Why Fashion Circularity Is Good for the Bottom Line and How to Do it Right

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Photo credit: H&M

Apparel retailers that embrace circularity have the opportunity to boost customer loyalty and create new revenue streams as shoppers grow mindful of conscious consumerism.

According to the “Keeping Customer Connections” research from PA Consulting Group, circularity in fashion can move from buzzword to bottom line impact when executed strategically. And the potential material cost savings globally could reach as much as $700 billion for companies that embrace circular business models. What’s more, the average U.S. household has $7,000 worth of unused goods hanging around, which could put $875 billion back into the economy, according to NPD data, and in the U.K., one ton of donated clothing generates $1,975, with a profit of $1,295.

There are clearly solid business cases for operating with environmental impact in mind.

As millennials have risen in buying power and influence, they’ve demonstrated a clear interest in new ways of consuming, including leasing, renting, sharing and reselling everything from clothing (e.g., Rent the Runway, Gwynnie Bee, Poshmark, thred), cars (Maven and car2go), music (Spotify) and spaces (Airbnb) instead of committing capital expenditure to an outright purchase. Millennials want access without the “burden of ownership,” according to Goldman Sachs research cited in the report.

This “mindful” mentality is driving retailers to rethink their approach to providing goods, prompting brands such as Mud Jeans to offer a leasing option alongside denim available for purchase. The program requires a one-time upfront €20 fee plus €7.50 each month that the customer wants to keep the item.

According to the brand, its Lease a Jeans program “is a guilt-free solution for conscious people that have a desire for newness.” Customers can send back their leased jeans for a new pair after a year—or whenever the garment is worn out. Most important, by taking back previously worn jeans Mud retains control of the raw materials that are recycled into new products—reducing reliance on resource-intensive virgin fibers and fabrics. The brand communicates the program as being for “forward thinking people” and “true pioneers, visionaries and changemakers.”

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That sort of language is essential, said the PA Consulting Group report, as WRAP research found that consumers often associate “leasing” with lower-income individuals (a side effect, perhaps, stemming from businesses like Rent-A-Center). They respond more positively, by contrast, to the same concept when it’s described as a club.  Regarding electronics, consumers preferred “gadget recycling” to “trade-in” and “certified refurbished” to “secondhand.”

Circularity could also give brands and retailers key insights into product design and development. A retailer that collects items for recycling or donations can better understand how long customers typically use their products, and frequently donated items can reveal design flaws and areas for future product improvement.

As much as they want to be more responsible and conscious, consumers ultimately want retailers and brand partners to provide convenient circular experiences. Two thirds of those polled would resell their items in a store’s buy-back scheme as long as it was expedient, and more than half (59 percent) expressed a desire for convenient clothing donation programs. Transparency is also top-of-mind for consumers interested in offloading unwanted apparel; 70 percent wanted to sure that their recycled or donated garments are not ending up in a landfill.

Addressing ease of access, Asda (owned by Walmart) puts clothing donation bins in its parking lots to simplify circularity for its British customers. Clothing donations, which support charity, have steadily grown from 3.5 million tons of clothing in 2014 to 4.2 million tons by 2016. Last year the company raised 1.63 million pounds ($2.25 million) between January and September, up from 1.47 million pounds ($2 million) for all of 2014.

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Marks & Spencer, another British retailer, incentives clothing donations by offering a 5 pound ($6.92) voucher to customers who drop off worn M&S items at an OxFam charity shop. This dovetails with the 35 percent of polled consumers who said they’d want a financial reward for recycling apparel.

H&M takes a similar approach, giving out £5 vouchers (valid on £25 or greater) for in-store textile donations but accepting any fabric from any brand. “The aim is to change the view of these items as ‘waste’ to ‘resource,” according to the report. Since it began collecting discarded apparel in 2013, H&M has taken back 60,000 tons of garments, an amount greater than the fabric that composes 300 million T-shirts. The fast-fashion brand has transformed some of these unwanted clothes into desirable new fashion through its closed-loop denim offerings and the H&M Conscious Exclusive collection, where price points can run as high as $399.

The most successful circularity schemes start by identifying a customer pain point and then finding a way to solve it that makes sense for the company and the consumer. Expanding into sustainability models can foster new partnerships and relationships; for example, eBay is building out a digital storefront for earth-conscious Patagonia that will offer secondhand goods—a nice complement to the outdoor brand’s own Worn Wear program for selling previously used gear.

“Working with third parties, not just other parts of your organisation, can be another route to create value and relevance for customers,” the report noted.

Consumers concerned with products’ end-of-life outcomes are driving the evolution in how retailers deliver products and services, and businesses slow to respond to this “fundamental shift” are at risk of obsolescence.

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