Rethinking fashion : engaging consumers to close the material loop

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MARÍA ROSA RÍSQUEZ ESPAÑA

MSc THESIS BUSINESS ADMINISTRATION

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Rethinking Fashion: Engaging

Consumers to Close the Material Loop

Name: María Rosa Rísquez España Student Number: 11772816 Date of Submission: 17/08/2018 Institution: University of Amsterdam

Master’s Thesis: MSc. Business Administration - International Management Track Thesis Supervisor: Markus Paukku

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Statement of originality

This document is written by Student María Rosa Rísquez España 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 TABLES

Table 1 – Principles of the circular economy in the fashion industry ... 17

Table 2 – Description of interviewees ... 42

Table 3 – Coding enumeration and meaning ... 44

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Abstract

The fashion industry is one of the most polluted industries worldwide. The extensive use of water, chemicals and extraction of resources are negatively damaging the environment. As the clothing consumption is expected to grow in the upcoming years, the circular economy has started to gain interest between researchers and fashion practitioners to bring a sustainable solution. Even though fashion bands are starting to produce under the circular principles, fashion practitioners address the problem that consumers are not undertaking their role in the circular economy: closing the loop.

This research provides an answer to the main research question “How can potential

consumers of CFC be engaged in closing the companies’ material loops through the use of digital technologies?” by focusing on two digital technologies: smartphone and social

media. To answer the question, this qualitative study critically analyses the results of the eighteen conducted semi-structured interviews with potential consumers of CFC alongside the theoretical foundation of this research. The results of this study show that to engage potential consumers in closing the material loop, CFCs need to facilitate consumers ways to undertake three sustainable actions: use, wash and repair with care; consider rent, loan, swap and buy second hand; buy quality as opposed to quantity through the two aforementioned digital technologies.

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1. INTRODUCTION

Since the start of the Industrial Revolution in the 18th century, the worldwide socio-economic systems are characterized by the prevailing of linear socio-economic models. Typical within this linear system are companies taking, making and disposing products, leading to an unsustainable waste of resources and environmental damage (Michelini et al., 2017). The last decades, a movement to change this linear system emerged to achieve sustainable development (Geissdoerfer et al., 2018). Since the growing awareness on the unsustainable character of this linear system, currently also companies are looking for an alternative sustainable model that can provide growth and resource efficiency at the same time (Pagoropoulos et al., 2017). The concept of a circular economy as opposite to the current linear one, has been spreading the last few years and became a concept to be taken into account. According to the supporters of a circular economy, this shift towards different socio-economic models is a solution to reduce the input of resources while achieving zero waste through a closed material loop.

One of the most polluting industries worldwide is that of the fashion industry. The huge production, consumption and disposal of clothing leaves its negative impacts on the environment (Greenpeace, 2011; Ellen MacArthur Foundation, 2017). According to Greenpeace (2011) two of the biggest negative impacts of the fashion industry on the environment are water pollution due to the use of chemicals in the production of garments and water scarcity.

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Image 1. The fashion industry impact on the environment. Source: Ellen MacArthur Foundation (2017) - A new textile economy report.

The consumption of fashion probably keeps increasing as the world population continues to grow. For the circular economy to become reality, major shifts and innovations within this industry are needed. However, the road for fashion companies to take to establish a shift from a linear economic model to a circular one, has not yet been paved well. Especially due to the high speed of the industry’s growth, it is a challenge to increase sustainability within the industry.

Nowadays there are numerous fashion companies striving for circularity and more is known about the role of the fashion producers in this. However, there is an increasing need to engage consumers in this process as well (Capponi, personal communication, May 2018). Without the commitment of consumers to the goal of circularity, the needed shift will not be achieved. The engagement of both producers and consumers is needed in order to shift to a more circular system.

Also within scientific research, circular fashion is a growing concept of interest. Brismar (2014) developed sixteen principles that fashion companies should follow in order to shift to a circular fashion company (CFC). While thirteen of these principles need

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8 to be followed by the fashion producer, the other three are the responsibility of the fashion consumer.

Both research and the fashion practice show changes towards (more knowledge on) circular and sustainable business, a real change in one of the world’s biggest industries. A broad variety of studies on circular fashion focuses on the textile and production of garments (Franco, 2017; Sandin and Peters, 2018; Dahlbo et al., 2017), while little to no attention is given to the post-production phase and the consumer oriented principles that need to be followed in order to close the material loops of fashion companies (Andrews, 2015; Korhonen et al., 2018; De los Ríos and Chamley, 2017).

Fashion practitioners argue that the main problem to achieve circularity is that consumers are insufficiently engage to circular fashion and therefore do not feel responsible to contribute to closing the material loops of the companies they buy their clothes from. Without the consumers’ contribution in this, producers will be unable to become CFC, even if they completely follow Brismar’s (2014) thirteen principles. Deeper insight on how to engage these consumers is therefore essential.

Looking at the current ‘online’ trend of consumption, digital technologies appear to be the most useful tools to engage consumers in this shift towards more sustainable behavior. Therefore, this study provides deeper insights in ways in which highly used digital technologies - mobile and social technology - can help engaging (potential) consumers in contributing to the circularity of fashion companies. While digital technologies are presented as useful tools in the shift towards a circular economy (Ellen MacArthur Foundation, 2017; Pagoropoulos et al., 2017), there is still no existing research on how these technologies can be used to encourage consumers to follow the three consumer-oriented principles of Brismar (2014) that are crucial for fashion

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9 companies to change to a more circular and sustainable business. This leads to the following research question:

“How can potential consumers of CFC be engaged in closing the companies’ material loops through the use of digital technologies?”

In providing an answer to the research question, this research makes a start in filling the current gap in the scientific literature by presenting insights on the ways to engage consumers in making more circular and this sustainable decisions regarding their fashion. Furthermore, these insights can be used by fashion companies wanting to engage (potential) consumers in their shift towards circularity. This qualitative study critically analyses the results of the eighteen conducted semi-structured interviews with potential consumers of CFC alongside the theoretical foundation of this research. While the perspective of the companies is also very important to address this problem, this study will focus on the perspective of the consumers.

