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What's out is in: Recapturing value through reuse in the apparel industry

Tiffany Hua, Senior Research Associate and Kristin Marshall, Analyst
August 18, 2021

With growing momentum surrounding the circular economy, end of life has become an important consideration for brands, specifically in the fashion industry, where a large percentage of all textiles are dumped into landfills or burned every year. Given that post-consumer textile recycling is still far off, companies are turning to reuse schemes to keep garments and their constituent materials in circulation for longer. Attitudes regarding reuse are quickly changing as consumers are looking to purchase more secondhand clothing and brands are adapting to appease consumers and improve their overall environmental footprint. It's less a question of whether to get into reuse and more a question of how to go about it, and for brands that want to, there are plenty of options.

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Identifying emerging business models in reuse

Figure 1 highlights reuse business models in the incumbent apparel supply chain. While much of the apparel industry still operates within a linear cradle-to-gate value chain, reuse business models are recapturing value and transforming the industry into a more circular value chain.

Whats out is in Recapturing value through reuse in the apparel industry

Figure 1

Specifically, three types of reuse business models have emerged:

  1. Resale (“re-commerce”) involves the sale of secondhand or preowned apparel online. Resale models have been embodied by thrift and vintage stores for decades but are being modernized into "re-commerce" platforms by companies like thredUP and Poshmark. There are two general approaches to re-commerce: (1) a centralized logistical approach and (2) a peer-to-peer marketplace approach. Resale platforms like thredUP and The RealReal have taken a centralized approach where the logistics and handling are the company's responsibility. Companies like Poshmark and Depop take a peer-to-peer marketplace approach where the physical product exchange occurs between the individual seller and the purchaser.

  2. Refurbishment services are utilized by brands to collect, repair, and resell garments. There are also refurbishment companies focused on providing consumers repairs and refurbishment services in addition to upcycled clothing.

  3. Renting is a service provided either in-person or online where customers can wear a garment for a specified time and return it. This business model is used primarily for high-value products or infrequently used garments like event gowns or suits. Rent the Runway is one of the few companies pushing apparel rental into more day-to-day apparel but has been limited to a relatively small group of consumers.

Moving forward, there are opportunities for both brand owners and investors to engage, as reuse is poised to grow. Figure 2 lists companies and startups in the apparel reuse market.

Whats out is in Recapturing value through reuse in the apparel industry - Market Map

Figure 2

Opportunities to engage in reuse

Below, Lux outlines opportunities for engaging in each reuse business model. As all these business models are relatively new for the apparel industry, there is a low barrier for new players to enter the space and have a first-mover advantage.

  • Resale opportunities: Investment and acquisition

    Resale platforms are projected to grow, with some having opted to go public on the stock market, such as The RealReal and thredUP. With this growth come investment opportunities. For brands looking to get into resale, the acquisition of newer resale platforms may be an opportunity. Already, we have seen companies take an acquisition approach – H&M bought Sellpy, and just recently, Etsy acquired Depop.

  • Refurbishment opportunity: Partnership

    There is an opportunity for brands to partner with refurbishment companies like Trove, given their expertise and established infrastructure, instead of taking up the logistics and labor as the brand owner. Trove has managed resale programs for innovative brands including Arc'teryx, Eileen FisherPatagoniaREI, and Taylor Stitch, as well as department stores like Nordstrom. Trove handles the warehouse logistics, including pricing, order quantities, and merchandising assortments, and provides e-commerce expertise. The refurbishment model recaptures secondhand products' value and would best be applied to durable goods or high-quality apparel that already have high resale value. Refurbishment can also expand the consumer base, as more have access to the product at a lower price – which may result in repeat customers or full-priced purchases.

  • Renting opportunity: Implementation and investment

    COVID-19 has impacted apparel rental, as event attire and designer clothes had little use during last year's shutdown. Now, as we approach post-COVID-19, the apparel industry is bouncing back, and renting sales are stabilizing. Brands have an opportunity to invest in renting services or start their own renting service. For example, H&M has tested out this business model. Compared to resale, renting platforms offer a different shopping experience, as inventory tends to be full and more like a normal retail experience compared to the treasure hunting experience that is resale and refurbishment. Brands that produce high-value durable goods can implement renting business models, as renting can be seen as a more economical and less wasteful choice for consumers. For investors, there are ample investment opportunities, as newer startups focused on apparel renting services are coming online.

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The apparel industry is slowly recovering from COVID-19 but with a newfound direction toward a circular economy. Circular business models like reuse are ripe for growth and can work in harmony with each other. Companies have an opportunity to partake in these circular business models by implementing reuse themselves or engaging with companies within reuse. Furthermore, as the industry continues to move toward innovative and sustainable initiatives, reuse business models will be critical in developing the textile recovery infrastructure for textile recycling. Companies like thredUP can help build up the apparel industry's overall collection infrastructure, as they utilize logistical systems and automation technology that process garments and merchandise faster.

As reuse companies and brands take better control of reusable post-consumer garments, it will also enable a cleaned waste stream for nonreusable apparel items to be directed toward recycling. Lux predicts that most of the apparel that enters the textile recycling streams will be disposed-of reuse products rather than coming directly from consumers. This will not only prevent garments from ending up in a general waste stream but also push brands ahead of upcoming extended producer responsibility policy.

In Europe, Sweden has already introduced EPR legislation, and the U.K. has been urged to finish clothing textiles EPR review by 2022. Building the value chain infrastructure for apparel reuse will ultimately enable a more robust apparel recycling system, leading to a stronger and more sustainable system overall for the industry.

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