From passion to profit : exploring circular business models in fashion

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From Passion to Profit

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XPLORING

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IRCULAR

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USINESS

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ODELS IN

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ASHION

Femke Wijman 11096543 University of Amsterdam MSc Business Administration Entrepreneurship and Management in the Creative Industries First Supervisor E. Dirksen MSc Second Supervisor J. de Groot MSc Final Version 19-07-2016

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Statement of Originality

This document is written by Student Femke Wijman who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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List of Figures and Tables

Figure 1. Traditional ‘Forward’ Fashion Value Chain Figure 2. Proposed ‘Closed’ or Circular Fashion Value Chain Figure 3. Business Model Canvas

Figure 4. The Valley of Death

Figure 5. Overview of the Iterative Research Process

Figure 6. The Waste Stage of the Circular Fashion Value Chain Figure 7. The Collection Stage of the Circular Fashion Value Chain Figure 8. The Sorting Stage of the Circular Fashion Value Chain Figure 9. The Recycling Stages of the Circular Fashion Value Chain Figure 10. The Design Stage of the Circular Fashion Value Chain

12 13 25 26 36 45 47 48 49 53

Table 1. Categorisation of Circular Business Models and Corresponding Cases Table 2. Key Characteristics of Cases and their Economic Viability

Table 3. Overview of Factors that Influence CBM Viability

33 38 67

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List of Abbreviations

C&A Clemens & August CBM Circular Business Model CLSC Closed-Loop Supply Chain

CSCM Circular Supply Chain Management DfE Design for Environment

DfS Design for Sustainability H&M Hennes & Mauritz I:CO I:Collect

LCA Life Cycle Analysis PSS Product Service Systems

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Abstract

This qualitative study examined how fashion companies have implemented a Circular Business Model (CBM) and whether it is a viable business case. Specifically it assessed the challenges and requirements for a transition in the fashion industry towards a circular economy in the long term. Documents, unstructured and semi-structured in-depth interviews with founders of fashion companies, researchers and consultants in circular fashion provided qualitative data. Data were coded to identify economic viability of the CBM, barriers, and requirements for a transition. Findings of this study are the CBM is currently small scale, have the potential to become profitable but requires investment to scale up to achieve economies of scale and a shift in the consumer mind set. Limitations and implications of the study are discussed as well as directions for future research.

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1. Introduction

In the previous decades fashion production has rapidly expanded and relocated from the West to the far East, where production costs are significantly lower. The environmental impacts have moved as well, and created additional social impacts (Niinimäki & Hassi, 2011). The fashion industry is one of the most polluting in the world. The cultivation of cotton exhausts the soil, causes deforestation, and the chemicals used are dangerous for the labourers and pollute rivers and drinking water (Leclaire, 2015).

We have become a consumerist society where the norm is to have access to products and discard of them after a short while just as easily (Fletcher & Lynes, 2015). Fast and cheap fashion results in an increased consumption pattern and short garment lifecycles (Hu et al., 2014). The low prices of fast fashion have made it a disposable product (Leclaire, 2015).

Due to high demand and fierce competition, fast fashion chains like ZARA, Hennes & Mauritz (H&M) and Primark have to produce cost efficient so the consumer only needs to pay a few euros for a t-shirt. But the true costs (social, environmental) are much higher: about 30% of garments don’t get sold and end up in landfill (Leclaire, 2015). The rapid pace of production allows companies to better manage supply and demand. However, inherent uncertainty of demand results in unsold items, thus a focus on cost efficiency rather than quality or design (Taplin, 2014). As a result increased consumption patterns contribute to two-thirds of economic growth in the US since the 1980’s (Zukin, 2004).

At the moment most fashion business models depend on a large volume of sales and production (Taplin, 2014). Because of that, sustainable business models are associated with less profit (Friedman, 1970). In order to achieve an economically (environmentally and socially) sustainable model, the way of production and consumption requires change. In other words, for a transition to take place in the fashion industry, the supply side as well as the demand side need to change (Niinimäki & Hassi, 2011). ‘’To move sustainability forward, it is necessary to question some of the values, beliefs, and norms we take for granted’’ (Fletcher & Lynes, 2015).

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At the same time, raw materials become more scarce and costly, while the production of clothing continues in the same rapid pace (Bocken et al., 2014; Ketelaar, 2015). Actually it is strange, because these valuable raw materials that are thrown away could be perfectly reused or recycled. Nevertheless, companies are increasingly aware of the need for recycling clothes (Ketelaar, 2015). Collecting and recycling all textile waste into rags and insulation in the Netherlands alone could save more than 425 million kilos CO2 emission, which is comparable to driving 2.250 million kilometres by car: 56.000 times around the world (Agentschap NL & VHT, 2010). Between 2005-2010 the quickest growing waste stream in Britain was said to be textiles (Niinimäki & Hassi, 2011). Discarded clothes make up the largest part of municipal textiles waste (Hu et al, 2014). Reusing and recycling clothing significantly decreases environmental pollution and resource consumption, but responsible disposal is just one part of the solution (Hu et al., 2014).

Sustainable initiatives are coming up, like the fashion library, second hand ‘vintage’ shops (online and offline), clothing swap events, and so on (Leclaire, 2015). The key point of circular economy is not ownership but access to a product’s functionality, after use the material can flow back into the value chain (Telegraaf, 2012). Product design has the potential to enhance longevity (Bocken et al., 2014) and smart design ensures the garment can be recycled at the end of life.

Despite the various initiatives and enthusiasm in the fashion industry for circular activities, there seems to be no large scale impact. One of the reasons for this is the volume of supply in discarded clothes that can be reused or recycled. Then the techniques for mechanical and (bio-)chemical recycling are in its infancy and it is difficult to achieve sufficient quality. Furthermore, small initiatives are not coordinated, there is little knowledge sharing (Groen is de Rode Draad, 2015). For sustainable fashion to be successful, it is crucial that companies address the consumer needs and desires, besides the environmental issues (Berchicci & Bodewes, 2005).

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1.1 Research Gap

Since sustainable business is a relatively new research area, knowledge about what makes a business model sustainable and how it should be implemented is lacking (Bocken et al., 2013; Kant Hvass, 2015). The literature has not looked into the financial aspects of circular fashion business models, such as the price of products or the profitability of the concept (on the long term). The business model should be studied further in order to develop different parts of the system (Peterson et al., 2008). The few cases that are discussed in the literature are small scale. What is left to explore are the possibilities of larger scale and longer term disruption of fast fashion (Clark 2008). Also, most literature focuses on one stage of the value chain as being key to sustainability and have not looked at the entire chain (Pagell & Wu, 2009). Building on previous research, this study has a qualitative and exploratory approach to gain a thorough understanding of CBMs in the fashion industry.