The following chapter presents a critical discussion on the current literature on the circular economy in the fashion industry, the principles and the role of producers and consumers in closing the loop, sustainable consumer behavior in order to engage in the three activities.

Subsequently the theoretical framework of this study is discussed. Multiple working propositions are established in order to investigate the research question. After the main findings of the empirical research are presented in the chapter on the results. The presentation of the results is structured following the three consumer-oriented principles, as is the following chapter, the discussion. In the later, the empirical results are critically discussed and analyzed alongside the theoretical foundation of the research. Within this chapter, also the validity of the propositions is presented. Finally, this study concludes

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10 with a summary of the key findings, the research limitations and the recommendations for future research.

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2. LITERATURE REVIEW

The goal of this literature review is to illustrate the importance of engaging potential consumers in contributing to closing material loops of CFC. This chapter operationalizes all the theoretical concepts of relevance within this study.

First of all, this chapter analyzes one of the most potential alternatives to challenge the aforementioned problems, the circular economy, and how businesses incorporate the circular principles into their business models. This information is required before this study can dive into the potential consumers’ engagement.

2.1. Circular Economy

In this section, a short understanding is given on how current environmental problems have lead and continue to lead to the rise of an alternative economic model, the circular economy.

The current linear business and economic growth model, started to become the prevailing model from the 17th century with the new technological inventions that led to the industrialization, is characterized by a “cradle-to-grave flow of most natural resources” (Lacy and Rutqvist, 2015, p.4). These new technologies did not take in consideration the negative impacts that this system would have on the environment in the long term (Prieto-Sandoval, 2017). The linear system is known as the “take, make, dispose” system, meaning that firms take resources from nature and make products out of it for consumers to use and to be disposed after their usage. This is known as “business as usual”, a model that unfollows the biological natural cycle of the production and consumption of products and services (Lacy and Rutqvist, 2015). Its material flow is based on value creation using only virgin materials (Michelini et al., 2017). This linear

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12 model will eventually collapse due to resource shortages, as the population nowadays makes use of over 50 percent of resources more than the earth can regenerate in the natural cycle (Lacy and Rutqvist, 2015; Bonciu, 2014), showing its unsustainability for the future. The eventual scarcity of resources within this system leads businesses to be exposed to risks as the volatility of resource prices or a supply disruption (Ellen MacArthur Foundation, 2013).

A popular alternative to this unsustainable linear model is that of the circular economy. As stated by the Cisco President Chris Dedicoat, this circular economy is “a blueprint for a new sustainable economy, one that has innovation and efficiency at its heart and addresses the business challenges presented by continued economic unpredictability, exponential population growth and our escalating demand for the world’s natural resources” (Ellen MacArthur Foundation, 2013, p. 4). As an answer to the rising environmental problems, the idea of an alternative ‘circular economy’ gained interest since the 1970s (Ellen MacArthur Foundation, 2013). The circular economy is defined as a system that is restorative or regenerative by design. “It replaces the “end-of-life” concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse, and aims for the elimination of waste through the superior design of materials, products, systems, and, within this, business models” (Ellen MacArthur Foundation, 2013, p.7). Since it has become an attractive research topic for researchers, there exist different definitions of circular economy depending on the field of study (Merli et al., 2017). Sauvé (2016, p.49) provides an environmental perspective and defines circular economy as the “production and consumption of goods through closed loop material flows that internalize environmental externalities linked to virgin resource extraction and the generation of waste”. This definition is used within this

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13 research, because of its emphasis on the importance of closing loops for circularity; the main topic of this research.

The circular economy respects the biological cycle of nature by improving the ability for future generations to meet their needs (Sauvé, 2016), whilst encouraging economic growth. Resources are fed back into their original system through processes as composting or by breaking down biodegradable materials. Besides contributing to challenging many of the currently existing environmental problems, it is an attractive system for companies. With this model, businesses can enhance their productivity while taking into account the possible positive or negative externalities during the production process, the consumption and the end-of life of the products (Sauvé, 2016).

The idea of the circular economy has gained interest by researchers, organizations, governments and companies within the last decades. Businesses are looking for alternative sustainable business models that ensure a balance between business, environment and society, a so-called circular business model, that can provide growth and resource efficiency, while at the same time taking care of the environment (Heyes et al., 2018; Pagoropoulos et al., 2017). Despite its growing importance, current literature on the circular economy is still very dispersed and there is not a common guideline to achieve circularity (Geissdoerfer et al., 2018; Homrich et al., 2017). However, general principles have been drawn up that can be followed to achieve circularity for businesses in general. The next paragraph elaborates on them.

2.1.1. Circular principles

This section further operationalizes the concept of the circular economy into circular principles that circular companies try to incorporate into their business models in order to become more sustainable. This information is needed in order to make clear how

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14 potential consumers can be engaged into the process of companies aiming for circularity and thereby sustainability.

The notion of the circular economy is based on four main principles: design out waste, build resilience through diversity, rely on energy from renewable sources and think in ‘systems’ (Homrich et al., 2018; The Ellen MacArthur Foundation, 2013).

Firstly, when designing out waste, producers operating within the circular economy aim to develop a product that fits the biological cycle of materials. The product has to be designed in a way that after it has been used, it will be easy to separate its materials or refurbishable to avoid producing waste. Producers have to use organic materials that are non-toxic and biodegradable, or technical materials that can be reused (Braungart and McDonough, 2002).

Secondly, building resilience refers to achieving versatility and adaptability through diversity (Pauli, 2010; Ellen MacArthur Foundation, 2013). In this process, producers have to find a balance between resilience and efficiency in order for their company to become less vulnerable to the effects of shocks, while at the same time being effective enough (Pauli, 2010; Ellen MacArthur Foundation, 2013).

The third principle to be followed within a circular economy entails the exclusive use of renewable energy. Relying on renewable sources such as wind, solar or biomass, enhances the production phase while reducing energy consumption (Ellen MacArthur Foundation, 2013).

