Circular Economy Approaches for the Apparel Industry

114 Pages·2016·2.91 MB·English

University of St.Gallen
Hochschule für Wirtschafts-,
Rechts- und Sozialwissenschaften

Circular Economy Approaches for the Apparel
Industry

Master Thesis

Author
Lukas Fuchs
Rorschacher Strasse 56
9000 St.Gallen
Student number: 09-607-763
E-Mail: [email protected]

Advisor
Prof. Dr. Thomas Dyllick
Institute for Economy and the Environment

Submitted on May 23rd, 2016
Management Summary
With the thesis at hand seven different business models have been investigated on their ability to
function as Circular Economy business models in the apparel industry. The different business
models have been explained theoretically and exemplified with real business cases from around
the world. To complement the conducted primary research, the author has conducted several
expert interviews. Then the different models’ ability to contribute to the solution of the waste and
pollution difficulties caused by the linear take-make-dispose model employed throughout the
industry is assessed. Five categories have been derived to rate the degree of change the business
models can add in the development towards a Circular Economy. The results show that only a
fully Circular Supply Chain model is able to enhance systemic change at large scale while
eliminating waste and pollution through its inherent design.

I
Table of Content
Management Summary ............................................................................................................ I
Table of Content ....................................................................................................................... II
List of Abbreviations .............................................................................................................. IV
List of Figures ........................................................................................................................... V
List of Tables ........................................................................................................................... VI
1 Introduction ..................................................................................................................... 1
1.1 Purpose and Research Question ............................................................................. 2
1.2 Method and Build-up ............................................................................................... 2
2 The Apparel Industry ...................................................................................................... 3
2.1 Fast Fashion ............................................................................................................. 3
2.2 Consumer Behaviour ............................................................................................... 5
2.3 Clothing aftermath ................................................................................................... 6
2.3.1 Landfill Fashion ................................................................................................ 7
2.3.2 Downcycling ..................................................................................................... 8
3 The Circular Economy Idea ............................................................................................. 9
3.1 Business today ......................................................................................................... 9
3.2 The Circular Economy ........................................................................................... 10
3.2.1 The Biological Metabolism ............................................................................ 11
3.2.2 The Technical metabolism ............................................................................ 11
3.2.3 Monstrous Hybrids ........................................................................................ 12
3.3 Five Business Models after Lacy & Rutqvist ........................................................ 12
3.3.1 Circular Supply Chain: „Right from the start” .............................................. 13
3.3.2 Recovery and Recycling ................................................................................. 13
3.3.3 Product Life Extension .................................................................................. 14
3.3.4 Sharing Platform ............................................................................................ 14
3.3.5 Product as a service (PaaS) ........................................................................... 15
3.4 The development of the Circular Economy .......................................................... 16
3.4.1 Inhibitors to the Circular Economy .............................................................. 16
3.4.2 The Fashion Industry: Willingness to change or lack of pressure? ............ 17
3.5 Enablers of the Circular Economy ........................................................................ 18
4 Sustainability Challenges in Apparel Production ........................................................ 20
4.1 Apparel Production ............................................................................................... 22
4.1.1 Sustainability issues in fashion ..................................................................... 22
4.1.2 Product Lifecycle Assessment ....................................................................... 23
4.1.3 Dyes ................................................................................................................ 24
4.2 Certifications .......................................................................................................... 25
5 Materials ......................................................................................................................... 27
5.1 Natural fibres ......................................................................................................... 27
5.1.1 Cotton ............................................................................................................. 27
5.1.2 Alternative Fibres .......................................................................................... 29
5.2 Synthetic Fibres ..................................................................................................... 30
5.3 Hybrids ................................................................................................................... 31
5.4 Material Recycling ................................................................................................. 31
5.4.1 Biological Fibres ............................................................................................. 32
5.4.2 Synthetic Oil based Fibres ............................................................................. 32
5.4.3 Collaborative Textile Valley in France .......................................................... 33
II
6 New business Models ......................................................................................................... 34
6.1 Sharing Platforms .................................................................................................. 34
6.2 Recovery and Recycling ......................................................................................... 36
6.3 Product Life Extension (PLE) ................................................................................ 38
6.4 Product as a service (PaaS) ................................................................................... 40
6.4.1 Professional Leasing ...................................................................................... 40
6.4.2 Varying Leasing Models and Niches ............................................................. 44
6.4.3 Introducing Mud Jeans .................................................................................. 45
6.4.4 Peer to Peer Leasing ...................................................................................... 45
6.5 Closing the Loop ..................................................................................................... 46
6.5.1 Non-Biodegradable Closing the Loop Approaches ...................................... 47
6.5.2 Biodegradable/Compostable Wear .............................................................. 48
6.5.3 Cradle to Cradle .............................................................................................. 50
6.5.4 Reverse logistics ............................................................................................ 51
6.5.5 More scale? Nike joins the Ellen MacArthur CE100 .................................... 52
6.6 Slow Fashion .......................................................................................................... 52
6.7 Zero Waste ............................................................................................................. 53
6.8 Merging the concepts ............................................................................................ 54
6.9 Management Implications ..................................................................................... 54
7 Consumer Behaviour ..................................................................................................... 56
7.1 Is Sustainability going Mainstream? ..................................................................... 56
7.2 Consumer Behaviour ............................................................................................. 56
7.3 Educating Consumers ............................................................................................ 57
7.4 Marketing Measures .............................................................................................. 58
7.4.1 Ad campaigns ................................................................................................. 59
7.5 Giving change time ................................................................................................ 59
8 Conclusion ...................................................................................................................... 60
Bibliography ........................................................................................................................... 62
List of Online References ....................................................................................................... 63
Appendix ................................................................................................................................ 81
A. List of companies covered ......................................................................................... 81
B. Further Figures referred to throughout the thesis ................................................. 82
C. Expert Interviews ...................................................................................................... 88
D. Declaration of authorship ....................................................................................... 107