1.2 Research Questions

In this thesis I address the following research question:

 What is needed for a transition of the fashion industry towards a circular economy in the long term?

In order to answer this question, the following subquestions will be discussed:

 What is the difference between the traditional linear value chain and the circular value chain? (2.1)

 What are developments in the fashion industry that led to the introduction of sustainable fashion? (2.2)

 How can design contribute to sustainable fashion? (2.3)  What is the consumer perception of sustainable fashion? (2.4)

 What is a business models and which new circular business models exist? What are criteria for a viable circular business model that is scalable? (2.5)

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1.3 Structure

After a review of relevant literature, the findings of this exploratory study are presented. These findings have implications firstly for future researchers by increasing understanding of circular business models (CBMs) in the fashion industry, and secondly for organisations by helping them understand what factors play a role in economic viability and the potential to scale up and achieve a transition towards a circular economy.

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2. Literature Review

2.1 The Value Chain

What is the difference between the traditional linear value chain and the cir cular value chain? The value chain was originally proposed by Porter (1985) as the basis of creating competitive advantage, representing the different stages of the production process where added value is created. The conventional value chain is a linear model that consists of the following stages (see Figure 1): creating textiles from virgin raw materials; design of products; production (i.e. cutting, assembly and finishing); distribution to retailers; consumption; and finally disposal, or waste (Godart, 2012). This traditional forward value chain is also known as the ‘cradle to grave’ model and criticised for the inevitable creation of large amounts of waste (Braungart & McDonough, 2007). As opposed to the cradle to grave model, Braungart and McDonough (2007) describe a ‘cradle to cradle’ production model. Cradle to cradle requires a radically different way of thinking where ‘waste equals food’. In nature, the cradle to cradle principle is the essence of life. For instance, human and animals exhale CO2 which plants consume to grow and subsequently supply oxygen for humans and animals (Braungart & McDonough, 2007).

Figure 1. Traditional ‘Forward’ Fashion Value Chain

Source: Adapted from Godart (2012)

Compared to the traditional linear value chain (Figure 1), a circular value chain (Figure 2) contains some characteristics that influence the production system. For instance, dependence on used materials of which the timing, quantity and quality is uncertain (Östlin et al., 2008). Other terms used to describe a similar production system are closed-loop (Östlin et al., 2008), green (Zhu et al., 2008), and sustainable (Pagell & Wu, 2009) supply chains.

virgin

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Circular supply chain management (CSCM) is increasingly used to create a better balanced competitive advantage concerning cost, innovation and the environment (Zhu et al., 2008). CSCM has grown due to its profitability and environmental legislation from the EU for products such as electronic equipment and vehicles (Östlin et al., 2008). Other motives for CSCM are preserving economic and environmental values. Its potential for the fashion industry is therefore a reason to investigate its viability.

The circular supply chain consists of two supply chains, namely the ‘forward’ – products from manufacturer to consumer – and the ‘reverse’ – products from consumer as supplier to remanufacturer. These chains are ‘closed’ by the consumer acting as both consumer and supplier (Östlin et al., 2008). Based on Hu et al. (2014) and Östlin et al. (2008) the ‘closed’ or circular fashion value chain is proposed (see Figure 2).

Figure 2. Proposed ‘Closed’ or Circular Fashion Value Chain

Source: Adapted from Hu et al. (2014); Östlin et al. (2008) collection sorting fibering spinning design knitting/ weaving production retailer consumer waste reuse vs recycle virgin material

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The nature of used materials can be either pre-consumer waste e.g. scraps from the industry and materials with a production error, or post-consumer waste i.e. worn garments. The way in which these used materials are obtained by the remanufacturer, depends on the kind of relationship between the consumers/suppliers and remanufacturer (Östlin et al., 2008).

The design stage of the value chain accounts for most environmental impact of a product, when the materials and manufacturing processes are determined (Zhu et al., 2008). The design practice includes not only the manufacturing but also remanufacturing or recycling and is referred to as eco-design, Design for Environment (DfE) (e.g. Zhu et al., 2008) or Design for Sustainability (DfS) (e.g. Spangenberg et al., 2010).

One could make a distinction between eco-design that is efficient or effective. Firstly, there is design that focuses on maximising resources while minimising waste or pollution, so-called eco-efficiency (Braungart & McDonough, 2007). Implementation of a Rapid-Response Circular Supply Chain is important for sustainable innovation in the fashion industry. It can help to reduce environmental pollution and improve the efficiency of resources and energy. Also, it helps to optimize the allocation of global resources. Furthermore, it helps the fashion industry to respond quickly to market demand. And finally it helps to improve overall competitiveness of the fashion industry and promotes industrial upgrading (Du et al., 2010). However, while eco-efficiency helps to reduce negative effects of the industry and yield economic advantage, in the long term it does nothing to change the linear system (Matevosyan, 2014).

Secondly, eco-design that focuses on reuse and recycling, so-called eco-effectivity, has a whole new approach to production, with the potential of closing the loop (Braungart & McDonough, 2007). Oh & Jeong (2014) propose a comprehensive closed-loop supply chain (CLSC) structure for the fashion industry and develop a planning model associated with profit analysis of each member in order to achieve optimal trade-off between total profit and CO2 emission. Creating a CLSC means to reduce the use of virgin material and instead reuse material that has been through the cycle before.

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In this process, quality should be kept as high as possible, where possible upcycling (creating new fashion products), and otherwise downcycling into rags, insulation or filling toys/pillows/mattresses

2.2 The Fashion Industry

What are developments in the fashion industry that led to the introduction of sustainable fashion?

The textile and clothing sector contribute to Europe’s social and economic cohesion, by employing more than two million people and contributing to wealth and cultural heritage (Stengg, 2001). It is one of the oldest industrial sectors and increasingly has to compete with developing countries, which have low wages and quality and knowledge imported from Europe and the US, due to globalisation (Stengg, 2001). With the trade liberalisation in 2005, the European industry will need to innovate and focus on quality and creativity if it wants to keep up with cheap and fast fashion produced in the Far East. Fashion import from the Far East to Europe has dramatically increased (Stengg, 2001), causing fashion retail prices in Europe to drop with more than 26% between 2000 and 2010 (Fletcher & Lynes, 2015). Since the ‘made in Europe’ fashion industry cannot compete with low-cost countries on price, it has to innovate along a differentiation (or focus) strategy (De Brito et al., 2008).

