Circularity is getting fashionable
How clothing brands are seeing the value in building 're-commerce', rental, and repair into their business models.
The way consumers engage with fashion is changing. Yes, we continue to create 100 billion items of clothing per year on a planet of only 8 billion people. But new business models like rental, resale, and subscription are booming too. London-based QSA Partners have spent the last decade helping brands from adidas to Depop explore these new opportunities. Partner Kristina Bull shared her thoughts on how the business of fashion is evolving and how ‘most businesses can make more money by selling less stuff.’
Firstly a quick look at how the industry is evolving:
Source: Author
So what should brands be thinking about when it comes to diversifying business models? Over to Kristina for her thoughts.
🔛 1. Consumers are changing how fashion is bought and sold
On the one hand, there’s been a monumental rise in fast fashion with brands like Shein which add 2,000 - 10,000 individual styles to its app every day. These items are designed to be worn only a few times, and consumers will buy multiple things they may never wear because it is so cheap.
But now, circularity is booming too. Whilst vintage shops and peer-to-peer platforms like ebay have existed for decades, now it is the brands and designers themselves who are getting in on the new business models.
The opportunities available include:
Rentals
Subscriptions
Buy-back
Resale (of previous season / vintage goods)
These are being driven by a combination of environmental awareness, supply chain transparency particularly on human welfare, cost consciousness, and wanting creative flexibility rather than committing to certain looks.
📉 2. If a brand isn’t getting involved, they have no control over their customer experience.
When it comes to circular economy fashion (CEF) and especially resale sites, the reality is that these are not good for the brands who created the garments in the long term.
They have customers out there who are buying their brand, but they get no cut of revenues, no relationship to the customer, no data on consumer behaviour, and no control over the way that customers interact with their brand. Especially as a luxury brand, the customer experience is key.
To top it off, they are seeing the material impacts on their own sales.
Our research with peer-to-peer sales platform Depop showed that 9 out of 10 purchases made on their platform prevented the purchase of a new item elsewhere. This phenomena, known as ‘displacement’ is only going to grow with the current economic and environmental macro-economic factors.
📣 3. The biggest myth we have to dispel in the market is that if you sell less stuff, you’ll make less money.
Despite the data, brands can still be reluctant to adapt their business models. For so long the dominant narrative in fashion has been that you have to make more things to make more revenues.
There has even been a sense that operating a resale or rental part of your business can devalue the brand.
That just isn’t true anymore. Brands that embrace a circular economy model are beginning to see significant growth with new types of customers.
👗 4. The first thing we tell brands to do is reframe their ‘products’ as ‘assets’
If they think of a product, it invokes a one-time sale mentality, and thinking about the customer relationship from a single lens.
Whereas if you get people to think of an item - like a dress - as an asset, you open up a host of different business models and opportunities to own the customer relationship.
These business models can help you build a customer relationship for longer, create repeating customers, and differentiate yourselves in the market.
🔎 5. Once you have an asset, you have so many more data-points to learn from.
With one-time sales, you will only have a few data points on a customer, like what they browsed, eventually bought, and maybe returned.
Circular economy models give you so much more data to play with:
What new products did customers browse when given more flexibility around budget and commitment by renting rather than purchasing?
When exactly was the product was needed?
How long it was used for? (Renting often happens for a 4-20 day window)
How did the product fair from a durability perspective?
For subscription models, is the customer choosing relatively similar items or looking at a variety of styles?
All of these can be used for future product development, marketing, and customer service planning.
⏰ 6. Brands come to us because they’re fearful of being left behind
Brands know they need to act now to get things in place today to be ready for the customers of the future.
The challenge is that it takes time to figure out the right approach for each brand to implement - they can’t just put in all solutions at once.
We’ve see 7 steps to implementing successful circular business models.
Source: QSA Partners
Whilst doing these steps, it’s important to keep in mind:
What is the exact problem you are solving for the customer base with these new business models?
How financially feasible is this?
What would have to change in the rest of the business to make it happen?
💰 7. The main financial lever we talk about is customer acquisition costs.
Every brand is always thinking about how to grow their market share, and new customers require much more investment than repeat customers.
If customers can have multiple touch points with a brand - such as being able to rent from them as well as buying - that builds stickiness. And whilst the revenue on rentals is lower than a direct sale, the regularity of rentals can soon match up. Customers can still get the luxury experience, except now the original brand gets to benefit too.
And the reality of rentals today is that if you don’t offer it, someone else will.
For example Burberry announced a partnership with My Wardrobe HQ, the UK's top luxury rental and resale platform and in 2021 Selfridges also created a rental department for clothing and accessories.
French luxury conglomerate Kehring (which owns Alexander McQueen, Balenciaga and Gucci amongst others), even bought a 5% stake in Vestiare Collective, the leading platform for second-hand luxury as part of a ‘focus on disruptive business models that allow us to better serve our clients and improve our performance’.
⚙️ 8. Upfront investments will be needed to implement new business models
There will be new costs which have to be met, such as setting up IT infrastructure for the new product line, and customer service for that new line. For rental and subscription models you might need to add cleaning, postage, and warehousing costs.
But this is like any company trying to future-proof itself, innovation requires some investment. And the brands who think that business as usual is the answer rather than planning ahead for where the world is going, will see their business models plateau and maybe collapse.
💥 9. A lot of big brands see SMEs as the disruptors
For big brands, change can’t just happen in one department, it has to cover so many departments from product to marketing to customer service. So changing the entire system takes years.
Some large companies have already made changes: since 2019 adidas has their ‘Infinite Play’ strategy which includes product take-back, resale, rental and subscription services.
But in general, SMEs are more agile in how they do business models, they are more nimble, and many of them have designed their brands around being ethical, sustainable, recycling etc.
Lots of big brands actually hope that by buying small brands with circular economy models, this can help them bring it in-house, and spur faster disruption.
🧩 10. The market is still figuring out the right pricing structures
Today, especially with peer-to-peer resale, a lot of the clothing is undervalued so we haven’t broken the cycle of people buying things they don’t actually need.
However the more people and brands using these diverse business models, the more data points we will have and the more tools will be available to help individuals and companies better price their goods. I think that will be transformative.
Thanks Kristina!
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