III
List of Abbreviations
B2B = Business to Business
B2C = Business to Customer
bn = Billion
CAGR = Compound Annual Growth Rate
CE = Circular Economy
CO2e = Carbon Dioxide emissions
CO2-eq = Carbon Dioxide equivalent
CHF = Swiss Francs
EEB = European Environmental Bureau
EST/FAO = Economic and Social Development Department of the Food and
Agriculture Organization of the United Nations
GBP = Great Britain Pound
GDP = Gross Domestic Product
GHG = Green House Gas
GM = Genetically modified
gr = Gram
ICAC = International Cotton Advisory Committee
Kg = Kilogram
KPI = Key Performance Indicator
LCS = Life Cycle Approach
M&S = Marks & Spencer
mil = million
MIT = Massachusetts Institute of Technology
Mt = Mega Tonnes
NGO = Non Governmental Organisation
P2P = Peer 2 Peer
PLE = Product Life Extension
PO4e = Phosphate emission
PPP = Public Private Partnership
RLMM = Reverse Logistics Maturity Model
RRS = Resource Recycling Systems
Sb-e = Antimony
SME = Small and medium sized enterprises
UK = United Kingdom
UN = United Nations
US = United States of America
USD = US Dollar
Yoy = year on year
Yr = Year
ZDZH = Zero Discharge of Hazardous Chemicals

IV
List of Figures

Figure 1: Apparel market size projections from 2012 to 2025, by region (in billion (bn) U.S.
dollars (USD), Statista, 2016a) ............................................................................................................................ 5
Figure 2: Circular Economy System Diagram (Ellen MacArthur Foundation, 2016d) ....................... 11
Figure 3: Aggregate Clothing Life Cycle GHG Emissions (BSR, 2009, p.7) ............................................... 23
Figure 4: Nudie Jeans Repair Shop (Nudie Jeans, 2016b) ............................................................................... 39
Figure 5: Overview of Selected Apparel Leasing Companies (own representation) ........................... 44
Figure 6: Leasing Scheme (Mud Jeans, 2016d)a .................................................................................................. 45
Figure 7: Freitag Compostable E550-33 Male Workpant Ochre before-after (Steiner, 2014) ....... 48
Figure 8: Apparel Fibre Consumption developed & developing countries (FAO UN & UCAC, 2013,
p.3) ................................................................................................................................................................................ 82
Figure 9: Spending on clothes as share of total spending (US) (Bain, 2015) ......................................... 82
Figure 10: Spending on clothes as share (Bain, 2015) ..................................................................................... 82
Figure 11: Garments per capita (Bain, 2015) ....................................................................................................... 83
Figure 12: 5 Business Models after Lacy & Rutqvist (2015) .......................................................................... 83
Figure 13: Key Players and Drivers for Change (Graff, 2016) ....................................................................... 84
Figure 14: World Circular Economy Flow (Haas, 2015) .................................................................................. 84
Figure 15: Levi's 501, PLA (Levi's, 2015) ............................................................................................................... 85
Figure 16: Worldwide production volume of chemical and textile fibers from 1975 to 2014
(Statista, 2016c) ...................................................................................................................................................... 85
Figure 17: 5 reasons why not to use cotton (Freitag, 2016e) ....................................................................... 86
Figure 18: Organic Cotton Production (Organic World, 2016, p.128) ....................................................... 86
Figure 19: One tranche of Vigga clothes (Vigga, 2016d) ................................................................................. 87
Figure 20: Jigsaw slow Fashion advertisement (Chua, 2015) ....................................................................... 87
Figure 21: Patagonia Advertisement adressing U.S.A Black Friday madness (Lutz, 2015) ............. 88