At the same time, the fashion industry is, as most creative industries, extremely competitive because of oversupply, and customer demand is highly uncertain (Peltoniemi, 2015). The time gap between design and retail phase (i.e. time-to-market) is perceived so large that garments seem to be out of style before they are available in the store. In turn, this leads to the fact that just 30% of all fashion products are sold for the full price, another 30% is sold with a discount and the rest goes directly to landfill or is burned (Matevosyan, 2014). Additionally, increasingly demanding customer preferences call for a different way of producing, from mass production to mass customisation. Several companies like Nike and Unmade have already incorporated mass customisation or co-creation of customers (Peterson et al., 2011).

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Fashion has traditionally been the subject of moral criticisms such as the working conditions in low-cost country factories that produce fashion products for Western markets, use of furs and animal materials because of animal rights, and generating artificial consumption needs which has negative environmental consequences of resources and waste (Godart, 2012). Especially since industrialisation introduced mass production and fast fashion (Hu et al., 2014).

2.2.1 Fast Fashion

In the last decades the pace of fashion has drastically increased. While there used to be just two seasons a year, Spring/Summer and Fall/Winter, now it has come up to the point where high street fashion companies update their collection twice a week. Even more, new agile retail companies are able to update their styles every day (Laws, 2016). Profit is driven by cost efficiency in the value chain and a large volume of sales, resulting in the fact that one can buy a t-shirt for the same price as a sandwich (Edelkoort, 2015). Zara’s business model depends on these same principles of speedy production (4-5 weeks from design to market, which takes conventional companies six months) and volume of sales, making it the world’s second largest fashion company (Taplin, 2014). In 2013, an estimate of 91 billion garments were sold globally, for an amount of 1.4 trillion US dollars (Ellen MacArthur Foundation, 2013).

The problem with fast fashion also has to do with design, which enables mass production, shorter life cycles and consumption for fashion’s sake rather than for real need (Clark, 2008; Hu et al., 2014). Shopping has become a leisure activity, consumers wear their clothes only a few times and wash them too often at high temperature, which is not good for the environment (Clark, 2008). The user phase, i.e. washing and drying, contributes to 28% of a garment’s energy footprint. Clothes are often discarded before their technical life cycle, because they are out of fashion, not because they are beyond repair (Hu et al., 2014). Most fast fashion is worn just a few times after which clothing ends up in the back of a closet until it is discarded as garbage (Hu et al., 2014). But the economic life cycle does not necessarily end at the moment it is discarded. Charities and commercial parties collect unwanted clothing to be sold again second hand (Hu et al., 2014). If the garment’s life cycle were to

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double, it would reduce carbon emissions by 44% and energy consumption by 35,7% (Munasinghe et al., 2015).

Fast fashion might make one look good and up to date with the latest trends, and because it is so cheap people do not put much thought behind a purchase. But behind all this is a trillion dollar industry polluting the environment and exploiting fashion workers (Hu et al., 2014).

Fast fashion might imply it is unsustainable per definition, but it doesn’t have to be. Namely, when conducting a fast fashion business model, it should be a circular model where discarded garments are not seen as waste but instead as a valuable resource for either reuse or recycling. In section 2.5 these models are described in more detail.

2.2.2 Slow Fashion

Inspired by the slow food movement, slow fashion is a concept used for sustainable fashion practices as opposed to fast fashion (Clark, 2008). ‘’[That] unbeatably cheap top, dress or pair of jeans, like the hamburger, is traded in large volumes, is globally ubiquitous, and is homogeneously served or styled’’ (Fletcher, 2010: 260). But even though slow fashion is advocated as a sustainable alternative to fast fashion, the inevitable end-of-life of garments remains a problem. The fashion industry is one of the largest polluters having severe environmental and social impacts throughout the value chain (Kant Hvass, 2015).

The current linear model, i.e. take-make-waste, causes around 15 million tons of discarded garments from Europe and North-America to end up in landfills each year (Ellen MacArthur Foundation, 2013). Only recently garment’s end of life has become an issue for the fashion industry. Producers need to be responsible for future disposal of their products and facilitate reuse and recycling processes to reduce waste. These processes provide opportunities for businesses to resell garments second hand or see waste as a valuable resource in a circular value chain (Kant Hvass, 2015).

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Furthermore, slow fashion can be criticized as being an oxymoron, since fashion implies temporality and dynamic (Clark, 2008). Fashion consumers don’t want to wear a t-shirt for 10 years when it is already out of fashion after 5 years.

2.2.3 Sustainable Fashion

Businesses should redefine their added value for consumers. The need for sustainable business model innovation is becoming more important for fashion companies (Kant Hvass, 2015). With sustainable strategies, fashion companies react to the rising issues regarding the environmental and society (Hu et al., 2014). Several companies like Filippa K, G-star and H&M use sustainable strategies to demonstrate their commitment to consumers. Future scenarios include rising costs for raw materials and strict legislation. The solution of a sustainable business model lies not in a choice between fast fashion or slow fashion, but could contain both. A sustainable business model is defined as ‘’a business model that creates competitive advantage through superior customer value and contributes to a sustainable development of the company and society’’ (Lüdeke-Freund, 2010 p23). Besides economic sustainability, where conventional businesses have put their focus on, environmental and social sustainability need to be part of a business’ value proposition (triple bottom line). The sustainable business models discussed in this thesis are based on circular economy and shared economy principles.

Allwood et al. (2008) made a scenario analysis how to improve sustainability in the fashion industry and found the following: The barriers are firstly that fast fashion is cheap and low quality, which makes it hard to repair. Second, consumers don’t see the connection with their purchases and negative social and environmental consequences. Partly because the impact is happening in the Far East and one does not see it. ‘Rana Plaza’ might have made people somewhat more aware, but not quite so they act on it. Thirdly, profit is linked to volume of sales. Fourthly, government policy only considers impacts within the country. And finally, washing mostly aims to remove odour, not stains. Solutions they have proposed are: education by ‘fashion leaders’ who should build durability into future styles; let the consumer pay twice as much for products that last twice as long;

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development of new business models (repair and upgrade as alternative to sales); investment in technology; eco-tax for products using virgin material to fund development of material re-use; and negotiating toxic impacts in future international trade agreements (Allwood et al., 2008).

Shen et al. (2015) evaluated the barriers to Corporate Social Responsibility in the Indian fashion industry and found the primary barrier is financial constraints, followed by lack of consumer awareness and lack of regulations and standards. While EU and US consumers may have better access to information and should therefore be more aware, most focus just on price and not the environmental or social cost. And since fashion production is located mainly in developing countries like India, local regulations and standards apply.

