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The Circular Economy is a Business Opportunity and Imperative

The circular economy isn’t just good for the planet, it’s also good for business.

So concludes a new report by Fashion for Good and Accenture Strategy, the first to explore the financial viability of circular business models in the fashion history.

Published Tuesday, “The Future of Circular Fashion: Assessing the Viability of Circular Business Models” takes a deep dive into the prospects of one-off rentals, monthly subscription rentals and resale (also known as re-commerce) across the value, mid-market, premium and luxury sectors.

All three models, the report’s authors note, present opportunities that can drive a higher margin per garment compared with the linear model which serves as the baseline. While rental appears to be “very attractive” in higher-value segments and subscription rental has “consistently strong potential,” re-commerce is the most financially attractive of all the models analyzed. Among segments, luxury seems to represent the biggest opportunity, while the variable costs associated with each model makes the value market “consistently challenging.”

“Our findings challenge value retailers to innovate low-cost fulfillment channels, to get better data on garment durability, to implement changes in product design to improve quality and to change the perception of low-cost fashion as disposable,” the authors wrote.

In the case of the mid-market and premium sectors, financial viability appears to depend on a few key levers. For rental, the business proposition varies according to the number of rentals, rental price, postage and packaging. For subscription rental, customer acquisition cost and the number of garment exchanges can affect profit margins. As for re-commerce, inventory acquisition cost, re-commerce price and logistics can either promote or impede success.

Hard numbers aside, circular business models can boost the bottom line by improving customer engagement and retention. The visibility of customers’ product usage data can also offer advantages for circular models over traditional retail, the authors added.

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Environmentally speaking, circularity’s ability to curb waste is undeniable. “Each of the models has the potential to fundamentally change the commercial incentives of the fashion industry,” the report noted. “It could shift from a volume focus to an industry that is incentivized on quality—in which garment durability and number of uses would become the critical enablers of commercial viability.”

These benefits, however, are not guaranteed, the authors warned. To allow for these environmental advantages, new business models must be designed with an “explicit sustainability focus.”

A manifesto

Moving from a system of “take, make, dispose” to one where resources are continually cycled back for reuse is also a foremost concern for five leading apparel organizations, which have partnered to urge European Union policymakers to accelerate a circular economy in textiles.

The European Apparel and Textile Confederation, Federation of the European Sporting Goods Industry, Global Fashion Agenda (GFA), International Apparel Federation and the Sustainable Apparel Coalition released a so-called manifesto on Monday calling for the “unprecedented collaboration” combating fashion waste will require.

The manifesto stressed that the industry must adopt new, technologically innovative solutions such as separating fibers for reuse and upcycling. It also demanded “more groundbreaking policy measures,” tailored to everything from small and medium-sized enterprises to multinationals, and “smart regulations” to help consumers rethink the way they use and dispose of their garments.

“This manifesto is extremely significant as it is the first time so many influential organizations in the fashion industry have come together to work with policymakers on a unified approach to circularity,” Eva Kruse, CEO and president of the GFA, said in a statement ahead of the Copenhagen Fashion Summit in Denmark.

Consumption, she pointed out, is only going to grow, which means time is of the essence.

“If we do not act now to find a solution to the take-make-dispose model, the strain on our planet will get much worse,” Kruse said. “We urgently need widespread collaboration between industry and regulators to enact impactful circular solutions, and I hope this manifesto will help to drive change at scale.”