You Are What You Wear | Fast Fashion Is Clogging Our Planet

The Fashion industry is moving at incredible pace. In many (wrong) directions. There's work to be done and money to be made with sustainable opportunities.

👋 Hi, it’s Michiel, with a warm welcome Rutger, Peter, Yvette, Gary, Marko, and 12 new subscribers who joined Sustainable Growth this week. It’s a pleasure to have you here. I hope you find value in this second edition.

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$2.000.000.000.000 (two trillion) is the suspected revenue of the fashion and clothing industry this year. It’s a major industry, with a major impact on our climate, contributing an estimated 4% to 8% of global annual emissions. Both these metrics are bound to increase (😰).

The industry is growing its revenue by 6% to 9% a year, and the total volume of clothes produced is increasing at such a pace that it renders all sustainable efforts by the industry obsolete on a global scale. A perfect example of unsustainable growth.

Let’s dive deeper.

Our closet - what do we buy and wear?

In Europe, we spend €490 on 15 garments and 2 pairs of shoes each year, per person. We hold around 150 items in our closets. When asked, most of us think we’ve not used 30%-40% of those items in the past 12 months. However, measurements show this figure is actually between 64%-80%, indicating we are a bit self-delusional. Which is not surprising at all. I know I am.

We’re buying 50% more clothing than we did in the 2000’s, yet we wear each item 40% less. In these two decades, the ‘sustainable’ share of all fashion and clothing produced and sold has slightly risen to 4%.

Obviously these are averages. How do you compare to the average?

Should we follow the market leaders?

No. They seem to prioritize market share above anything else. Non-profit Remake released its annual accountability report of the industry, ranking the 88 largest brands (each with $100 million+ in revenue) on their actual progress towards a sustainable industry. The industry leaders score a mere 14 out of 150 points on average in the assessment.

Insights I found interesting:

• Major brands have pledged to reduce their emissions by 45% in 2030 but are significantly behind.

• 4% of production value needs to relocate or will go out of operation due to climate change impacting local manufacturers within few years.

• Only 15 of these brands offer repair or upcycling services, resulting in only 1% of items produced being fully recycled.

• The use of chemicals is decreasing - something positive after all.

In their defense, these major brands have seen turbulent years. Covid reshuffled the deck for online vs. brick-and-mortar stores. Most feel/are forced to invest heavily in becoming online (fast) fashion brands, in a battle for survival - a battle they are losing to SHEIN, since few will manage to outcompete SHEIN by copying their strategy.

Most of these brands have talked about and committed themselves to sustainable goals, but fail to deliver real progress so far. As they might consider it a non-profitable endeavor, which is peculiar since their current trajectory seems to bear very little fruit in the long run. We’ll explore the profits later on.

Remake shares very actionable tips on circularity metrics in their report. And they make perfect sense.

I’m convinced that those that pivot early will see huge benefits. Only dead fish go with the flow, right?

Bad news. The most volatile trend in the industry moves contrary to circularity: fast fashion has reached incredible velocity.

SHEIN taking the market by storm

SHEIN is a revelation and disruptive force. Just look at their insane growth, unique strategy and playbook. I admire their success. I really do. I also really hate the fact that their success is taking such a toll on our planet.

SHEIN effectively introduced ‘real time retail’. It takes them only 3 days to design and produce a first small batch of a new garment (usually 50-100 pieces). They test this initial batch, before mass-producing new items that they believe will find popular demand, backed by their use of data and AI. Which is great, I’m all for that.

So far, you’d think this would result in less overproduction, right?

Nope.
We’re talking up to 10.000 new designs on SHEIN, per day.
They’ve taken the numbers game to a whole new level. And they combine this fast-iteration/fast-production supply side with a unique marketing strategy: nano- and micro-influencers on social media (e.g., TikTok). This is very effective in reaching Gen Y and Gen Z, to which they sell directly through these channels and mobile apps.

Sadly, it is very cheap, low quality and short lived clothing. Throw away pieces, estimated to contain double the amount of plastics (66%) compared to direct competitors.

SHEIN is not in the business of making good clothes, tailoring or fashion. They’re in the Big Data/AI meets Design business, and happen to have picked online fast fashion as their playground, accelerating the pace of the entire industry on the supply and design side as a result.

The industry as a whole is overproducing 40% each year. With a lot of these unused items clogging up our rivers, landfills, sewers and in degraded form our organs. SHEIN’s success has devastating consequences for others. However, it is not in their interest to change the rules of the game that they’re currently winning.

Meager margins

Surely, governments will try to impact this game, and they should. Be it regulating material use, strict import criteria or taxing the disposal of these items. And that might be surprisingly effective, since these real-time fashion giants have one trait in common: they compete with very low prices per item, often at a loss.

The net profit margin for the fashion industry as a whole is estimated to be between 5% and 10%. These large fast fashion brands, however, struggle to be profitable, with SHEIN and Zalando hovering between 0% and 3,5% net profit.