Lo et al. (2012) found a positive relationship between adoption of Environmental Management Systems (EMSs) and financial performance of companies in the fashion industry. One EMS specifically focused on recycled fashion is the Global Recycling Standard (GRS) but is not widely recognized. Yet more and more fashion producers are certified with another EMS, the ISO 14000, which was found to increase return on sales with 3,3% over a three-year period (Lo et al., 2012). A case study of H&M by Shen (2014) described how H&M has a zero waste policy and uses different recycled materials, such as recycled cotton, recycled, polyester, recycled polyamide, recycled plastic and recycled wool that are certified with GRS.

Woolridge et al. (2006) studied the potential energy saving from reuse and recycling of clothing donated to Salvation Army UK, rather than new clothing from virgin materials. ‘’It was demonstrated that for every kilogram of virgin cotton displaced by second hand clothing approximately 65 kWh is saved, and for every kilogram of polyester around 90 kWh is saved’’ (Woolridge et al., 2006). A growing number of swapping events and online marketplaces encourages reuse of fashion items which extends the garments life cycle.

A transition towards a sustainable system in the near future requires different approaches to production and consumption, with a focus on a circular economy. Design plays a crucial role in this radical system change (Vezzoli, 2003).

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2.3 Design

How can design contribute to sustainable fashion?

One of the many barriers and challenges for recycling clothes can be addressed in the design phase (Hu et al., 2014), which accounts for 80-90% of a garment’s environmental and economic cost (FFI & Plan C, 2016). Sustainability improvements can be achieved by designing garments for longevity and recyclability, ensuring a circular system with a reduced need for virgin fibres (Bocken et al., 2014; Munasinghe et al., 2015).

Herva and colleagues (2008) applied the concept of the Environmental Footprint (EF) to fashion and found its EF has increased over the past years. Resources such as cotton and wool where the main contributors to the EF because they use large amounts of water and pesticides (Herva et al., 2008). Also, the production of synthetic fibres uses a lot of energy. This means that the designing fashion with more sustainable materials largely affects the EF. Also, research suggests a combination of the EF and LCA (Life Cycle Analysis) to assess the sustainability of fashion (Herva et al., 2008). The LCA is largely used for evaluating the environmental impact from material extraction to final disposal of a product (e.g. Ljungberg, 2007; Nieminen et al., 2007). The LCA can be extended by incorporating reuse and recycling in the design.

Vezzoli (2003) asked designers about their knowledge of sustainable design and found that for instance most had no idea what a LCA is. Furthermore, a survey of Italian university design studies showed there are some environmental themes but no coherent curriculum (Vezzoli, 2003). Spangenberg et al. (2010) developed a model of consumption efficiency, which is a formula of consumer satisfaction divided by resources activated. DfS, consumption patterns, Product Service Systems (PSS), eco-efficiency (in production), and the Ecological Backpack (i.e. unused resources of input) affect this formula of consumption efficiency. For instance PSS increase consumption efficiency by offering services instead of products e.g. in the form of lending and leasing (Spangenberg et al., 2010).

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Additionally, Niinimäki & Hassi (2011) presented an overview of design strategies for sustainable fashion that suits consumer needs and desires. First, companies can offer a long life guarantee and product satisfaction, for example with slow fashion design. Slow fashion is made from durable material and in a timeless style (Niinimäki & Hassi, 2011).

Second, a design that is meaningful to the consumer creates emotional attachment that helps longevity of a garment. A way to achieve product attachment is via co-creation (Niinimäki & Hassi, 2011). In their questionnaire, Niinimäki & Hassi (2011) showed that 61% of consumers are interested in taking part in the design process (e.g. through the internet). In a similar way mass customisation offers meaning and attachment. 68% of consumers that responded to the survey indicated they are interested in customisation possibilities. Additionally, there is fashion design with a modular structure; parts can be disassembled and reassembled to personalise the garment (Niinimäki & Hassi, 2011). Clothing with a modular structure appealed to 60% of the respondents. Third, PSS focus on functionality instead of ownership, where the product is returned to the producer after use. Design services like tailor-made suits provide consumers with something that is made exactly to their needs and has a perfect fit (Niinimäki & Hassi, 2011). Other services that lead to enhanced longevity are lending services and leasing services. While 62% of the respondents was in favour of borrowing clothes for the short-term, only 22% had an interest in long-term leasing. The authors propose these design strategies have the best results when combined (Niinimäki & Hassi, 2011).

The added value should not only be use value but include the story behind the garment in environmental value (Niinimäki & Hassi, 2011). In turn this new kind of value creation allows to rethink the current way of production and consumption which will eventually lead to a transition in the fashion industry (Niinimäki & Hassi, 2011).

Waage (2007) proposed a roadmap for implementing sustainable design. The main challenge remains that information about sustainability is often unavailable, costly or unverified. Governments

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can introduce regulations that consider sustainability in all three P’s (people, planet profit) so that businesses feel less constraints in implementing sustainable design practices (Waage, 2007).

Companies can choose from various eco labelling systems that exist nowadays to inform consumers whether they are buying an environmentally friendly product. However, these labels are often unclear and misleading, such as the recycling mark with the three arrows: As it turns out, the mark only shows that the company uses recyclable products (Ljungberg, 2007).

2.4 Consumer

What is the consumer perception of sustainable fashion?

‘’There was a time when unrealistic eco-fanatics believed that proposing a more sustainable product would be reason enough to drive sales. They forgot that customers will not give up quality, style or fashion appeal or a competitive price for a sustainable product’’ (Gardetti, 2014: 10).

The consumer is a key player in the circular value chain to ‘close the loop’. It is important to assess how consumers perceive sustainable fashion. After all, they constitute the target market. Especially fashion is something consumers have some control over, and can use to bring about change (Fletcher & Lynes, 2015). But a survey in the Netherlands, Germany, Sweden, the UK and the US, showed only 25% of young consumers used clothing swaps or rents (GfK, 2015). As a reward for handing in used clothes, customers receive a discount coupon (Van Dongen, 2016).

McDonald and Oates (2006) discuss consumer’s sustainability perception using dimensions of confidence, i.e. ‘how much difference it makes’ and compromise, i.e. ‘how much effort it takes’. They found inconsistencies in the perceptions of similar activities by different individuals, which makes it hard to implement a successful marketing strategy to encourage sustainable activities (McDonald & Oates, 2006).

Fashion consumers can be categorized into three groups: 1) Self consumers (hedonistic, young people, little concern for environment and social issues, prioritise price and speed), most difficult market. 2) Social consumers (image is important, behaviour often inconsistent with attitude

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because of perceived barriers), most potential as a market. 3) Sacrifice consumers (great concern for environment and social issues, want to reduce personal impact), useful market to lead uptake (McNeill & Moore, 2015).