The fourth principle, thinking in systems, is stated to be the most important principle while at the same time the most difficult principle to apply (Circular Academy, n.d.). Thinking in systems is about taking a holistic approach. According to the British Standard 8001 (2017), thinking in systems is the ability to understand how individual

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15 decisions and activities can influence one another within the systems they are part of. In other words, by thinking in systems is meant that producers and consumers have to be aware that in every step of the process, there is a connection and relationship between the environment, the society and the business involved (Pauli, 2010). Thus, there is a shared responsibility from both parts, producers and consumers. Every step and decision influences and is influenced by the aforementioned actors. All these connections need to be understood and both producers and consumers have to think of systems as the sum of these connections (Meadows and Wright, 2008).

This thesis operationalizes these four main principles into activities needed to be undertaken by both producers and consumers to achieve circularity.

2.2. Rethinking the Fashion Material Loop

First of all, this chapter shortly explains the existing environmental problems resulting from traditional fashion business. Following, this study analyzes the circular economy in the fashion industry, and how businesses incorporate the circular principles into their business models. Furthermore, this chapter explains the role of producers and consumers in order to close the loop and finally dives into sustainable consumer behavior to study the potential consumers’ engagement.

2.2.1. Determinants to adopt the circular economy in the fashion industry

The fashion industry is a multibillion global enterprise that makes business by making and selling clothes. This industry has a significant negative impact on the environment (Pal and Gander, 2018). The main drivers of this are globalization and the rise of fast fashion in the last two decades. The fast fashion model aims at offering as many clothes as possible in the shortest time possible, a model used by well-known brands such as Zara or H&M. To get a picture of the big impact of the fast fashion system, take a look at Zara:

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16 over 65.000 pieces of clothes are currently being sold (Llanos, 2018). Its impact on the environment is therefore enormous. The most significant negative impacts on the environment during the production phase of the fashion industry arise due to the high water usage, the great amount of harmful chemicals used to dye the clothes and the scale of landfill produced during disposal (Pal and Gander,2018; Fletcher, 2016; Pulse of the fashion industry, 2017). Furthermore, because the manufacturing of garments takes place in developing countries, there are also many societal issues present, like low wages for long workdays, child labor and the low standards of working safety and environment (True cost, 2015).

Moreover, the post-production phase of clothes has a significant environmental impact. Only 20% of the currently existing clothes are being recycled or reused, while the rest ends as waste or is incinerated (Global Footprint Network, 2017). As the world’s population is most likely to increase in the upcoming years, the consumption of fashion is predicted to grow from 62 million tons of fashion items to 102 million by 2030 (Pulse of fashion industry, 2017).

Because of the aforementioned problems, this thesis provides insights on ways in which fashion companies, striving for circularity, can engage their consumers in the process of becoming circular and thereby reducing their negative impact on the environment.

The awareness of the aforementioned negative impacts has grown amongst both manufacturers and consumers in the last decade. This has led to the growth of fashion companies adopting a circular character with the objective of zero waste and closed material loops (Ellen MacArthur Foundation, 2017). The next paragraph further operationalizes circularity into activities needed to be undertaken by both producers and consumers to reach their goal of closing the material loops.

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2.2.2. Circular fashion company and its principles

This thesis focuses on the concept of circular fashion as defined by Dr. Brismar (2014). She refers to circular fashion as “clothes, shoes or accessories that are designed, sourced, produced and provided with the intention to be used and circulate responsibly and effectively in society for as long as possible in their most valuable form, and hereafter return safely to the biosphere when no longer of human use” (Brismar, 2014, Circular fashion, n.d). While all fashion companies aim at maximizing their revenues, a circular fashion company’s main goal is to create this positive value without harming the environment (Brismar, 2014).

For fashion companies to become circular and to be part of the circular economy, they must adopt a business model that operates according to the circular principles. Geissdoerfer et al. (2018, p.713) provide a ubiquitous definition of a circular business model (CBM) as a business model that “aims at solutions for sustainable development that are more focused on the circular economy by creating additional monetary and nonmonetary value through a circular value chain and stakeholder incentive alignment”. Besides, Bocken et al. (2013) and Geissdoerfer et al. (2018, p. 713) add the general CBM strategy that focuses on “closing, narrowing, slowing, intensifying, and dematerializing loops, minimizing the resource inputs into and the waste and emission leakage out of the organizational system, and, consequently, improving the sustainability performance of a company”.

Fashion companies that operate fully according to the circular principles can be called circular fashion companies. Brismar (2014) adapted the four general principles of the circular economy to be applicable to the fashion industry. Due to the negative impacts of different sectors such as fashion design, apparel, textile or retail on the environment,

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18 Brismar (2014) developed sixteen principles for fashion companies to minimize their impact, presented in table 1 below.

Principles Circular Economy

Principles Circular Fashion Companies

Focus on

Design out waste

Design with a purpose

Producer Design for longevity

Design for resource efficiency

Design for biodegradability

Design for recyclability

Build resilience

Source and produce more locally

Source and produce without toxicity

Source and produce with efficiency

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19 Provide services to support long life

Rely on renewable energies

Source and produce with renewables

Reuse, recycle or compost all remains

Think in systems Collaborate well and widely

Think in systems

Use, wash and repair with care

Customer Consider rent, loan, swap or second-hand

Buy quality as opposed to quantity

Table 1: Principles of the circular economy in the fashion industry. Adapted from: Brismar (2014)

Table 1 presents all the activities that producers and consumers need to undertake in order to contribute to the circularity of a fashion company, connected to the four main elements of circular companies: designing out waste, building resilience, relying on renewable energy and thinking in systems. As stated before, the focus of this thesis is on consumer engagement and this study therefore investigates those activities that potential consumers should undertake to contribute to the circularity of fashion companies and thus in a broader sense to a more circular and thereby sustainable economy. A broad variety of studies on fashion in the circular economy focus on textile and production of garments following the circular principles (Franco, 2017; Sandin and Peters, 2018; Dahlbo et al., 2017), while little attention is given to the post-production phase and the consumer

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20 oriented principles that need to be undertaken in order to close the material loop (Andrews, 2015; Korhonen et al., 2018; De los Ríos and Chamley, 2017). The three principles that consumers need to embrace in order to close the loop are namely: use, wash and repair with care; consider rent, loan, swap or buy second-hand; buy quality as opposed to quantity. These activities are activities that consumers can easily do by themselves, however, as stated by (Andrews, 2015) there is a lack of engagement into undertaking sustainable actions and thus, the role of fashion companies is to be a facilitator. According to Goworek et al. (2012), these activities have the potential to be utilized further by retailers in order to contribute to improve the methods of enhancing sustainability in the fashion industry.