Rising costs of production, export and transportation might hurt the business model to a degree that it becomes unsustainable from a financial perspective. And obviously these companies are very aware of that.

SHEIN itself launched it’s marketplace last year, offering third party products in a very wide range of categories (effectively entering the domain of Amazon). It’s success within fashion has gained them incredible brand awareness on which they can build moving out of fashion if changing market conditions force them to.

However, SHEIN’s true Achilles Heel might be their current Ideal Customer Profile (ICP) e.g. target audience…

What if ‘You are what you wear’ becomes true for Gen Y and Gen Z?

Millenials and Zoomers in the Americas, Europe and Australia make up the majority of customers of the online fast fashion industry. Yet, they’re also increasingly concerned about climate change, particularly compared to the older generations. Studies in US and Australia report up to 80% being ‘concerned’ or ‘very concerned’.

Across generations we tend to spend around 5% of disposable income on apparel, so knowing that the buying power of both generations is about to grow considerably in the coming decade is a fact to capitalize on.

As their buying power increases it would very much suit them to stop looking for the lowest cost pieces and start putting their money where there mouth is: sustainable, durable fashion. But we all know how hard that actually is.

This presents a opportunity for businesses and marketers generating demand for sustainable alternatives. I think it is highly unlikely that these customer ever commit to ‘actively looking for alternatives’. You have to reach them where they are, like SHEIN is. Create brand awareness, educate them right on these channels and transact with them in the smoothest way possible. No hurdles, no searching, no extra steps.

Let’s not wait, while patronizing them on morals, before they come around. Get out their and reach them. Help them come back in the fold. You already offer the right product, now give them the right experience.

The investment perspective

Do you own stock in fashion brands? You might be familiar with the term Compound Annual Growth Rate (CAGR). A metric that shows the growth of an investment over a longer period of time.

A quick calculation towards 2030 shows a big difference in expected growth of your investment in fashion.

• Current market leaders - between 7% and 9% CAGR

  • Taking into account the industry keeps this steady growth for 6 years to come and market conditions will not change rapidly.

  • Some of these leaders might trump that by ‘winning’ the current ratrace and boosting its market share like SHEIN has done the past 5 years.

• Sustainable fashion brands - between 9% and 20% CAGR

  • The market share of sustainable apparel is expected to grow from 4% (now) to between 6% and 8% in 2030.

  • Net profit margin for sustainable fashion is expected to stay between 10% and 20% (financially sustainable compared to the fast fashion model)

  • Some of these brands might trump this, being bought by market leaders to protect their market share.

Investing €100 today in current market leaders stock, might grow into €182 in 2030. Which is actually not that bad an investment from a financial point of view. Investing that same €100 in sustainable brands is expected to have superior yield, up to €358. You get my point, sustainability has the upside.

Obviously, this is financial doodling on the back of a coaster, don’t consider this financial or investment advice (😉).

Conclusion

The industry as a whole is not doing us many favors. It’s both sad and depressing to know that fewer than one in ten items sold in 2030 will be sustainable unless we forcefully break the current trends. Governments will not be able to break these trends, not in a timely manner. Regulation will eventually be a powerful force, but it’s to slow. We need new industry leaders, sustainable winners to force the industry in a new direction.

Investing, supporting and growing sustainable brands has much upside. Profit-wise and obviously also Planet- and People-wise. Though fast fashion brands produce a lot of garbage, they’re also very successful in growing their businesses. Sustainable brands should try to copy their tactics and playbooks.

Having sustainable brands at scale might compel the larger brands to change strategies and finally deliver on their promises.

What would happen if a sustainable brand reaches the 100 million annual revenue milestone, and enters the Remake report to set a whole new standard?

Insights for sustainable brands

• Don’t ignore the Go To Market tactics that work for competitors.

• Using influencers works in this industry. Gen Y and Gen Z are distrustful of big brands but trust people showcasing or recommending to them. Be it nano, micro or world renowned.

• Don’t wait for society to ‘guilt trip’ your customers into buying sustainable alternatives. Scale you business online, invest in seamless flows, and direct selling. Meet them where they are and serve them the experience they need to commit.

• Tackling transportation, last-mile delivery, and returned deliveries in a sustainable manner is a real challenge when building your online business. Fail fast, learn fast, experiment. Don’t let this challenge hold you back. The secondary market for fashion is growing a whopping 15% a year. Surely there is value to be created with the right partners in this domain.

Insights for sustainable customers

• Multiple organisation are opening the ‘black box’ of fashion. I want to point your attention to goodonyou.eco, which rates individual brands (amazing!).

• I already mentioned Remake, shout out for the outstanding report.

• I highly recommend MUD Jeans (not affiliated, just a very happy customer).

I’d love to hear what sustainable brands you recommend and whom you consider sustainable ‘hero’s’ in fashion. Please share in the comments!

I’m really intrigued by this industry, writing this all down has incurred much more questions that I want to find answers to, but I’ll save those for another edition.

Thank you kindly for reading.
Until next time!

Michiel

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