initiatives along the entire life cycle of products in order to modernise and transform economy while protecting the environment. It is driven by the ambition to make sustainable products that last and to enable our citizens to take full part in the circular economy. Driving new business models will boost sorting, reuse and recycling of textiles, and allow consumers to choose sustainable textiles. Ecodesign will apply to a broader range of products: clothes will be made to last longer.
The Commission also presented a new strategy to make textiles more durable, repairable, reusable and recyclable, to tackle fast fashion, textile waste and the destruction of unsold textiles, and ensure their production takes place in full respect of social rights.
“By 2030 textile products placed on the EU market are long-lived and recyclable, to a great extent made of recycled fibres, free of hazardous substances and produced in respect of social rights and the environment. Consumers benefit longer from high quality affordable textiles, fast fashion is out of fashion, and economically profitable re-use and repair services are widely available. In a competitive, resilient and innovative textiles sector, producers take responsibility for their products along the value chain, including when they become waste. The circular textiles ecosystem is thriving, driven by sufficient capacities for innovative fibre-to-fibre recycling, while the incineration and landfilling of textiles is reduced to the minimum.”
The “Resale” market – a Blue-Ocean opportunity
As consumers become increasingly concerned by the environmental impact of clothes production, transportation, and waste (greenhouse gas emissions, water consumption, landfills), many increase their second-hand consumption to limit their carbon footprint.
Resale platforms especially drive the second-hand market boom.
These digital resale marketplaces – such as Depop, Vinted, Vestiaire Collective, ThredUP or the RealReal – connect consumers with no intermediary; hence they are called a „C2C (consumer-to-consumer) model“.
They are expected to go from $15 billion in 2021 to $47 billion in 2025 in the US only.
And the leading marketplaces have raised hundreds of millions of dollars in just a decade: Vestiaire Collective raised $ 240 million, The RealReal $ 357 million, Vinted 260 million, Depop $105 and ThredUP $ 305 million.
Until now, the second-hand market has almost entirely been running outside the fashion industry and its core brands.
The labels have not had any control of the market, nor have they had any revenues from this demand.
This is now rapidly changing as new resale services are being founded mainly in the US and Europe (second hand as such is only starting to pick up in Asia so that market will follow but is maybe 2-3 years behind the US and Europe).
As the second-hand trend is becoming more mainstream, it has drawn the attention of traditional brands.
Whether it be clothes donations, thrift stores or digital resale marketplaces: a diversity of models are emerging to answer new demand for a more impactful offer.
More and more brands are creating new concepts to include second-hand alternatives on top of their traditional offer. In that respect, 60% of fashion retailers have presented or are open to providing second-hand to their customers.
For instance, Levi’s launched its own second-hand website, „Seconhand Levi“; likewise, Aigle launched its resale website “Second Souffle” and Decathlon “Seconde Vie”, Nike created a new service dedicated to second-handcalled “Refurbished”.
Other brands are opting for partnerships to encourage customers to turn to second-hand, as the BCG study points out that 62% of respondents say they are more likely to purchase from brands that partner with second-hand actors. For instance, Stella McCartney partnered with The RealReal in 2018 and offered $100 vouchers to customers buying Stella McCartney through The RealReal.
More and more consumers are interested, when buying new, in the expected second-hand value of the garment. Several consumers are curious whether the supplier offers recycling services.
Bain & Co have forecasted that by 2030 more than 30% of the major fashion brands’ earnings would come from second-hand sales. LVMH’s brand new sustainability strategy states that, also by 2030, 25% of its profits will come from circular business.
Thanks to new and innovative business and earning models, the fashion industry is moving into more sustainable practices. The circular solution developed allows fashion brands to benefit from the rising value of secondhand garments.
The following 10 years will see the resale market grow much quicker than traditional retail, with second-hand clothing expected to be twice the size of fast fashion by 2030.
The data suggests that second-hand fashion is also growing faster than sustainable fashion, with consumers turning to resale, which has partly happened due to the emergence of different easier-to-use resale sites, making it more straightforward and appealing for consumers to both sell and buy second-hand goods.
This has happened quite dramatically over the past 12 months: 118 million consumers have tried reselling for the first time in 2021, compared with just 36.2 million first-time sellers in 2020.