The consumer's role in contributing to the circularity of fashion companies and thus the development of a circular economy, lies mainly in contributing to closing the material loops of these companies. Closing the material loop is the overarching main challenge for fashion companies aiming for circularity and in this process, they need to engage consumers. Mutual collaboration and coordination between producers and consumers is necessary and research on how to engage consumers in this is therefore essential. Closing the loop is to be seen as the overarching challenge to achieve circularity and in order to reach this, the aforementioned sixteen activities, following the four main circular principles, need to be adopted.

2.2.3. Producers closing the loop

Fashion companies aiming at closing their material loops need to take into account various aspects from the start of their sourcing activities. Producers are the ones having to take decisions in order to close their loops. Designing out waste, building resilience, using renewable energy and thinking in systems are essential in this (Homrich et al., 2018; The Ellen MacArthur Foundation, 2013).

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21 As showed in table 1, producers need to design out waste, meaning they need to design products with a purpose and that will eventually return to the industry. This appears to be a significant challenge within the fashion industry (Filippa K, 2016; Franco, 2017). Products need to be designed with environmental friendly materials that can be biodegraded or recycled after usage to start a new life cycle (Bocken et al., 2016). Biodegradability describes the “capability of being degraded by biological activity”. Recycling, on the other hand means the capability of fashion companies to convert the used clothes into reusable material.

Furthermore, fashion companies need to build resilience through local sourcing and producing, sourcing and producing without toxicity, efficient sourcing and producing, sourcing and producing with good ethics, and providing services to support the long life of products, in order to close their material loops (Ellen MacArthur Foundation, 2013).

Mentioned as the third element of circular companies, the use of renewable energy is also crucial for fashion companies striving for circularity. These companies need to source and produce with renewables energy and reuse, recycle or compost all remains of their products (Brismar, 2014).

The last main guideline to be followed by circular companies is based on the principle of thinking in systems. First of all, producers need to collaborate with all actors involved in all their processes and be aware of the interdependence and interconnectivity between all elements of these processes. Connection and relationships with consumers are essential, because their engagement is crucial for the successful application of the guideline of thinking in systems. These consumers need to use, wash and repair their garments with care, they need to consider renting, loaning or swapping clothes, buying second-hand clothes or redesigning them, and buying quality over quantity (Brismar,

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22 2015). In order to achieve this, producers need to seek for strategies and tools to engage these consumers (Kozlowski et al., 2018), providing them all the information and motivating them to take action (Braham, 2017).

2.2.4. Consumers closing the loop

As mentioned, both producers and consumers play crucial roles in closing the material loops of fashion companies. The demand side has great power to push the industry towards a more circular model. Consumers are the ones driving the consumption of millions of products from all over the world. Furthermore, they are the ones who decide what to do with the garment after it has been used (Goworek et al., 2012; Balderjahn et al., 2018). The activities that consumers should undertake in order to close the material loops of fashion companies are stated by Brismar (2014) within the presentation of sixteen principles that together make a fashion company circular. The one overarching principle that stresses the contribution of consumers is ‘thinking in systems’ (Gowerek et al., 2012). Once consumers understand the working of the circular economy model and their position and role within it, they can better contribute to circularity by: using, washing and repairing with care; considering rent, loan, swap or second-hand shops; and by buying clothes based on the quality of the garment and not about the quantity of clothes that can be purchased. Thus, consumers can leverage their position as they are the ones to become suppliers to closed loop systems (Shout, n.d.).

Firstly, by using, washing and repairing with care, consumers are contributing to extend the product life of the clothes. Secondly, by considering rent, loan, swap and buy second-hand, consumers are contributing to close the loop by reusing clothes and in addition, helping to slow the consumption in the fashion industry. Lastly, by buying quality as opposed to quantity, consumers are contributing by obtaining clothes produced with organic resources (Goworek et al., 2012).

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23 Companies need to address how to really engage with potential consumers through the three mentioned activities: use, wash and repair with care; consider rent, loan, swap or buy second-hand clothes; buying quality over quantity in order to be able to close the loop (Cherian and Jacobs, 2012). However, there is little existing literature regarding the ways that consumers could be engaged in this process. This thesis elaborates on how consumers could take actions and what would be the best tool for circular fashion companies to achieve this.

2.2.5. Sustainable consumer behavior

The previous section highlights the importance of thinking in systems to know how the circular system works in order for consumers to contribute to this. Hence, this section shows the importance of circular consumer behavior and explains how this circular behavior can be reached.

The attitude of consumers towards sustainable products has changed in the last decades. The Cone Communications CSR Study (2017) shows that over 80% of the consumers rather buy products that have a positive environmental impact. Furthermore, over 75% of consumers rather not buy from a brand that has a negative environmental reputation (CSR Study, 2017).

Despite these percentages, the number of consumers actually making sustainable decisions regarding fashion is still too low. More specifically, the aforementioned activities that consumers need to undertake in order for a fashion company to become circular, are still not executed on a large scale. In 2014, only 16,2% of the total amount of garments were recycled within the United States. Worldwide, only 15% of the fashion materials are being reused (Le Blanc, 2015). The other part of these materials normally ends up in a landfill or is burned (Accenture, 2017). This shows the gap between

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24 consumers preferring sustainable products on the one hand, and consumers not undertaking sustainable actions themselves towards these products on the other hand (Balderjahn et al., 2018). Therefore, Cherian and Jacobs (2012) argue, involving the consumers into closing the loop would facilitate their shift towards more sustainable behavior.

In order to contribute to the circular economy, consumers have to behave and consume in a more sustainable way, because by doing so, they use their power to prevent further environmental damage. In order to reach this, these consumers need to be involved in sustainable activities (Young et al., 2010; Joshi and Rahman, 2017). In the fashion industry, the sustainable activities that consumers can undertake are the three principles that Brismar (2014) suggested: to use, wash and repair clothes with care; consider rent, loan, swap and buy second-hand clothes; and buy quality over quantity.