Matevosyan (2014), fashion researcher and author of the book Paradigm Shift in Fashion distinguished three types of target groups: ideal clients (leaders and trendsetters who fit ‘personas’ developed by the fashion company), followers (group that only meets description of the ‘personas’ partially), and general followers (random group who just thinks the clothes look nice). Matevosyan (2014) argues fashion companies need to determine their ideal client in terms of demographics (i.e. age, location, gender, income, education, ethnical background), lifestyle (i.e. social surroundings, everything that shapes someone into a personality), and frustration or consumer needs (i.e. psychological, financial and physical). Psychological needs and desires are about: decoration, people want to grab attention with what they wear; modesty, people want to blend into society; and protection against judgement or the first impression. These psychological needs and desires are associated with colour, shape, and form. Financial needs and desires are about budget and quality, and exclusivity. Physical needs and desires are about comfort, fit, feel, and freedom of movement (Matevosyan, 2014).

Product quality and brand reputation are decisive selection criteria, environmental commitment of the brand is not (for luxury products). Consumers perceptions of green campaigns have a positive effect on green consciousness, which in turn positively affects green behaviour (Lee et al., 2012). But consumers are only willing to buy environmental-friendly clothing if the intrinsic quality attributes are equivalent to those of conventional products. Presence of recycled material in luxury products is perceived negatively by consumers, only recycled packaging is accepted. The introduction of recycled materials in a luxury garment reduces the value of the product. And consumers do not appear to believe that luxury products are a danger to the planet. But in contrast, consumers perceive use of organic cotton positively. However, greenwashing practices make

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consumers doubt the brand’s true motives. Overall, women perceive fashion companies’ green efforts less unfavourably than men. (Achabou & Dekhili, 2013).

McDonald and Oates (2006) propose that consumers do not make a distinction between buying and disposal behaviours. This suggests that eco conscious consumers also tend to reuse and recycle. There is a positive attitude towards green activities such as recycling, though this does not necessarily result in green behaviour (McDonald & Oates, 2006).

Interview data from McNeill and Moore (2015) shows that second hand purchase is not directly associated with being sustainable or recycling, but more budget friendly and one of a kind finds. Furthermore, clothing from recycled materials is perceived as less fashionable. Making consumers aware of the connection between cheap fast fashion and sustainability is crucial to make a difference (McNeill & Moore, 2015).

A study by Steinhart et al. (2013) about consumer’s attitude towards utilitarian and luxury products found that products with an environmental claim had higher perceived functionality and were preferred over similar products without an environmental claim. For luxury products an environmental claim also enhanced the consumer’s self-perception as environmentalist (Steinhart et al., 2013).

2.5 Business Model Innovation

What is a business models and which new circular business models exist? What are criteria for a viable circular business model that is scalable?

For the definition of a business model Osterwalder’s (2004) Business Model Canvas is used which illustrates the main processes of a company’s value creation and capture (see Figure 3). The business model can be seen as a vehicle for innovation, as well as subject of innovation (Zott, Amit, & Massa, 2011).

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Key Partners Key Activities Value proposition Customer Relationships Target Customers

Key Resources Channels

Cost Structure Revenue Streams

Source: Osterwalder (2004)

In the last decade, there has been an increased interest in sustainable innovation (e.g. Bocken et al., 2014). Therefore in this thesis the focus will be the sustainable business model. Bocken and colleagues (2014) described a sustainable business model to: ‘’incorporate a triple bottom line approach and consider a wide range of stakeholder interests, including environment and society.’’ They present an overview of archetypes for sustainable business models, including: maximise material productivity and energy efficiency (e.g. lean manufacturing); create value from ‘waste’ (e.g. closed loop and cradle to cradle systems); deliver functionality, rather than ownership (e.g. rent and lease); encourage sufficiency (e.g. slow fashion) (Bocken et al., 2014). These archetypes mentioned above all constitute to a circular business model that is based on circular economy principles of reduce, reuse, recycle. Organisations are more aware of the environment and apply the cradle to cradle principle to reduce negative impact on the environment (Braungart & McDonough, 2007). Several fashion companies have the ambition to shift from a linear to a more circular business model, such as Filippa K, (Kant Hvass, 2015). Some question whether it is possible to get out of the current ‘lock-in’ system of the fashion industry. But if we could create this model, we can also create something else (Fletcher, 2010).

Besides an innovation in the business model, circular fashion can also be seen as a product innovation or service innovation. A challenge for new product development which requires new technologies, as in the case of recycled fashion, is the commercialisation phase. For a business to be

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economically viable thus successful, the product needs to be adopted by the market. This is a gradual process, where firstly the innovators, then the early adopters buy the product. In this phase the business is in the so called Valley of Death (Murphy & Edwards, 2003). In order to get beyond the Valley of Death, the business has to overcome the ‘chasm’ effect of the early majority that waits until they see other people buy the product, before they will buy it themselves (Moore, 1999). Then sales will grow and the product can be commercialised (see Figure 4).

Figure 4. The Valley of Death

Source: Adapted from Murphy and Edwards (2003)

In this thesis five types of circular business models in fashion are discussed and evaluated on their viability, challenges and barriers: 1) Collection and Sorting of post-consumer textiles; 2) Second Hand Sale from a company’s own brand, in vintage stores, or on the international market; 3) Creating Value from Waste through mechanical or (bio)chemical recycling; 4) Lending services, and 5) Leasing

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services. Finally, the CBMs will be assessed for their potential to scale up and bring about a transition in the fashion industry towards a circular economy.

2.5.1 Collection and Sorting

In order to close the loop, collection and sorting are crucial phases in the circular value chain. Kant Hvass (2015) identified two strategies how fashion companies can address collection. First, an in-store take-back scheme that allows consumers to bring back their worn garments to the in-store and in turn receive a discount voucher for a next purchase. Examples of companies that have implemented such in-store take-back schemes are H&M and Clemens & August (C&A) in collaboration with a global collection company I:CO (short for I:Collect). While this seems a good initiative, one could doubt whether encouraging more consumption with discount vouchers is conflicting with the idea of being sustainable. Second, a resell platform such as applied by Filippa K, where consumers can donate the brand’s own clothes which are then sold second hand, extending the life of quality garments and capturing additional value for the company (Kant Hvass, 2015). Additionally, this type of reuse saves 10 to 20 times the amount of environmental costs compared to producing a new garment (Kant Hvass, 2015).

At this time only roughly 15% of disposed garments and other household textiles (in the UK) is collected for reuse and recycling. The reason given in the report is the ‘’relative ease of placing used clothing in a general rubbish bin rather than in a clothes bank’’ (Allwood et al., 2006: p 69). Sorting is currently a very labour intensive process which is mostly done by people that have difficulties finding employment, for instance due to a handicap or criminal record.

