What does Circular Economy in Luxury look like today?
As mentioned previously my thesis was dedicated to the soft luxury industry (“luxury industry”), specifically defined as clothing, accessories, shoes, and bags, as they are one of the primary culprits of pollution in the luxury industry. In this article I will provide a overview of what the current industry looks like and what have been done to date for a circular economy.
First let’s learn a bit more about the luxury industry.
Breaking the Traditional Barrier
One of the fundamental issues with the industry is its traditional values, such as hand craftsmanship, brand heritage, and brand DNA. Luxury brands are defined by exquisite craftsmanship fuelled by the traditional mindset of the industry; their products are typically handmade and require hundreds to thousands of hours of human labour, which sets them apart from other premium or fashion products. Heritage is one of the key success factors for many luxury brands, such as Hermès and Louis Vuitton – who pride themselves on the long history of their brands.
These demonstrations of traditional values are encapsulated in the culture of these brands. For example, many companies’ merchandisers still use paper and pencil while placing orders, rather than relying on technology such as ERP (Enterprise Resource Planning) systems - meanwhile most other industries has graduated to computers, and are even using automation and artificial intelligence. The continuation of such practices begs the question: are luxury companies really ready to take on the sustainability changes that they have committed to, such as the 2020 Commitment at the Global Fashion Agenda in Copenhagen? Accompanying these traditional values are other social issues in the fashion industry, such as a lack of inclusivity and limited workers’ rights, which many luxury companies are trying to correct simultaneously. Companies who have committed to multiple important causes could over stretch their resources which would result in hinder the progress of correcting the environmental catastrophe that the industry is facing.
Supply chain power leads to circularity
While some aspects of the luxury industry are not aligned with circular economy, there are still many facets of luxury companies that can benefit from the use of a circular system. First, these companies are generally vertically integrated; thus, it is simpler for them to change mindsets and execute a commitment. Whereas many fashion businesses only control the process partially, luxury brands are in control of the entire production process, from design to production to packaging and ultimately the customer experience; this means that once a mandate is exercised, the entire company can comply. When fewer external parties are involved in the entire life cycle of a product, the company can:
have more control over the entire process;
standardize the process;
develop an easier compliance program; and
provide a more efficient auditing process.
Beyond controlling the process, another strength for each luxury Maison is its core competency: its creative director. The creative director powers each brand and makes key business decisions in most of the production and branding processes. If the creative director decides to exercise their sustainability aspirations, then it is easier to change the business model to become more sustainable. The use of a brand’s “story” to build their identity is also ideal in a circular economy: the “story” can act as an anchor throughout messaging to consumers, and build an identity as a sustainable brand. For example, Veja - a sustainable shoe brand, uses organic sourcing and transparency to highlight the issue of sustainability in the fashion industry and uses this gap in the market to create a successful brand. Luxury companies can build a “story” that conveys the rich history of clothing, and its potential beyond ending up in a landfill to communicate and begin a conversation with the customers.
‘Sustainability’ is currently a package deal, and luxury should rarely go on sale.
Currently, there is no universal definition for sustainability. Many companies use vague language to define the term, and use it more as a “buzzword” to appear more sustainable to conscious consumers. In order to measure levels of sustainable practice, a company’s efforts to be more sustainable, such as by reducing waste, should be clearly categorized. For example, the B Corporation Certification - a certification awarded to companies that are “legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment”(B Lab, 2019) - is a good starting place for businesses because it creates a company’s commitment to consider beyond the bottom line of their financial statements; however, this certification offers a very generalist perspective on the idea of “balancing purpose and profit”. The certification is based on a cumulative general score given across five broad categories: Governance, Workers, Community, Environment, and Customers. Companies are required to receive a grade of 80 accumulated through all five categories to be certified. Another challenge with the current certification is that it does not push companies to improve on their existing sustainability practices. For example, some companies may decrease in points from one year to another, but remain certified as long as they stayed above the 80 points. The current certification is not enough to push different stakeholders to make changes for a more environmentally responsible industry.
Luxury should define trends and not follow it.
Moreover, luxury companies have recently changed their slower-release cycles to keep up with the “drop” phenomena from streetwear brands, in which these brands release new products much more frequently in comparison to the seasonal releases practiced historically. By creating more capsule collections, they generate demand, but also create more waste throughout the process.
Execution determines if ‘sustainability’ is genuine or greenwashing.
Another issue to consider, is that sustainable fashion has a relatively small following as a “nice to have” value for most consumers, and is often used only as a “buzzword” by consumers for “greenwashing” (using unverifiable claims of sustainability for public relations purposes) purposes by individuals who do not understand its meaning. For example, in recent news the Kardashian family has created Kardashian Kloset (reselling platform for garments that the family members have worn) to adopt the sustainability trend; the intention behind this decision is questioned by many critics, particularly the quick execution of the ecommerce site, see Appendix exhibit 1. Brands such as Kardashian Kloset may have a negative effect on consumers’ trust in the use of the sustainable label by many luxury companies. To resolve these trust and misuse issues, brands that make sustainability claims should be audited using a sustainability standard. In addition, these audit results should be shared with consumers and compared with an industry- standard rating system to have meaningful impact.
Next time, a more detail analysis on the challenges of sustainability in the luxury world.