The next section zooms in on the challenge of engaging potential consumers in undertaking the activities needed to achieve circularity for fashion companies.

2.2.6. Engaging potential consumers

Consumer engagement has been extensively studied in different fields, such as psychology, sociology and organizational behavior studies (Flynn, 2012). However, there is little literature on how to engage consumers in the retail or fashion circular behavior (Tarute et al., 2017). Consumer engagement is defined as a “behavioral manifestation from a customer towards an engagement of a brand or firm which goes beyond purchase behavior” (Cheung et al., 2011; Tarute et al., 2017, p.146). Engagement has been argued to describe the intrinsic motivational state of consumers when being part of interactive activities (Hollebeck et al., 2014). Connecting this to the aforementioned statement that consumers need to engage in sustainable activities in order to shift towards circular behavior, Hollebeck et al. (2014) state that in order for consumers to be engaged, they

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25 must be part of those activities. Consumers engaged in circular fashion behavior can therefore be seen as consumers that undertake the three main consumers’ activities contributing to circular fashion companies.

To engage potential consumers, Joshi and Rahman (2017) illustrate that there are different tools that circular companies can utilize to engage consumers towards circular behavior such as the internet, brand trust, or making sustainability the core of the business in a way that it is a common profit for the business as well as consumers.

First of all, for consumers to undertake the three activities, they must embrace and understand the circular principle “thinking in systems” which is the overarching principle that customers need to adopt in order to contribute to the circularity of fashion companies. Most important in this is that consumers need to be made aware about the working of the circular system and their role in it. Therefore, circular companies can engage consumers more by implementing the three circular activities as core elements of their organization. Joshi and Rahman (2017) state that consumers can better be engaged through pro-environment campaigns on online platforms, or making consumers aware of the environment as experiencing it in first person the positive opportunities.

Second of all, Liu et al, (2018) argue that trust is an enabler of consumer engagement. It improves the communication between consumers and producers and thus enhances the trust built in the relationship. This research shows that brand trust is highly influenced by the consumers’ trust in other consumers. When consumers trust others, they will be more willing to engage with the community, which increases the trust in the brand. If this is translated into the sustainable consumer behavior, consumers that trust each other as a community, will therefore trust a sustainable brand more and thereby automatically feel more engaged in it. Connected to the aforementioned element, when the company

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26 makes its circularity the core of the organization, this brand trust will lead to engagement in the core of the organization and thus motivates potential consumers to undertake the three consumer actions required for reaching circularity.

Third of all, fashion companies can engage potential consumers by making sustainability part of their brand, showing the consumers that a sustainable, circular value is greater than linear value by showing the true cost of the product and performing much better whilst not harming the environment or the society (Ellen MacArthur Foundation, 2017). Moreover, the most important task now for circular fashion companies is to involve consumers into their aim for circularity. They can do so through digital technologies, the best tool nowadays to build the consumer relationship and gain trust (World Economic Forum's, 2013). This confirms the research of Joshi and Rahman (2017), stressing the importance of internet in the engagement of consumers in circular economy. However, there is a lack of literature on how consumers should be approached and reached through those digital technologies. Innovative tools of digital technologies to engage with consumers on a daily basis need to be found by circular fashion companies (CFC) (Capponi, personal communication, May 2018).

As mentioned above, the use of internet appears as well to be a positive tool to reach the engagement of consumers in circular behavior (Joshi and Rahman, 2017), which is related to the previous element discussed. Ghose et al. (2006) support this argument by stating that the use of an online platform is the best innovative tool to carry out such circular activities. However, McKinsey (2015) states that innovative digital solutions based on the current customer behavior has to be developed in order to engage with consumers.

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27 Currently, digital technologies are very present in daily life activities, and fashion is one of them. Consumers are very familiar to the use of digital technologies (EY, 2015) due to the greater access to data enabled by digital technologies nowadays. There is greater availability of information on product impacts for consumers, leading to greater expectations around products to be sustainable (Christuraj, 2016). However, as aforementioned, there is an urge to engage consumers into shifting towards sustainable behavior, but companies do not know enough about ways in which consumers would prefer to be engaged through the use of digital technologies (Capponi, personal communication, May 2018; Ellen MacArthur Foundation, 2016; Cattelan and Tavares, 2017; Bressanelli et al., 2018). Hence, McNeill and Moore (2015) suggest that an exploratory research on digital technologies useful to provide insights into consumer attitude regarding circular fashion, is needed.

Although circular fashion companies may have leveraged some of the opportunities that digital technologies can bring to the circular economy (Preston, 2012), these digital technologies have not been extensively used to maximize the level of engagement with consumers to let them contribute to closing the loop. Thus, the assumption can be made that the aforementioned tools are relevant for engaging consumers in the three circular activities that consumers can undertake in the fashion industry mentioned before.

Due to this attitude-behavior gap of fashion consumers, the objective of this thesis is to study the different ways in which circular fashion companies can engage potential consumers to undertaking activities needed for closing their material loops. The focus is hereby on digital technologies used by consumers, as the aforementioned literature shows their great potential in consumer engagement.

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2.3. Digital Technologies

The digital technologies currently used by fashion companies mainly aim at providing real time information to both consumers and producers (Lacy and Rutqvist, 2015). The information from the value chain activities are exchanged through machines, which are user-centered (Lacy and Rutqvist, 2015). In other words, digital technologies are focused on bringing value to the consumers. According to Blazquez (2014) a company that can effectively operationalize digital technology, is expected to improve the customer experience and customer engagement.

Digital technologies can create communication channels between consumers and producers, which can lead to a greater visibility of the companies’ circular goals, thereby engaging consumers to contribute to these goals. Digital technologies are specifically mentioned for being enablers of the circular economy (Lacy and Rutqvist, 2015; Pagoropoulos, 2017). Therefore, digital technologies are used to leverage the opportunities of a circular economy, as a tool that both consumers and producers can use.