2.5.2 Second Hand Sale

After the sorting phase, garments are divided in batches of wearables and non-wearables. Wearables end up in reuse, i.e. second hand sale, while non-wearables are processed further for recycling. The market for second hand used to be dominated by non-profit organisations and charities like Sympany, Curitas, and Salvation Army. However, commercial parties have entered the market and make large profits from reselling either in trendy vintage shops across Europe or in Africa (Kant

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Hvass, 2015). The second hand business is two-sided: the collectors and charities like to maintain the ideological image of collecting clothes for poor people, but in reality it is a tough business (Van Velzen, 2015). Furthermore the shopping experience of second hand stores has improved, making them more attractive for a broader range of consumers.

Conspicuous consumption and fast fashion in the Global North creates supply of used clothing. The moment one discards his clothes, they end up in landfill or are donated to charity. However, more often than not, they will end up in a commercial trade in the Global South and are not freely distributed like people think. As it turns out, the international trade in second-hand clothing consists of complex nonlinear networks of the charities and organisations where illegal and immoral practices are very common (Brooks, 2013). There are two views on the second-hand clothing trade. According to the first, it is killing the local economy and the other says it creates local jobs (Brooks, 2013).

Unfortunately, cheap fashion is often poorly made and not suited for resale. Six East African countries (i.e. Kenya, Rwanda, Uganda, Tanzania, Burundi and South Sudan) want to impose a ban to import of second hand clothes and shoes to protect the local textile and leather industry (Ligami, 2016). The resulting types of second hand models can be divided into consignment stores, vintage shops, overseas (Africa), and a brand’s resell platform.

As described above, a resell platform like that of Filippa K or Patagonia is only for the brand’s own garments. Consumers can bring their clothes to the brand for resale. When the item is sold the consumer receives 50% of the profit. When it is not sold, the consumer gets their item back or it is donated to charity. This helps to create an incentive towards consumers to care for their garments, as to ensure higher second hand value (Bocken et al., 2014). This resell platform has relatively low set up costs and provides a quick payback period of less than two and a half years. A good return on capital can be realised over 5 to 10 years (WRAP, 2013).

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2.5.3 Creating Value from Waste

Fast fashion leads to increasing consumption of garments and inevitably to increasing garment disposal (Allwood et al., 2006). Clothing recycling could represent the take-off phase towards a system innovation, where one can create a new market for clothes using recycled material (Morgan, 2015).

But recycling is not new. While it was customary until the 1960’s to reuse textiles, it seems like one has forgotten how and what to do with it. In the Netherlands around 155 million kilos of textiles is burned annually, of which 40 million is wearable (Groen is de Rode Draad, 2015).

Even though many companies use recycled wool just because it is cheaper, they probably won’t mention it on the label. Other companies advertise with the fact that they use (a proportion) of recycled wool, such as Patagonia and even fast fashion giant H&M (H&M, n.d.). More fashion companies recently started using recycled materials, for example Kuyichi, G-star, PUMA, Naja and Prana (The Good Trade, n.d.).

A business model which creates value from waste actually eliminates the concept of waste by turning waste into valuable resources for new products. In order to capture value from waste, new partnerships with recycling companies need to be entered. Even more, by turning waste into value, economic and environmental costs decrease compared to the use of virgin resources (Bocken et al., 2014).

At the moment, collected and recycled fibres are used for low value products such as rags and insulation, but its potential is much bigger. Various technologies are being developed for high value recycling of textile waste. In 2015 there were 50 small initiatives in the Netherlands working on textile recycling (Groen is de Rode Draad, 2015). In general a distinction can be made between mechanical recycling for natural fibres and chemical recycling for man-made fibres (or bio-chemical recycling for natural fibres). A study of MADE-BY (2013) found mechanical recycling is the best option for the environment. However, mechanical recycling can be repeated only a few times because in each round quality is lost, while (bio-)chemical recycling restores the fibre to virgin quality endlessly.

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Current bottlenecks that limit post-consumer recycling are for example the collection, sorting and separation of the different textiles. The many materials and fibre blends used in garments pose a significant constraint. For its economic potential, it is crucial to have a constant and large input of a specific material (Allwood et al., 2006). Also, there is insufficient collaboration and information exchange between retailers, producers and recyclers (Groen is de Rode Draad, 2015).

Ernst & Young calculated the expected costs and returns: First, a mechanical pilot plant at Texperium could be scaled up to a production of 1000 tonnes of recycled yarns within 3 years that is profitable at 75% of its capacity. The yarns produced are blended with virgin material, with up to 75% recycled fibres. Second, a biochemical pilot plant at Saxion (University of Applied Science) could also be scaled up within 3 years, to produce 100 tonnes fibres which can be further processed in existing spinning plant and be profitable (Groen is de Rode Draad, 2015).

2.5.4 Lending

With growing trends like circular economy and shared economy, new business models are explored that are based on functionality over ownership (Bocken et al., 2014). This servitization can be seen in various industries, successful examples are Airbnb and Uber. Lending services for fashion will extend the lifecycle and is a sustainable option for fast fashion (Hu et al., 2014). For example in China, borrowing clothes for special occasions like weddings, costumes and formal dresses is common (Hu et al., 2014). Examples of lending fashion services are clothes (LENA Fashion Library in the Netherlands, Le Tote and Rent The Runway in the US, Rentez-Vous in the UK) and designer bags (Bag Borrow Or Steal in the US, Fashion Hire in the UK,). Love Me & Leave Me in Australia closed their business after nine years (REBUS, n.d.).

In the lending model, fashion products are distributed through the traditional retail sales and lending services (Hu et al., 2014). Or a variation studied by Matevosyan (2014) and Kant Hvass (2015) of traditional retail sales (first hand), lending services and second hand sales. Borrowed clothes return to the retailer to be laundered and repaired for another use, some may be outdated or worn out and are sent to be recycling (Hu et al., 2014). Unwanted clothes after purchase can be returned

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to the retailer for a reward. Furthermore, the lending model enables companies to build a relationship with consumers due to more contact moments. Collected consumer data can be used to predict fashion trends and enhance the design and buying process (Hu et al., 2014).

The pricing strategy in the lending model should consider the difference between products for sale and products to be lent. Because they serve different target markets, there should be no price competition between lending and sales (Hu et al., 2014). Hu et al. (2014) suggest pricing for the lending model need to cover logistics services and the sustainable value from using lending services. The lending model proposed by Hu et al. (2014) does not incorporate consumer attitude towards such a lending model.

2.5.5 Leasing

Besides the short-term lending model, some brands have introduced a leasing model. For example Mudjeans has the Lease-a-Jeans concept and DutchSpirit Lease-a-Suit. Just as the lending model, leasing increases access to high quality and affordable fashion for consumers. These models are mainly based on a monthly subscription. In addition one can also buy the (second hand) products. In this way leasing allows companies to attract different target markets (Hu et al., 2014).

