Author: Mintel Group Ltd.
Last saved by: HTTP server

European Retail Briefing -  September  2019
Analyst comment – Zalando increases its engagement in Circular Fashion
 
The fashion industry, in its current form, is unsustainable. The leading players in clothing and footwear are realising that their future is, more than ever, rooted in a circular economy. In response to this trend, retailers like German online group Zalando have been engaging in a series of initiatives to promote circular fashion and to move towards creating a more sustainable industry in the near future.

For more, see: Mintel Report Fashion & Sustainability - UK - August 2019

What we've seen
●	Consumer spending on clothing increased 13.3% in the last five years in the EU alone, and the UN Climate Exchange estimates that the fashion industry is responsible for 10% of global carbon emissions.
●	Although recycling of clothes remains residual, it becomes increasingly urgent for the fashion industry to adopt more sustainable practices as its future is rooted in a circular economy.
●	In Germany, 57% of consumers prefer to buy clothing from retailers that are trying to reduce their impact on the environment, and 70% of consumers aged 25 to 34 say they want to be rewarded for recycling unwanted clothing.
●	Circular fashion becomes an increasing trend, encouraging consumers to engage in sustainable habits such as redesigning, renting, swapping or selling their preloved items of clothing.

The current challenges of the clothing industry
The fashion industry, in its current form, is unsustainable. The emergence of fast fashion in the sense of clothing designs that move from catwalk quickly to capture current fashion trends, boosted the growth of the industry in recent years. Consumer spending on clothing in the EU increased 13.3% in the last five years, reaching an estimated combined market value of €417.7 billion in 2018. The fashion industry is also highly polluting. The UNFCCC Secretariat (UN Climate Exchange) estimates that the fashion industry is responsible for 10% of the global carbon emissions. According to them, the sector's emissions are to rise by more than 60% by 2030. And with two billion more people set to join the global middle class by then, these challenges, and the industry's impact, will continue to accelerate unless we fundamentally change how fashion operates.

According to figures from the Statistischse Bundesamt, the fashion market in Germany alone is quite substantial, with consumer spending on clothing and footwear amounting to EUR 77.6 billion in 2018. On top of that, according to figures from the German E-commerce and Distance Selling Trade Association (BEVH), clothing represents the largest e-commerce segment in the country, with online revenues peaking at €12.7 billion the same year.

Textiles and clothing are a fundamental part of everyday life and an important sector in the global economy. The Ellen McArthur Foundation estimates the global clothing industry to be worth $1.35 trillion, employing more than 300 million people along the value chain. Yet, the current system for producing, distributing, and using clothing still operates in an almost completely linear way – wasteful and polluting.

In addition to carbon emissions, the foundation estimates that more than $500 billion in value is lost from the system every year due to under-utilised clothes and the lack of recycling. Of the total fibre input used for clothing, 87% is landfilled or incinerated, representing a lost opportunity of more than $100 billion every year. As demand for clothing grows, systemic risks are already emerging and the current industry trajectory is set to have catastrophic consequences. Today's negative impacts on resources, the environment, and people could become a significant risk to the industry’s future profitability. This ties in with Mintel Trend Hungry Planet, where we discuss how our throwaway culture is becoming a contentious issue and consumers are looking for ways to conserve the planet's resources.

Sustainability through circular fashion
In light of the urgent need for sustainability in the clothing industry, the solution is becoming increasingly clear: we need a circular economy. Defined as "the decoupling of growth from the use of finite resources by eliminating waste at every stage of the value chain," a circular economy combines Fourth Industrial Revolution (4IR) technologies with innovative circular business models to drive competitiveness and deliver value to consumers, citizens and the global economy.

In fashion, a circular economy requires the combination of new garment design strategies, sustainable materials, advanced recycling technologies, alongside new service-oriented business models, to create desirable, low-impact & long-lasting garments. Once a piece has become tired, it should be repaired or redesigned, then – rather than being binned – rented, swapped or sold at second-hand. While technology can support initiatives in circular fashion, large-scale adoption in the industry could quickly lead to economies of scale, and commitments are already in place.

FIGURE 1: Flowchart example for production and reuse in circular fashion
  
Source: Mintel

Leading players sign the ‘G7 Fashion Pact’
In response to the above, the Global Fashion Agenda's call to action for a circular fashion system was spearheaded by French President Emmanuel Macron and Kering chairman and CEO François-Henri Pinault, as announced in August 2019. Known as the 'G7 Fashion Pact', the non-binding alliance aims at using science-based targets and pledges to increase transparency and accountability across supply chains. The companies that signed the pact at the time of writing represent 150 brands and over 30% of the fashion industry's production volume. Global Fashion Agenda is the foremost leadership forum for industry collaboration on sustainability in fashion.

These, among other factors, seem to sign towards a clothing and footwear market that will be increasingly vigilant and conscious of the importance of engaging in initiatives that promote sustainability and a shift towards circular fashion. Nevertheless, while the initiative of the leading players to sign the G7 Fashion Pact is very positive, we have yet to see what actions they will actually take with the goal to effectively change the industry.

German online retailer Zalando contributes to circular fashion
Zalando is a European e-commerce retailer based in Berlin, capital of Germany. Founded in 2008, the company follows a platform approach, offering fashion and lifestyle products to customers in 17 European markets. Although the group started as an online pureplay, Zalando has gradually increased its presence in the physical world in recent years, launching its first outlets in Germany in 2018, primarily to sell its new beauty and personal care ranges. The success of the stores encouraged Zalando to open further brick-and-mortar outlets, which amounted to six by the end of 2018.

Zalando first engaged in operating on a circular fashion cycle by launching its Zalando Wardrobe app in March 2018. The platform allows customers to sell second-hand clothing both to the group and to other users of the marketplace. On top of that, the retailer announced the trial of a new concept for second-hand women's fashion through a brick-and-mortar store in Berlin, called Zircle. The shop opened its doors in the Alexa shopping centre in August 2019, exclusively on the sell-side of worn but well-preserved women’s clothing. According to the group, Zircle is part of Zalando's efforts to extend the useful life of its products. In that sense, the pop-up shop took the circular approach, previously only available via the app, into physical retail.

In addition to that, under the belief that technology can be a positive force in leading the fashion industry towards sustainability, Zalando announced the launch of zImpact in April 2018. The programme offers visibility, funding, and expertise to industry players that use digital technology to increase supply chain transparency. One year later, in April 2019, Zalando announced that the latest company to be selected for the accelerator programme was fashion tech innovator circular.fashion which is a sustainable change agency creating product and system innovation for a circular economy in fashion and textiles. The company provides state of the art research, expertise and practical assets through workshops and software tools that help clothing brands transition towards circular practices.

Hence, in light of the above, Zalando has been establishing itself as an environmentally conscious brand, and has been actively promoting circular fashion practices in the industry. It will be interesting to see how this will continue to impact the brand in upcoming years.

What it means
●	The fashion industry has reached a point in which players are increasingly aware that they will depend on a shift towards a circular economy to ensure a sustainable future for the sector.
●	Although the concept of 'circular fashion' demands substantial changes to the existing structure of the industry, the more proactive players are finding ways to engage in sustainable practices and are already reaping benefits from their initiatives.
●	The G7 Fashion Pact is a positive sign that the leading players are willing to engage in circular fashion practices and promote change but we have yet to see what actions they will take to ensure the goals of the pact will come to fruition.

This report is supplied in accordance with Mintel's terms and conditions.  
© Mintel Group Ltd.