The value of the circular economy to the retail sector

Many articles have been written about the impact of fast fashion on the Global South in terms of creating a mountain of waste textiles and undoubtedly negative impacts this trend has had on the environment and social structures of these countries. There is however considerably less discussion of what can be done to make changes that will positively influence this situation. Adopting the principles of the circular economy by design, from creation of the product itself can sow these seeds of change.

That does not mean there is not a very real challenge, between years 2000 and 2015, clothing production doubled, whilst the number of times garments were worn dropped by 36%. The fashion industry is responsible for more annual greenhouse gas emissions than all international flights and maritime shipping combined. What happens between these items purchased and their final disposal matters.

The question is; can the current vicious circle become a more virtuous one in time? We explore this question through the example of denim jeans.

What do we mean by the circular economy?

The circular economy in retail looks to rethink the traditional linear model of ‘take-make-dispose’. It puts the focus on a sustainable value chain that reduces waste and extends the lifecycle of products. Retailers are encouraged to design with durability and longer life as well as promoting alternatives to outright purchase. Materials become recoverable through refurbishment or repurposing at the end of their initial life.

In simple terms, according to the Ellen MacArthur Foundation, this means:

• use more
• made to be made again
• made from safe recycled or renewable inputs.

In practice this means a mindset shift for retailers – it is no longer just about quantity but more about quality and innovation in product design with more durable, reusable or recyclable material selection. It could also be about offer subscription models alongside sales, which allow consumers to access goods without owning them, through rental or sharing arrangements.

Why is this important?

The circular economy in concept is a closed-loop system where resources are used wisely and waste is minimised. It offers retailers a competitive edge where consumer demand is growing for truly sustainable options.

It is important to consumers because it decreases retailers’ environmental impact whilst potentially increasing customer brand loyalty and tapping into new diversified revenue streams.

Wider stakeholders such as investors and regulators expect greater transparency in corporate reporting. Retailers operating within the European Union will recognise that the new Corporate Sustainability Reporting Directive (CSRD) is requiring organisations to disclose their approach to their most material sustainability issues. Sustainability standards issued in support of CSRD include E4: ‘Biodiversity and Ecosystems’ and E5: ‘Resource Use and the Circular Economy’. In both cases retailers falling within the scope of these reporting requirements will need to articulate their strategies and plans for addressing these exposures as well as reporting on progress made over time. Disclosures will be subject to limited assurance review by external auditors.

Currently the UK is taking a different approach to disclosure, with a narrower focus on climate impact. We anticipate the guidance from the Transition Plan Taskforce (TPT) for the setting and monitoring of net zero plans to be adopted first, prior to broader assurance being sought. Regardless of timing, external pressure is mounting for transparent disclosure of how environmental impacts and carbon emissions are being reduced over time along the entire value chain, including suppliers.

What might this look like in practice?

The Ellen MacArthur Foundation is demonstrating the way forward for circular design in the fashion industry is an interesting alternative perspective which, although not operating at scale yet offers some hints of a possible solution.

We all love our denim jeans and won’t want to think that our clothing choices are contributing to waste and pollution that is negatively impacting people or diversity in other countries. The Jeans Redesign programme is a project that involves over 100 brands including market leaders such as Levis, Lee and Wranglers as well as retailers such as Primark, Marks & Spencer and Urban Outfitters. The outcome was a set of industry guidelines used to lift common standards and share learning on product innovation and testing.

This was not just a research project. 72% of the participating organisations managed to redesign their denim products which resulted in 1.5 million pairs of redesigned jeans coming to market between 2021 and 2023, proving that it can be done. It is reported that three-quarters of garment manufacturers and fabric mills can produce to these guidelines. The lessons learned can and have been applied more widely by brands with 29% of manufacturers reporting applying the principles to jumpers, tops and accessories. The concept has been proven and it now comes down to design choices and gaining efficiencies of scale through wider adoption.

Scale of the challenge

Consumers are currently shielded from the inconvenient reality that their consumption is having a very real negative impact. According to the Ellen MacArthur Foundation, less than 1% of used clothing is currently remade into new garments, unlike 9% of plastic and nearly 50% of paper. The answer remains to buy less, buy better and wear longer but also redesign products with their reuse, repurposing and end-of-life disposal in mind.

Collaboration is key across the value chain but also engagement with consumers. Innovation is required to allow non-recyclable or disassembled components to be replaced. Some solutions simply did not exist prior to the initiative with new demand driving research. Each stage of the process can play its part with use of organic and recycled materials in new garment manufacture. Collaboration is also important up and down the value chain because of the long-term nature of some of these changes, sending buying signals to create the confidence required to make the investments needed.

The infrastructure is clearly currently weak for capturing and using recycled materials, hence many garments still finding their way into landfills in the Global South. Collaboration and investments are equally required to establishing recycled content as a preferred feedstock and establishing more mature infrastructure for collection, sorting and recycling. Brands, such as H&M, publicly committing to sourcing a minimum percentage of post-consumer recycled garment materials is a first step in stimulating demand for this infrastructure.

Consumers continue to look for more sustainable options but given the cost-of-living pressures they face, are not being able or willing to pay more for these products. Retailers are in a unique position of both trust and influence to shift the debate away from the negative impacts of fast fashion and towards the benefits of circular fashion. In terms of retailers’ own impact on the environment, shifting consumer buying habits might be their greatest opportunity to do good.

Please get in touch with Alex Hindson or your usual Crowe contact for more information.