This business model is about delivering services rather than products, and is also referred to as a Product-Service-System (Bocken et al., 2014). An advantage of the lending and leasing model is that it breaks the link between profit and production volume and therefore can reduce resource consumption. This model could change the current excess consumption patterns, but a shift in consumer behaviour is not so easily achieved. Furthermore, since the producer remains owner of the product, it gives the company an incentive to manage the end of life. Therefore this model enhances a product’s longevity and ensures reuse and recycling (Bocken et al., 2014).

A third variation of fashion as a service which is more common and accepted by the market are repairing and replacing services for an (un)limited period, such as the Dr. Martens FOR LIFE guarantee.

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3. Method

The research has a qualitative and exploratory approach to gain a thorough understanding of CBMs in the fashion industry. Circular fashion forms a closed loop system of reduce, reuse and recycle (Du, Yu, & Cheng, 2010). This method was chosen for its richness in data, its flexibility and its ability to fulfil the research purpose of identifying and understanding factors that play a role in the economic viability, challenges and opportunities (Eisenhardt, 1989). When little is known about a phenomenon, qualitative methods are advocated for their ability to discover the underlying nature of the phenomenon in question (Strauss & Corbin, 1990). For this thesis a multiple case study is conducted. The fashion companies are unit of analysis.

3.1 Sampling

This research utilises purposive sampling methods (Patton, 1990). Initially theoretical sampling is used for theory building reasons (Patton, 1990). Relevant cases are identified through familiarity with the companies, internet search, and visiting a sustainable fashion fair (Modefabriek MINT). For the scope of this study only companies based in the Netherlands are approached. After theoretical sampling, additional interviewees are identified through snowball sampling, by asking interviewees to identify other individuals who meet the criteria and might be willing to participate (Patton, 1990). The resulting sample of founders represent extreme cases which are desirable when building theory because the dynamics being studied in extreme cases are more visible than in another context (Eisenhardt, 1989).

Cases can be divided into various types of CBMs. For an overview see Table 1. Additionally, some expert interviews with researchers and consultants in the area of circular fashion are conducted as well as document analysis. Document analysis was a complementary data collection procedure in support of triangulation and theory building (Bowen, 2009).

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Table 1. Categorisation of circular business models and corresponding cases

Business model Interview case Document analysis

Collection and Sorting Leger des Heils ReShare (1), Sympany (2)

I:CO

Reuse

- Second Hand Sale - Lending

- Leasing

The Vintage Store (3) Fashion Library (4) Mudjeans (5), DutchSpirit (6) Filippa K Vanvoort Recycling - Producer - Brand SaXcell (7) Blueloop (8), H3P RE-5 (9)*

Recover, Frankenhuis, GM Filati WE Fashion, G-star, PUMA, C&A, H&M

* Note: at the time of this study H3P RE-5 has collected too little organic cotton to recycle themselves.

Source: Author

3.2 Instruments and Procedures

The method used in this thesis is a qualitative case study. A case study is particularly suitable to study a phenomenon in a certain context; circular business models in the fashion industry (Saunders & Lewis, 2012). Because this subject has not been covered sufficiently in existing literature, this study aims to explore the phenomenon using inductive reasoning (Saunders & Lewis, 2012). Subsequently, propositions for the direction of future research are given (Saunders & Lewis, 2012).

Data for this study is primarily collected by unstructured and semi-structured interviews Saunders & Lewis, 2012). Participants in the interviews are founders of the case companies and individuals with expert knowledge on the topic of circular fashion (e.g. researcher, book author, consultant, lecturer in the area of circular fashion). Due to limited time and resources around ten interviews are conducted, leading to a trade-off between breadth and depth (Patton, 1990).

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The purpose of the interview is explained beforehand to participants, to ensure they know the results are handled anonymously if desirable. Permission to record the interview is asked in order to transcribe the results later, and an indication of the duration is given. An interview guide provides a set of questions and topics that need to be covered for each interview. These will be about the interviewees experience and behaviour, opinions and values, and feelings (Strauss & Corbin, 1990). During the interview the order of these questions may vary. Also, there is some space for the interviewee to add interesting information and ask questions in return. In general, the interview questions are designed so that they are open-ended, non-dichotomous, singular, and clear (Hsieh & Shannon, 2005).

Additionally, secondary data sources such as reports, newspaper articles, press releases and industry specific available information, such as company’s websites and annual reports are used. Using various sources allowed for a deeper and fuller understanding of the topic and is referred to as triangulation (Bowen, 2009; Saunders & Lewis, 2012).

3.3 Strengths and Limitations

The case study is often criticised because a small number of cases cannot be used to make conclusions. Also, findings cannot be generalised. Furthermore, scholars believe that case studies are biased. However, a good case study can lead to insights that go beyond a more descriptive study (Saunders & Lewis, 2012).

Due to time constraints, a cross-sectional study is conducted. In other words, the data collection only represents a particular period in time, and gives a snapshot of the phenomenon (Saunders & Lewis, 2012).

To ensure validity and reliability of this research, the following actions are taken to eliminate factors that could threaten the validity. Firstly construct validity is ensured by an extensive literature reviews and using multiple sources of evidence like interviews and secondary data. Second, internal validity will be gained by explanation building, pattern matching and including rival explanations in

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the study. Third, using multiple cases in a specific context contributes to the external validity and gives insight to the limitations of generalisability. Furthermore, reliability of this thesis is ensured by following a case study protocol in the data collection and analysis. Finally, triangulation enhances the credibility of this thesis (Hsieh & Shannon, 2005).

3.4 Data Analysis Strategy

The first interviews were unstructured followed by semi-structured interviews that consisted of open-ended questions to assess the economic viability of the CBM. Starting the unstructured interviews with a broad focus, questions asked were aimed at identifying emergent foci of interest. An example question is, ‘’What does your cost structure look like?’’ Responses from the unstructured interviews helped to identify several themes to explore in more detail in the semi-structured interviews. For instance, the theme of responsibility was mentioned. One interviewee demonstrated issues with responsibility of fashion companies by noting ‘’people don’t want to make a difference, they want to make money’’ (Appendix A8). Hence, in the semi-structured interviews responsibility was one of the themes for the questions, by asking interviewees about the responsibility of companies, governments and consumers. In addition to document analysis, responses to questions from the semi-structured interviews helped to identify a pattern of barriers and challenges of the CBM that also provided an insight into the requirements for a transformation of the fashion industry towards a circular economy.