The five digital technologies mostly used by companies aiming at circularity are: mobile technology, machine-to-machine communication, cloud computing, social technology and big data analytics (Lacy and Rutqvist, 2015). This thesis focuses on the technologies that can be best used to influence consumer behavior, namely mobile technology and social technology (EY, 2015). Especially these two technologies have helped the fashion industry to grow (Kim and Ko, 2012), thanks to the massive use of them by consumers. Therefore, this research addresses these digital technologies as enabling tools to be used by CFC. This paragraph first defines and states the characteristics of these two technologies to later on zoom into how these digital technologies can contribute to let the consumers engage in the circular goals of fashion

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29 companies. However, there is no existing literature on how these digital technologies can be utilized to support the three main activities needed to be undertaken by consumers in order to close material loops of fashion companies. This thesis therefore aims to investigate how those technologies can be used to engage consumers, to fill the gap in the currently available scientific literature on this topic. This information then can be used and insights can be implemented by fashion companies striving for circularity.

2.3.1. Engaging consumers through digital technologies

This section provides a concise description of the two mostly used digital technologies by consumers which are also the best tools to engage with consumers: mobile technology and social technology. It addresses how these technologies can be used by consumers so they can contribute to the circular fashion principles.

2.3.1.1. Mobile Technology

The use of mobile technology has increased in the last two decades due to its major innovations. The perks of using mobile devices, such as its low cost, its ease of use and the accessibility of information, has made mobile devices facilitators of consumer engagement in general (Lacy and Rutqvist, 2015; Tarute et al., 2017). Mobile technology can therefore drive consumers to make circular decisions because it enables ubiquitous and low cost access to data. Mobile technology entails all of the following devices: smartphones, laptops and global positioning systems (GPS) (Lacy and Rutqvist, 2015).

Circular fashion companies can develop strategies or tools to engage with consumers through mobile technologies. The mostly used strategy is creating a website that maximizes the consumer experience, especially designed for all mobile devices that are used by potential consumers (EY, 2015). Mobile technology and software has improved in a way that mobile technology can be used by anyone to have access to information and make virtual use of anything at any given time (Lacy and Rutqvist, 2015).

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30 Furthermore, the following enumeration illustrates how mobile technologies can be used by circular fashion companies as well as consumers to incentivize them to be engaged into the three fashion activities that aim for circularity.

Firstly, in order to use, wash and repair, consumers can retrieve information directly from the fashion brand websites (EY, 2015). Circular fashion companies can add a section on the website about how to specifically take care of textiles and all kinds of garment. Through it, consumers can access all the information made available by companies in order to exactly know what to do with the garments while and after using them. Furthermore, mobile technology can also be used as a direct communication channel between fashion producers and consumers, either to obtain information or to communicate in cases of problems.

Secondly, mobile technology can be used by consumers to get rid of unused products for sale or lease. Furthermore, it also allows other potential consumers to know when a product is available on the fashion company’s webpage or sharing platform (Lacy and Rutqvist, 2015). This enables potential consumers to take actions into swapping, renting, leasing or buying from second-hand. In addition, the usage of mobile technology as an information tool has enabled consumers to obtain what they are specifically looking for (Lacy and Rutqvist, 2015). One way to do so is through the use of the applications, or so-called apps. The use of these apps on a smartphone can enhance the use of sharing platforms and connect demand and supply whilst providing a professional experience by presenting the products true-to-life (Ellen MacArthur Foundation, 2017). Sharing platforms can be created in order to design renting, leasing or swapping platforms to interconnect consumers, or even consumers with brands.

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31 Thirdly, circular fashion companies that provide detailed information about the textile used for the garment enable consumers to buy quality over quantity. As consumption behavior is shifting towards mobile and online consumption, the need for physical stores, and thus, physical resources is reduced (Lacy and Rutqvist, 2015). The consumer has more information available on their mobile device than in a real life store and as their reliability on the mobile devices increases considering access to what they want, companies also have more and more access to information on what consumers want (Lacy and Rutqvist, 2015). The Australian app “Good on You” is an online platform where consumers can find all the information available about fashion brands, their level of sustainability and the average price of a brand. Through its use, every potential consumer has access to all the information they need to make a sustainable decision. Thus, the smartphone has become an attractive channel to use for producers to approach potential consumers.

Of the aforementioned technologies, smartphones are the mobile devices mostly used by consumers (Lacy and Rutqvist, 2015), mainly due to its relatively low costs and comfortable size and thus portability. In other words, a smartphone is an all-in-one device. In 2016, over 60 percent of the global population owned a smartphone (Statista, n.d.). Other mobile technologies such as the laptop or GPS have not shown the same influence on the fashion consumer behavior as smartphones (Deloitte, n.d.). According to a study from EY (2015), 53 % of consumers have visited a retailer’s website on their phone and 45 % of retail consumers have had an online shopping experience through their smartphone. This shows its great potential for fashion companies in engaging consumers through their smartphone. Therefore, the focus of this thesis is the use of smartphone technology for the engagement of consumers.

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2.3.1.2. Social Technology

A second technology used by many people worldwide is social technology. Lacy and Rutqvist (2015, p. 133) define social technology as the “communication and interaction tools that establish and maintain a connection among users”. Social technology and mobile technology are highly connected and interrelated since the device used to log into social technology is mostly a mobile device. Social media is the mostly used technology by consumers (EY, 2015) and entails different forms, such as online applications, platforms and media aiming at enhancing interactions and collaborations and sharing content (Kim and Ko, 2012; Richter and Koch, 2007). Within social media, there are different forms including weblogs, social blogs, microblogging, wikis, podcasts, pictures, video, rating and social bookmarking (Kim and Ko, 2012). Social media is a tool that has been used mostly in the last decades and has gained an important position because of its strong influence on consumers. 85 % of fashion consumers have stated that they have access to social media sites, and half of them follow fashion brands (EY, 2015). Even though social media was at first mainly used to connect with friends and family, it has become an access point for companies to promote their services or products. It has become a foundation to share products and show a transparent image of the fashion brand (Lacy and Rutqvist, 2015).

Skaržauskien et al. (2012) suggest that social technology has various purposes, such as decision making or knowledge sharing. Furthermore, Chui (2012) adds that social technologies are used to create, enhance and exchange content that follow the of a circular economy.

Firstly, consumers can use social media to learn how to use, wash and repair their clothes with care through images and videos shared by circular fashion companies. Next to these images and videos, companies can add extensive instructions for consumers on

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33 how to make their clothes last longer. Besides, by using images and videos it makes it easier for potential consumers to trust the information on how to better use, wash or repair them, because both the product and the process is made visual.

