This next video, we'll look at design for circularity, which is when recycled materials are used in near fashion products. The most commonly used fiber types are polyester, cotton, and nylon. The fashion industry, in its current form, simply isn't sustainable. A circular fashion system must be created. One that combines new business models with innovative design, technologies, and materials, with the goals of eliminating waste and pollution, and driving positive impact across the fashion value chain. This should all be done alongside new service or in a business models. To put the current model in perspective, one percent of clothing gets recycled into clothing. Compare that to the 70 percent that gets dumped into landfills. Now we'll discuss three circular business models: rental, subscription rental, and recommerce. We'll do this across four industry segments: value market, mid-market, premium market, and luxury market. First, let's consider their financial viability. There's a strong case to explore circular business models as all three that I just mentioned, can be financially viable for existing fashion retailers. There's a legitimate opportunity to drive higher margin per garment compared to our current linear model. They can also present opportunities that could drive a higher margin per garment compared to this current linear model, the baseline. While rental appears to be very attractive in higher value segments, subscription rental also has consistently strong potential, but it's actually recommerce that appears to be the most financially attractive model. The margin potential varies significantly by segment. Luxury would appear to represent the biggest opportunity, while new variable costs associated with each model consistently change the value market. Here are some key findings for financial levers for each of the three business models. In addition, a circular model can increase value by enhancing customer relations. One potential advantage circular models have over traditional retail is the visibility of customers product usage data available through their designs. Each of these models has the potential to fundamentally change the commercial incentives of the fashion industry, shifting it from being volume-focused to one motivated by quality. This creates an environment where the garments durability and the number of uses facilitates its commercial viability. Rental as a fashion business concept has been around for decades, generally focused on specialists items for one-off events, most notably weddings. It has remained a small part of the industry. Research shows that just four percent of respondents had used rental in the past year. Rental allows customers to wear previously unaffordable and unattainable garments. It's key drivers is its ability to offer customer value. In this case, an affordable solution for a rare occasion that would otherwise be too expensive. By 2023, the fashion rental market is projected to be worth 1.9 billion globally. That would double its value from 2017. Rental innovation has been dominated by tech companies, with priorities on optimizing processes for returns, inventory management, and data collection. With an emphasis on high price segments, some leaders include Rent the Runway and Girl Meets Dress alongside peer-to-peer leaders such as Style Lend. Over the last five years, subscription models in fashion have grown a 100 percent. It's demand is driven by young, high earning, urbanite customers, with companies capitalizing on low barriers to entry. Fashion currently represents six percent of the global subscription market and it's still growing. As models are being adopted across many geographies and segments at reasonable scale, consumers of subscription fashion increasingly value access over ownership, and since subscription services improve on the diversity of accessible models compared to traditional retail, it allows for greater experimentation with new styles, and enables customers to try new items in a flexible, low-risk way. Recommerce is the resale of previously sold items, and has been established for years. Historically, recommerce has been somewhat informal, with much of its sales coming from charity shops and secondhand stores. However, it's becoming a more established and formal part of the industry. A recent report indicated that resale has grown 21 times faster than traditional retail over the past three years. Its growth has occurred in part due to the changing perception of what used means from a negative to a positive. It also drives the value for two groups. The original owner and the buyer. Recommerce also inherently reduces process friction, and has terrific market insight. Recommerce is the most prominent example of a circular business model in the fashion industry. With this annual growth rate at 16 percent, the market is set to reach 51 billion in 2023. Improved access to market places for secondhand garments has been a major factor, as peer-to-peer apps, such as Depop and Poshmark, have struck big with millennial customers. There are also marketplaces for specific segments and products, such as the RealReal in luxury. The dominance of independent platforms and startups create risk for established retailers in terms of garment authenticity and quality. Retailers also miss out on potential benefits of owning these channels, including additional revenue streams, deeper customer relationships, and new customer touch-points. But some companies are responding to this risk, with some innovative leaders already incorporating recommerce into their existing business. These examples of recommerce are often a collaboration between start-ups and established retailers. An example of this is Worn Wear, a collaboration between Patagonia and Yerdle, in which post-consumer garments are returned and resold. Another is the North Face Renewed and a collaboration between The North Face and The Renewal Workshop that focuses on selling pre-consumer, defective or unsold stock that's then refurbished and resold. There are several conclusions regarding these business models. First, is that rental seems very attractive in luxury, with the potential margin of 60 percent per garment. Next, is that subscription rental has major potential as it appears viable in three or four segments. Finally, recommerce appears to be the most financially viable circular business model, with profits exceeding the baseline in the mid-market premium and luxury segments. If the fashion industry is to be successfully transformed, circular business models will have to play a major role. Alongside rapid innovation in emerging startups, the industry has shown a clear commitment to better understand its impact and to implement new models. Our industry is past due for innovation and progress. A successful circular economy innovator will focus on five imperatives. First, prioritize based on market segment. Second, match the business model to the product. Third, get the incentives right, and fourth, make it sustainable, and lastly, pilot and experiment. In conclusion, we know that fashion industry, as it currently operates, is not sustainable. We also know that circular business models can drive value by improving customer engagement and retention. These models, such as rental, subscription rental, and recommerce, are effective and will play an integral role in the sustainable transformation of the fashion industry. Thanks for watching, hope to see you soon.
