SAP SE

01/15/2021 | Press release | Distributed by Public on 01/15/2021 05:20

Three Steps to Circularity in Fashion Retail

The list of what needs to be improved in the $1.5 trillion fashion industry is long. Years of producing cheap clothes using cheap labor has created an unsustainable scenario. The linear take-make-waste approach that was the backbone of the industry has resulted in mind-boggling consequences.

Synthetic fibers used in 72% of our clothing take 200 years to decompose. The apparel industry accounts for 10% of global greenhouse gases as it produces and transports millions of garments yearly. Garment workers toil 16 hours per day earning a fifth of the minimum wage required for living in dignity.

But there may be a silver lining. Thanks to COVID-19, the entire industry has been disrupted. Retailers closed their stores and the rise of online shopping has increased the need to digitize. Meanwhile, people working at home, the absence of social life, and economic uncertainly mean clothing sales are plummeting. Production has stopped, supply chains have shut down. At the same time, more and more consumers are voicing their concerns about the industry's impact on the planet.

The disruptions of 2020 have forced fashion retailers into a new era of reckoning. While the top and bottom lines have been the key markers all along, business are starting to realize that doing good and doing well can add up to doing better.

So yes, there is hope on the horizon. Fashion retailers are now beginning to focus on a new green line in accounting that can only be achieved by embracing the concept of circularity - making sure resources and products stay in use for as long as possible before being regenerated into new products.

Going Around and Around

What would a circular world of fashion look like? Imagine walking into your local retail space with a shopping bag full of old shoes and clothes to drop into a recycling bin provided by the retailer. You might stand next to a glass partition for a moment to watch a recycling machine as it disassembles, cleans, and shreds the old garments into fibers, spins them into yarn, and knits a completely new top that is whisked away on a hanger for display in the boutique.

You then stroll over to the digital wardrobe center to check out what's new on the share and resale marketplace. You select a dress and jacket for the weekend, which you will trade in the following month. And before you leave the store, you stop at the click-and-collect center, where you can try on the new lingerie you ordered online to make sure it fits perfectly before you take it home.

Most importantly, you will feel good about yourself because you were one of the more than 60% of consumers back in 2020 who said that environmental impact is an important factor in making purchasing decisions . You will experience the change that occurred driven by your power of choice-now your favorite brands are those that make sure resources and products stay in use for as long as possible before being recycled or regenerated again and again into new products.

Front-Runners

The scenario described above is not far-fetched. Many companies are already implementing innovative ways to engage customers on their journey to circularity.

Nike has introduced 'Reuse-A-Shoe' collection points at selected Nike stores, separating and turning the rubber, foam, leather, and textile components into granules used to create new footwear. If your old Apple device is still serviceable and can be refurbished, you could receive an Apple Store gift card to put toward a newer model. If not, Apple will recycle it. Hunkemöller, Europe's No. 1 lingerie retailer, encourages customers to bring back disused textiles for recycling. And global clothing retailer H&M's Looop machine is an existing, container-sized recycling system where customers can watch old textiles take on a new life.

Sustainability Dividends

The fashion industry is waking up to the fact that decreasing its environmental impact will pay big dividends to both its constituent companies as well as society at large. In fact, the authors of the State of Fashion 2021 McKinsey report expect circularity to be the next big disruptor.

As highlighted in the report, the way value is created in circular systems is radically different to how it is created in linear ones. In a circular fashion retail model, a single garment creates value repeatedly-by being sold, returned, repaired, resold, rented, or eventually recycled in a continuous loop to achieve maximum use. This in turn creates a completely new range of experiences.

Three Steps to a Circular Retail Model

While there are no standard solutions, there are three steps recommended by McKinsey's fashion industry experts: embrace circular design, ramp-up reverse logistics, and support customer adoption.

Step 1: Design for Zero Waste

Waste and pollution are the result of flaws in design. Ninety percent of environmental impact occurs at the design stage of a product, which is why the three principles of circularity are the key to a more sustainable future. This requires product and materials innovation along with a shift in mindset.

One exemplar in this area is Subaru Indiana, the first U.S. auto plant to achieve zero-landfill status. Beginning in May 2002, the company decided to send nothing to landfills, in the belief that putting anything into the land, air, or water creates a risk. By being a good environmental steward, the company is saving between $1 to $2 million a year.

To go circular, companies can start by reskilling designers and stimulating circular design innovation. They should train their own people as well as their suppliers to reduce waste in production and supply chains as well as to reuse fibers, chemicals, and other resources to the maximum extent

Step 2: Manage Waste with Reverse Logistics

While the will to become more circular already exists in many enterprises and organizations, making it happen can be hard. Many places lack proper waste-management and recycling infrastructure, and recycling technology still is not good enough. According to a 2020 SAP and Qualtrics survey published by the World Economic Forum at Davos, 61% of people globally do not have access-or the know-how-to use recycling infrastructure.

Reverse logistics is about reselling or recovering items from disposal to continue deriving value from them. One exemplar in this area is The Body Shop, a B Corp company committed to using plant-based or recycled plastic packaging. Their 'Return.Recycle.Repeat' scheme encourages customers to return empty product containers to a store for refilling or repurposing.

Retailers can help remedy the waste situation by implementing in-store circularity hubs or creating non-store collection points. Most importantly, retailers can eliminate single-use packaging and work with partners to optimize sorting facilities and recycling technology.

Step 3: Create a Customer Experience

Retailers can take a big step toward circularity by educating and encouraging consumers to translate their sustainable values into concrete actions. Involving consumers in the entire process helps create the kind of experience that goes beyond simply buying a product.

The ultimate example of offering a retail experience beyond the product is outdoor clothing retailer Patagonia. The company has an online platform for repairing, trading in, and reselling used Patagonia clothing, and not only educates consumers about the sustainability of its products, but connects committed individuals to organizations working on environmental issues in their own communities.

Values to Value

While the idea of circularity is still far from being a widespread reality, perhaps the most important takeaway for fashion retailers looking to succeed in 2021 is that doing good can certainly impact the top and bottom line. Any effort to become more sustainable and less wasteful will result in becoming a better company. But to generate value, companies need to find the right balance of people, planet, and profit.

Curious about turning your company values into business value? Check out the interactive Values to Value business simulator here to see how well you are able to maneuver your company through business challenges that can lead to a world of new possibilities.

Join the conversation at #NRF2021 and find out how @SAP_Retail solutions can help drive efficiency and deliver relevant, personalized customer experiences anytime, anywhere.

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