In an industry where sustainability, or at least the appearance thereof, is rapidly becoming table stakes, brands are loath to acknowledge the elephant in the room: their need to pump out ever-increasing volumes of goods in order to maintain shareholder-pleasing revenue trajectories.
This has resulted in a disconcerting disconnect that will come into increasing focus as concerns about labor rights and climate change mount, said Catherine Tubb, senior investment analyst at financial think tank Planet Tracker. Unchecked consumption, she noted, is fundamentally at odds with living within what experts have described as a “safe operating space for humanity.”
“All anyone cares about now is did they grow?” she told Sourcing Journal. “Investors want to know about sustainability but ultimately they’re interested in shareholder returns and missed expectations.”
But promoting sustainability on the one hand and ignoring consumption on the other could usher in legal peril. Brands that tout their commitment to the environment while maintaining business as usual could draw the attention of regulators cracking down on corporate greenwashing. The Netherlands Authority for Consumers and Markets, for instance, has already begun imposing fines on businesses trumpeting unsubstantiated sustainability claims. In the United Kingdom, the Competition and Markets Authority warns that it “stands ready to take action against offending firms” that flout its Green Claims Code with deceptive marketing.
Attracting such censure might not mean much to businesses that don’t take sustainability seriously but they could be substantial for companies like Patagonia that make people and the planet a cornerstone of their narratives, Tubb said. Some research shows that being accused of greenwashing can drag on financial performance, whether through reputational damage or monetary penalties.
With the regulatory landscape tilting toward extended producer responsibility and mandatory supply-chain due diligence, the pressure on companies to take action to address this risk will intensify. It will be an uphill battle, however: In a recent survey of consumer business websites, the International Consumer Protection and Enforcement Network, a network of consumer-protection authorities spanning 65 countries, found that as many as 40 percent of environmental claims could be misleading the public.
While it’s true that revenue growth is a handy yardstick for determining a company’s performance, it’s also true that it doesn’t have to derive from increasing volume, Tubb said.
Instead of responding to the latest trends with mass quantities of clothing, the H&M of the future might pivot to more service-oriented offerings, such as rental, resale, repair. Companies could even make money from taking back items for recycling.
Secondhand clothing, in particular, presents a major financial opportunity for brands willing to make big bets. In the United States, the market is expected to grow 11 times faster than traditional retail to reach $77 billion by 2025. In a vote of confidence, luxury e-tailer Farfetch recently acquired “full circle” platform Luxclusif for an undisclosed sum, allowing it to expand its own resale capabilities. Diesel, Steve Madden and Urban Outfitters just got into the act, as will Ganni. Third-party firms like ThredUp and Poshmark are also expanding.
Digital fashion offers another revenue stream for brands as the so-called “metaverse” blurs the boundary between the virtual and real. “You’re not producing anything physical,” Tubb said. Louis Vuitton has created skins for cyber-battle arena League of Legends, while Nike, Tommy Hilfiger and Vans have dropped avatar accessories for Roblox, a popular world-building platform. Outside the gaming world, H&M just launched a virtual collection that will be “digitally fitted” onto the winners of its contest. NFTs, or non-fungible tokens, which verify ownership of digital assets using blockchain technology, have also created another route for monetizing digital fashion.
All of this requires a substantial shift in mindset, not only for the brands themselves but also for the investors who underpin their financial operations. Still, Tubb is optimistic. If Netflix can transition from renting physical DVDs to king of the streaming giants, then others can successfully make a similar leap. “Businesses can change,” she said. “The business of today is not necessarily the business of the future.”