19 November 2014

Will climate change help clothing retailers hit a circular target?

One of the main challenges to the sustainability of our environment is consumerism. Fuelled by cheap credit, a key sector which relies and exploits this phenomenon is clothing retail.  This blog will argue that although some clothing retailers are proactively tackling some key sustainability issues, there is an elephant in the room - retailers want you to buy more of their clothes.  This, I'm afraid, is a nut which needs to be cracked before retailers can proudly talk about taking a leadership position on sustainability. And if they get this right, mindsets of consumers can change, and we might see a change in behaviours impacting other sectors too.  Re-writing a business model isn't easy (ok, as an incumbent, it's almost impossible), but in this case, climate change may be a useful nudge.

Sustainability for clothing retailers today

In a very simple model, we can look at clothing retailers as sitting between their upstream supply chain (making the clothes), and the consumers downstream (who buy lots of clothes):

A simplified 'value chain' for clothing retail

I've applied a simple 'RAG status' against each area to grossly generalise where the sector is progressing well, and where there's much more to do:

GREEN - Clothing Retail (own operations)

Leading clothing retailers have realised that resource efficiency is a good thing - for meeting regulation, reducing operational costs, and enhancing reputation.  This is fine, but is expected behaviour now, so meeting targets like the following are expected (by me!):
  • Ongoing reductions in (scope 1 and 2) carbon footprint - e.g. emissions associated with running stores and fleets of owned transport; new (ok, not that new) technologies like LED lighting and store refit programmes should deliver ongoing savings - and there's a business case in cost savings there for the taking
  • Zero waste to landfill.  Helped with proactive reuse and recycling, and as a last resort, waste-to-energy conversion
  • Low-carbon stores - either as new build, or significant retrofit, but acknowledged to be challenging for some older estates
  • On-site/near-site energy generation - PV, etc.
  • Minimising net water use (use of water harvesting from roofs, etc.)

 AMBER - Supply Chain / manufacturing

The conditions of supply chains is frequently under the spotlight, and rightly so. NGOs have been incredibly effective in highlighting problems in developing countries to western consumers, and things are improving - take the 'Accord on Fire and Building Safety in Bangladesh' following the Rana Plaza disaster as a good example.  I don't think any retailer is complacent about this area, and acknowledges robust auditing through multiple layers of organisations is not watertight.  Typical targets include:
  • workers' rights (hours, conditions, pay, etc.)
  • pollution control in factories
  • increased use of fair-trade /sustainably-sourced materials
  • zero tolerance on child labour
If you're interested in this area, check out Honestby, who have taken supply chain transparency to a refreshing new level!

RED - Consumer

Some retailers are engaging with their consumers around sustainability, and helping shift behaviours, e.g. providing collection points for unwanted clothes.  But, for the vast majority of retailers, they're pretty keen on you buying as much as you can, each time you shop. The reality is that the business-as-usual metrics (or KPIs) retailers run their stores businesses on include:
  • Sales per square foot of selling space
  • Footfall (number of people going into stores)
  • Average Basket size (number of items / value of items in typical transaction)
So, simply put, they want to maximise the value of every square foot of retailer space, by getting as many people through the door, and nudging them into buying as much as possible.  Doesn't sound too environmentally sustainable does it?  

Hang on a minute though, a clothing retailer might argue that they do take sustainability seriously (see green and amber areas above).  "...And sure, we like to sell lots of clothes, but then customers love buying and wearing our clothes, shareholders are happy, bonuses are paid out, we're proud of our Christmas ads, and we're better than the competition." Happy days... or is it?

Where does climate change fit into this?

Traditionally, clothing retail (in the UK) has relied on a couple of concepts around our seasons:
  • Predictable seasonality
  • That each repeat season, fashion trends will mean consumers want to replace items with the latest version (even if they don't necessarily need to)
Whether you believe there's a link between climate change and extreme weather, or whether climate change is caused by human action, there's no doubt that weather patterns are becoming more volatile, triggering various impacts for clothing retail:
  • It is much more difficult to plan merchandising, e.g. should the Autumn/Winter range go into stores in September, October, November December, etc.?  And when should discounting start, when stock can't be shifted, e.g. what if there's a 'cold snap' in April after a mild March?
  • Virgin cotton price volatility, as extreme weather impacts crop yields
  • Global supply chains exposed when extreme weather impacts key logistics routes
  • National deliveries to stores (or to homes) exposed to UK's weather, e.g. flooding
  • Consumer appetite to visit the traditional High Street in poor weather (offset partly by online, of course)
This may or may not be a boardroom issue (I expect, as it's a gradual shift over many years, it may not be yet, but I expect we'll see more and more press releases like this one), but forward-thinking retailers might consider how the circular economy can help them adapt. Could we see a world where clothing retailers combine climate change mitigation and adaptation sustainability strategies?

The Circular Economy for clothing retailers

Lots has been written about the Circular Economy (I even had a go back in 2012 before the name was introduced), and I'm a huge fan of the concept.  For clothing it's so much more than recycling bins in stores though (albeit this helps highlight the huge problem of clothing going to landfill and nudge customer behaviour in the right direction).  It ideally needs to tackle business models and service design from the ground-up.  For clothing retailers, this is a real challenge of course, as it means moving away from selling as much new clothing as possible, to a model where revenue streams come from other routes.  But there are some notable examples which are demonstrating some real innovation:

There is also an increasing number of upcycling initiatives, which help provide a second life for what might otherwise be a waste stream going to landfill:
  • Timberland are partnering with a tyre manufacturer
  • Nike upcycling plastic bottles into football jerseys (video)
Note, there's a bit of a blur between whether these are clothing manufacturers who retail, or retailers who manufacture.  But it's quite insightful when thinking of corporate strategies that having control of manufacturing operations is a key enabler.

The way forward for clothing retail

So, we've identified that clothing retailers are doing some great work reducing the environmental impact of their own operations (and reducing costs), and that most are tackling the social and environmental challenges in their supply chains.  But we've also acknowledged that whilst the existing 'sell lots of new clothes' business model still pervades, a societal shift away from consumerism won't work.

We've also seen that climate change may introduce the need for adaptation as well as mitigation, so this introduces another nudge to think differently.

So, rather than the traditional retail metrics, and the set of sustainability metrics to minimise impacts on own operations, I'd like to see retailers challenge themselves with a new set of targets.  Here are some ideas to stimulate some thinking:

  • 25% of clothing sales are for 'previously loved' clothes (with a % of proceeds to charity)
  • 5% of floorspace is for clothing repairs/alterations/cleaning
  • 50% of stock items (SKUs) are sold for at least three seasons/years
  • 30% of stock items (SKUs) are manufactured from reclaimed yarn (or maybe a larger proportion of stock items are manufactured with a high proportion of reclaimed yarn)
  • All new clothes are durably designed, so that they can come with a 12 month no quibble guarantee (could a stitched-in 'manufactured on mm/yyyy' label become a badge of honour?)
  • You can rent infrequently used items, maybe a suit and tie, or a handbag, perhaps even hosting peer-to-peer sharing like rentez-vous
  • Stores become a hub for the community - floorspace is offered for library, adult education, local clubs...
The business model needs to explore:
  • Revenue diversification and driving brand loyalty through services (not new products)
  • Increased vertical integration upstream with clothing manufacturing

Within the next two years, it would be great to see some/all of these concepts at least trialled in existing stores - there's a reputational prize for such an investment, even if the financial rewards aren't immediate.

A sign outside a store in Boston, US

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