V
List of Tables

Table 1: Advantages & Disadvantages of Sharing Platforms (own representation) ........................... 36
Table 2: Advantages & Disadvantages of Recovery & Recycling (own representation) .................... 38
Table 3: Advantages & Disadvantages of Product Life Extension (own representation) ................. 39
Table 4: Advantages & Disadvantages of Product as a Service (own representation) ....................... 46
Table 5: Advantages & Disadvantages of Closing the loop (own representation) ............................... 49
Table 6: Advantages & Disadvantages of Cradle to Cradle (own representation) ............................... 50
Table 7: Advantages & Disadvantages of Slow Fashion (own representation) ..................................... 53
Table 8: Advantages & Disadvantages of Zero Waste (own representation) ......................................... 54

VI
1 Introduction
Simplicissimus by Grimmelshausen was published in 1669, yet it is so relevant and contemporary.
The episode of book “Continuatio” chapter 11 (1984) shows us how natural it has been to reuse,
recycle, upcycle, compost – simply circulate things - in the history of mankind. A piece of toilet
paper tells its journey. Starting off as a single hemp seed it grows into a hemp plant, processed
into fibre, and spun into linen. This linen was then used to manufacture a shirt. When the shirt
became worn out it was reused as diapers, not once but washed and used many times until it was
worn out again. Then it was cut into pieces and used as cloths many times. Some time later it was
of no use any more even as a cloth, but treated again and manufactured into paper and used for a
book. “Until that I must have gone through 36 different hands”. It was proud of being part of a
Vergil (lat. literate) book and used to study a lot. The heirs of the book however had no use for it,
tore it apart, used it as wrapping paper, subsequently as toilet paper and later burnt it. The fibre
over many years had been used for six stages and many different purposes until it was burnt to
ashes and brought back into nature’s cycle as fertiliser.
Over the past decades and fuelled by the industrialisation, a linear take-make-dispose economy
has evolved that has moved far away from maximising every material’s utility for as long as
possible. On the contrary – apparel has become cheap and cycles have become incredibly fast
allowing for wasteful consumption patterns. But those benefits come at high costs. Fibre
production and manufacturing facilities pollute the environment, large amounts of clothes are
under-utilised or even unworn, and substantial cast-off apparel are going to landfill. The
negligence of the old circular principles has allowed for such a state of the economy to evolve.
However, the system has started to reach its limits. Increasing population and larger middle
classes have driven up demand for resources as well as commodity prices, accompanied by
greater price-volatility, a development that is expected to continue or even intensify. If companies
want to become more independent from virgin resource production, they need to employ a system
that is able to turn garment waste into valuable input material for new clothes. Such a system is
referred to as the circular economy. This thesis aims at bringing to light opportunities that help
transform today’s linear apparel economy towards circularity in a practical way. It is shown how
circular economy business models are already competitive and creating new markets.
Furthermore, the business models are assessed on their potential contribution for the reduction
of pollution and waste generated by the industry today.
As Braungart and McDonough put it: “The role of commerce is to stay in business as it transforms”
(2002, p.151). This thesis shows both how this transformation is happening in the apparel
industry and how companies can utilise the different business models.