Secondly, as mentioned above, social media is foundational to sharing. It links people and builds communities, so users can meet, share experiences, exchange products, make recommendations and link to additional information (Lacy and Rutqvist, 2015; IBM, 2010). This facilitates consumers to rent, loan, swap or buy second-hand clothes.

Thirdly, as mentioned above, the social aspect of social media enables trust between users and fashion brands. By providing a transparent image of the fashion products, consumers can engage more into buying quality over quantity. Because of transparency, they know exactly what they are buying and from whom they are buying. The relationship between consumers and fashion companies built through social media can be strong enough to have an influence on their consumer behavior (Heller Baird and Parasnis, 2011).

The circular principles can be shared through social media, potentially reaching many consumers and motivating them towards a more sustainable consumption. Social media has shown its great influence on consumers and therefore circular fashion companies using this tool to engage them can use this on a daily basis. They thereby can increment the number of potential consumers contributing to closing the material loops of the company (EY, 2015; Hanks et al., 2008). This process can be explained by the phenomenon of network effects. Gallaugher (2017) states that “when network effects are present, the value of a product or service increases as the number of users grows”. In other words, as more consumers of circular fashion brands use social media, more potential consumers will be part of a circular economy.

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34 Despite the aforementioned information, there is no extensive research on how circular fashion companies can engage with consumers through these two digital technologies.

The lack of research and the interest shown by circular fashion companies to find new ways to engage with consumers have led to the following research question of this thesis:

“How can potential consumers of circular fashion companies be engaged in closing the companies’ material loops through the use of digital technologies?”

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3. THEORETICAL FRAMEWORK

The goal of this theoretical framework is to connect the ways in which social media and smartphones can best be used to engage consumers (Lacy and Rutqvist, 2015) to the activities that potential consumers need to undertake to contribute to closing the material loops of CFC (Brismar, 2014). This connection forms the theoretical framework of this research, based on which four working propositions have been constructed and empirical research is conducted.

The first activity consumers need to undertake to contribute to closing the material loops of fashion companies is using, washing and repairing their garments with care. Smartphones and their applications seem to be the best technologies to provide this information (Lacy and Rutqvist, 2015). Through the use of applications, fashion companies can have a direct and easy connection with potential consumers in order for them to engage into use, wash and repair their garments better. Furthermore, in order to use, wash and repair with care, the information given on the fabric and textiles is pivotal. The information that consumers need in order to do this, has not have been made fully accessible by fashion companies (Dombek-Keith and Loker, 2011; Goworek et al., 2012). The accessibility of information is directly connected to how information makes consumers aware of the environmental problems (Navas-Sabater et al., 2002). Thus, facilitating information for consumers on the clothes they purchase seems to accelerate the engagement on using, washing and repairing the cloths with care. Through a smartphone, the information on washing, using and repairing a specific garment can be automatically saved and is therefore always accessible for future use, washing and repairments. This leads to the first proposition to be tested in this research:

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WP1: Potential consumers of CFC are more likely to use, wash and repair their clothes with care when they retrieve information on smartphone applications of how to do this.

The next activity that potential consumers should undertake in order to contribute to closing the material loops of fashion companies is considering rent, loaning or swapping their clothes or buying them second-hand (Brismar, 2014). All these four activities revolve around sharing with people, both with and without an economic incentive. Sharing is the foundation of social media (Lacy and Rutqvist, 2015), so in order to motivate consumers to undertake these four activities, it appears that fashion companies can best use the digital technology of social media. This can be done mainly done through the use of sharing platforms, creating a community of consumers sharing the same objectives, goals, tastes, fashion style and other characteristics (Heller Baird and Parasnis, 2011; Kim and Ko, 2012; Liu et al., 2018). This leads to the following working proposition:

WP2: Potential consumers of CFC are more likely to consider renting, loaning, swapping or buying second-hand clothes when using social media.

The third activity that potential consumers should undertake in order to contribute to closing the material loops of fashion companies buying quality fashion over quantity (Brismar, 2014). The literature review shows that the use of social media is the best digital technology for consumers to take actions when choosing quality over quantity. Through social media, CFC can show a transparent image of the clothes and attach stories to the images or videos shown (Liu et al., 2018). By doing so, they can build a stronger/closer relationship with the consumer, leading to the network effect (Gallaugher, 2017). The more consumers see a transparent image of the fashion brand, the more potential

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37 consumers will be willing to engage and contribute to closing the loop by buying quality over quantity. Hence, this leads to the fourth proposition:

WP3: Potential consumers of CFC are more likely to buy quality over quantity when using social technology.

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4. METHODOLOGY

This chapter discusses the methodologies used within this research. First of all, this research has a qualitative design, referring to a type of scientific research that seeks answers to a question by collecting evidences to gain understanding of underlying reasons, opinions and motivations of a phenomena (Tracy, 2010).

4.1. Research Approach

Qualitative research provides complex textual descriptions of how people experience a given phenomenon. Qualitative methods are also effective in identifying intangible factors, such as for example social norms, consumer behavior, sustainable engagement, sustainable behavior (Bryman and Bell, 2011). Since this research’ purpose is to understand how potential consumers could be engaged in the circular system of the fashion industry by the use of digital technologies, qualitative research appears to be the best way to conduct this research on behavior and consumer engagement.

The concept of circular economy has gained popularity in recent years. However, there is no extensive scientific research on how this relates to the role of producers and consumers within the fashion industry. The focus of this research is on the closing of these fashion companies’ material loops, as this is crucial for achieving circularity. More in depth, research is conducted on how to engage consumers to contribute on closing the material loop of fashion companies.

Furthermore, this research follows abductive reasoning. An abductive approach is a mix of both deductive and inductive methodologies. From the deductive approach, this research has developed already existing theories that helped identify the ideas to test (Saunders et al., 2012). Besides, an inductive approach has been used to explore the available data to further develop theories related to the literature (Saunders et al., 2012).

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39 An abductive approach focuses on theory development and is characterized for the continuously changes on the theoretical framework due to new insights in the literature and the empirical findings (Dubois and Gadde, 2002). Hence, this study follows an iterative approach, meaning that the findings in one phase influenced the following steps in the research process.