Out of the 15 people approached, 4 declined to be interviewed because they did not have time. Typically, these all were the larger fashion companies (C&A, G-star, WE fashion, H&M). Of the 11 interviews conducted, 2 were with collection and sorting companies, 6 with founders of circular fashion companies, and 3 interviews were held with researchers. One interviewee requested for their interview to be treated anonymously. The interviews were recorded with permission. They were held in a neutral place like a restaurant, via Skype or telephone and conducted in Dutch or English. The recorded data were then transcribed (see Appendix A) using a selective protocol, leaving

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out the introductory parts (Mayring, 2014). Following transcription, the computer analysis program NVivo was used to systematically analyse and code the interview and documentary data to identify emerging patterns or common themes about the economic viability and scalability of the CBM (Strauss & Corbin, 1990).

The analysis process was as follows: First each transcript from the unstructured interviews was read word for word and codes were formed inductively from the text according to the grounded theory approach (Mayring, 2014; Strauss & Corbin, 1990). Then the transcripts were analysed together and codes were compared and adjusted. These codes allowed to determine foci for the semi-structured interviews that followed. Using snowball and theoretical sampling additional interviewees were selected (Patton, 1990). In total there were six rounds of interviews. After every round of interviews, codes were refined making data collection and analysis an iterative process (Hutchison, Johnston, & Breckon, 2010; Mayring, 2014). During this phase, documents were gathered to support triangulation and theory building (Bowen, 2009). The documents took the form of newspaper articles, reports from business and government, press releases and corporate websites. Finally, transcripts from subsequent rounds of interviews were coded into categories of value chain processes, challenges, opportunities, and responsibilities to understand factors that influence economic viability of the CBM. See Figure 5 for an overview demonstrating the iterative nature of the research process.

Figure 5. Overview of the iterative research process

Source: Author Unstructured interiews 1-2 Emergent foci Coding Semi-structured interviews 3-4 Interviews 5-6 Coding Interview 7 Coding Interviews 8-9 Interviews 10-11 Initial coding Member check Coding Discussion Refined coding _Saturation Synthesis Broad focus Literature review Conclusions Document collection Literature review

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4. Analysis

What are criteria for a viable circular busines s model that is scalable? What are challenges and barriers of a circular business model?

Analysis of the interview data resulted in two main findings. One, the different CBMs are in various phases of economic viability, some CBMs are more advanced and accepted in the market than others. However, all believe this will change in the near future.

Two, the data identify an underlying set of factors that affect the CBM and its potential. A summary of these factors can be found in Table 3 (p68).

4.1 Introduction to the Cases

The interview and document data provided insight in the current – lack of – economic viability of the CBM. The five circular business models that were explored in this thesis are: 1) Collection and Sorting, 2) Second Hand Sale, 3) Creating Value from Waste, 4) Lending, and 5) Leasing. The corresponding case companies and their key characteristics are listed in Table 2. Furthermore, Table 2 provides an overview of the economic viability of the various CBMs in terms of market share, financing, profit, and position in the Valley of Death (Figure 4 in section 2.5, p27).

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Table 2. Key characteristics of cases and their economic viability

Case Start year

Market share

Financing Profit Position Valley of Death

Collection, Sorting and Second Hand Sale (1)

1891 Late majority (market leader)

Foundation Profitable D

Collection and Sorting (2) 2015 Late

majority

Foundation Profitable D

Second Hand Sale (3) 2012 Late

majority

Bank loan, property owners First 2 years no profit, turnover increasing D

Fashion Library (4) 2014 Early

adopters

Own capital, family loans, impact investor

No profit yet A

Leasing Jeans (5) 2013 Early

adopters

Own capital, DOEN foundation loan, private investors Break even, turnover increasing B

Leasing Suits (6) 2010 Late

majority

Bank loan, crowdfunding

Lower margin D

Chemical Recycling (7) 2011 Innovators Government

funding

No profit yet A

Recycled Fashion (8) 2013 Early

adopters

Own capital, partners

Lower margin A

Organic Fashion (9) 2006 Early

majority

Own capital Breakeven, slight profit next year

C

Source: Author

4.1.1 Motivation

People that start a sustainable fashion brand are mostly intrinsically motivated, the external part is often the last to consider (Leclaire, 2015). Hein Voss incorporated his motivation in the company name H3P. Three H’s represent the company’s core values of Helping, Honesty, and Healthy, while the three P’s stand for People, Planet, and Passion (instead of Profit).

DutchSpirit was founded by Erik Toenhake because he wanted to change the ‘sick’ fashion industry. His first step was creating good working conditions and paying a fair price to his suppliers. Making huge profit margins is not a priority. Second, Toenhake decided to compensate the CO2 emissions with planting trees in rainforests. For each suit one tree will be planted.

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Table 3 p68). Of all the founders who were interviewed for this study, only one commented that he earns a good salary. As one founder put it: ‘’If you don’t have the passion to do it differently you’re not going to survive. I can tell you honestly that I haven’t made a profit in the last 6/7 years’’ (Appendix A9). Tonnaer believes money is overrated, he didn’t start Kings of Indigo to become huge, he just wanted to enjoy the journey and create his own job and world (Hendriksz, 2016). Hein Voss said in an interview with Trouw: Financially I don’t earn a lot, but the satisfaction it gives me is much more valuable, I used to have a second house, a boat and three holidays a year, now I earn less than the minimum wage and my savings are all in the company, but I’m much happier now, I don’t regret anything, the only thing that keeps me awake sometimes is how I can generate more impact (Oostra, 2016).

Bert van Son, founder of Mudjeans has worked in the fashion industry for 30 years and has done a lot of things in a way that is not very sustainable but very profitable. Then he realised: ‘’This is not the way to go forward, I have got three kids and I am not proud of what I am doing. So, I tried to find another way to do it’’ (Appendix A5). Mudjeans started with buying certified cotton, laser dyeing instead of stonewashing and then decided to make a circular model by taking back jeans and then they developed the leasing concept. As Van Son stated: ‘’ We are not a circular economy company we are a company that makes fantastic jeans with fantastic materials in great factories and on top of that we make sure that everything we put into the market we get back’’ (Appendix A5).

4.1.2 Profit

Circle Economy found ‘’a lot of the most promising circular models are really small scale they are not really profitable, yet. But they are hugely valuable in terms of the relationship between the brand and the consumer, the brand value, the marketing potential’’ (Appendix A10).

First, companies with a CBM have very different cost structures. They pay a higher price for raw materials and production than conventional fashion companies. To be able to compete with others there is not much room for a profit (Leclaire, 2015). Sustainable business is difficult because while the buying price is triple the amount competitors are paying, consumers are not willing to pay

From passion to profit : exploring circular business models in fashion