1
1.1 Purpose and Research Question

Purpose of this thesis is to investigate the necessity and potential benefits of Circular Economy
(CE) business models in the fashion industry. CE business models have grown in prominence only
in recent years. Firstly, this thesis aims at introducing companies that have adopted such models
and show their success in the market that is still dominated by a linear lock-in. Secondly, the speed
at which people consume clothes is getting faster and faster. This leaves the industry with a
growing concern over large piles of cast-off garments filling up landfills. Therefore, a special focus
will be put on the actual life of garments as well as the waste-problem that is suspected to be
getting out of hand. It will shown how CE developments can help solve issues of waste and
environmental pollution. The research question reads as follows:

Circular Economy Approaches in the fashion industry.
How can companies contribute to solving the problem of shorter product lifecycles and growing
amounts of pollution and waste produced by the apparel industry?

1.2 Method and Build-up

Since the concepts are fairly new and relatively little research has been pursued, the author has
mainly conducted primary, qualitative research. To obtain the necessary information the author
has performed expert interviews, company interviews, and utilized online company information.
A number of companies have been analysed in greater depth with regards to their business model.

To start off, the fashion industry will be introduced from a macro perspective showing the
industry’s growth in recent years with a focus on the fast fashion development and its implications
on consumer behaviour and fashion waste creation. The environmental issues caused be the
fashion industry are then brought to light. Subsequently circular economy theory is introduced.
The theoretical framework by Lacy and Rutqvist (2015) is merged with McDonough’s &
Braungart’s Cradle to Cradle model, and supplemented by fashion specific business models. After
the business models are explained a number of enablers and inhibitors to the CE are introduced
that explain today’s state of the CE and allow a glimpse into future developments. The theory is
then applied onto businesses in the apparel industry.
The different business models will then be awarded by a rating system based on five different
dimensions. Their possible effect on scaling circularity, reducing pollution in the supply chain,
intensifying product use, avoiding or even eliminating apparel waste, and the degree of systemic
change with the ultimate goal of indefinite circularity. For each category fulfilled with positive
impact, the business model will receive a star.

2
2 The Apparel Industry

"The specificity of the fashion business is that it is subject to trends," says Prof. A. King. "As such
it brings suppliers to seasonally offer consumers new alternatives to stimulate their purchases”
(2012).
The fashion industry has developed into a 3 trillion USD industry and accounts for 2% of the
worlds GDP (comp. Fashion United, 2016a). World clothing exports accumulated to 483 Billion
USD, accounting for some 2.6 percent of world exports, a 15 percent increase since 2010 (WTO,
2015, p.72). According to the documentary true cost “it is estimated that one in six people alive
today work in some part of the global fashion industry, making it the most labour depended
industry on earth (Morgan & Ross, 2015, 24:06)”.
As of April 2016 two companies, Inditex and Nike, have even reached a market capitalisation of
over 100 billion USD. The top 5 comprise of Inditex on the top, followed by Nike, Moët Hennessy
Louis Vuitton (LVMH), Hennes & Mauritz (H&M), and TJX Companies (TJX). It is no surprise that
two fast fashion companies are ranked in the top five, complemented by Fast Retailing, who owns
the global brand Uniqlo, sitting on rank 9. The top 100 companies in market capitalisation make
up over one trillion in revenue therefore accounting for more about third of the overall industry’s
revenue (comp. Fashion United, 2016a).

2.1 Fast Fashion
“Fast fashion poses a threat since its logic is based on copying the designs of high-end producers
and quickly diffusing them - sometimes even before the high-end goods, which are based on a
complicated and high quality supply chain, are distributed. As such, it mines the overall
investment in style by design departments of high end producers” (Chau, 2013). How have those
fast fashion companies evolved and what are the consequences for the environment?

“Computer technology transformed the entire process, enabling retailers to design, manufacture
and ship products much faster and more efficiently” (Zarroli, 2013). So technology enabled the
business model of fast fashion brands like H&M, Zara, Uniqlo, Forever 21 who have moved beyond
producing just one collection for every season. New styles are in store every week. "We want to
surprise the customers," says H&M’s Margareta van den Bosch. "We want to have something
exciting. And if it's all the time hanging the same things there, it is not so exciting" (2013). Zara
has famously mastered the model and set industry standards in terms of time to market. Even
though different sources talk varying timeframes, the speed at which Zara is able to replenish
their shelves is enormous. “They only need one month from starting the concept to having the
garments it in their stores” (Zarroli, 2013). “Zara has developed a super responsive supply chain.
The company can design, produce, and deliver a new garment and put it on display in its stores
3