Working propositions have been set to develop a framework for CFC to find the digital technologies that can engage potential consumers to contribute to closing material loops.

4.2. Research Design

The purpose of this research is to understand how potential consumers can be engaged in closing the material loops of fashion companies by using certain digital technologies. The purpose of the research can be either descriptive or explanatory. It is descriptive when the research objective is to explain a situation or a phenomenon. On the other hand, if the purpose is explanatory, the research goal is to explain observations that provide new insights about a phenomena or to understand better the problem itself (Gephart, 2004; de Vaus, 2001). Therefore, the purpose of this research is mainly explanatory, but with a descriptive foundation.

A case study appears to be the best strategy to answer the main question of this research. It is defined as a research strategy to study a current phenomenon within its real life context by using different sources of evidence (Saunders et al., 2012; Robson, 2002). Morris and Wood (1991) suggest that a case study is very appealing for studies that aim to gain a deep understanding of the context and the process to achieve the goal of the study. This thesis goal is to understand how potential consumers can engage more with

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40 CFC by using certain digital technologies, thus this case study focuses on potential consumers of CFC.

However, the consumers side is just one side, but it is necessary because companies also need to study what consumers prefer to use to undertake these aforementioned activities. According to Alvarez (2014), it is also important to focus on understanding the customers to provide insights and learn from them in order to develop and guide the companies into the right direction.

Summing up the structure of this research, through an extensive literature review, the study established a theoretical examination of various concepts such as the circular economy, the current negative impacts in the fashion industry, the activities that producers and consumers can undertake to take action in the circular economy and the role of digital technologies. The preliminary literature provides a deep understanding of the circular economy, its principles and guidelines and how these have been adopted by fashion companies. The literature follows to research on sustainable consumer behavior and consumer engagement studies. In addition, the theory presents the different digital technologies that can enable consumers to contribute to the consumer-oriented activities.

Following the literature review, the theoretical framework builds up three working propositions to be tested by the findings of the research. The working propositions are constructed on three sub-questions based on the research question:

1. How can potential consumers of CFC be engaged in using, washing and repairing

clothes with care through digital technologies?

2. How can potential consumers of CFC be engaged in considering rent, loan, swap or buy second-hand through digital technologies?

3. How can potential consumers of CFC be engaged in buying quality as opposed to quantity through digital technologies?

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41 Besides a literature review, empirical research techniques have been used to test the constructed propositions, namely interviews and observations. First of all, semi-structured interviews were the most appropriate technique to be used in this research, in order to give respondents, the freedom to give as much insights as they consider to be relevant and come up with innovative ideas for this study, while at the same time providing structure by providing them a list of questions. This list made sure all the important concept of the literature review was covered (Kvale, 1996). Thus, the questionnaire was constructed on the existing literature and also on the insights acknowledged on the fashion events through informal interviews with circular fashion entrepreneurs. Depending on the answers respondents gave, further questions were posed. The interviews were conducted among potential consumers of CFC to clarify and elaborate on the activities that they can undertake and find out which digital technologies can best be used to engage them in closing the material loops of fashion companies.

Besides interviews, observations were made when attending circular fashion events, as stated above. It was organized by “Fashion for Good”, an organization that aims to implement the circular principles into the fashion industry. They organize events every two weeks where startups and entrepreneurs come from all over the world to pitch their sustainable contribution to the fashion industry. During this events I took notes (see appendix 17), which gave me a clear picture of current developments and concerns in the industry. The knowledge acquired in the events was used as a baseline to assess the current situation and find a research gap and thus, helped to guide the questionnaire. Furthermore, I was able to meet some of the entrepreneurs and had informal conversations about their perspective on the challenges that CFC face within the circular economy. Many of the entrepreneurs addressed that the problem of engaging consumers is still a

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42 pending task and that there is missing a bridge for those consumers to fully commit to the circular economy. This insight boosts the credibility of the research and lead the focus to the consumer perspective. Consequently, this thesis will follow a cross sectional study by focusing on describing a particular phenomenon at a particular time.

4.3. Data Collection and Sample Selection

This thesis is a qualitative research and thus, a non-probability sample is applied. In this case, it is not possible to make statistical inferences about the characteristics of the respondents to answer the research question. In a non-probability sample there are no specific rules to follow, but is the researcher subjective judgement that leads to the results (Saunders et al., 2012). “This sample can provide with an information-rich case study in you explore the research question and gain theoretical insights” (Saunders et al., 2012, p.233). Furthermore, this research corresponds to two sampling techniques: purposive and snowball sampling.

For this sample collection method, it is required as many respondents as possible. Throughout these techniques (purposive and snowball sampling) it does not allow to make any generalization as there is not reached a representative sample (Saunders et al., 2012). However, this study does not intend to generalize the results, but rather focuses on getting an understanding of a phenomenon.

Firstly, in a purposive sampling, the respondents are selected to serve a specific purpose to achieve the study objective (Collingridge and Gantt, 2008). Secondly, snowball sampling is useful when it is complicated to obtain respondents and thus, snowball consists on reaching new respondents by asking previous respondents if they

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43 know someone who fits in the same profile as them, and so the sample snowballs (Saunders et al., 2012).

The focus within this thesis is on young adults’ potential consumers of a CFC that are actively using digital technologies and have the enough financials to buy clothes on a monthly basis (Table 2). Such consumers could have some knowledge about the negative impacts of the fashion industry, however, it is not necessary to have a deep knowledge in circular economy.

Interviewee Age Nationality Income Use of DTs Interviewee 1 20 Mexican High income Active

Interviewee 2 24 Spanish Low income Active

Interviewee 3 23 Dutch High income Active

Interviewee 4 24 Irish Low income Active

Interviewee 5 29 Norwegian High income Active

Interviewee 6 27 Hungarian Low income Not so active

Interviewee 7 25 German High income Active

Interviewee 8 25 Spanish Low income Active

Interviewee 9 27 Spanish High income Not so active

Interviewee 10 29 German High income Active

Interviewee 12 24 Italian Low income Active

Interviewee 13 25 Irish High income Active

Interviewee 14 26 French Low income Active