Evaluating the case for new business models in the clothing sector Dr Martin Buttle Senior Supply Chain Consultant, MADE-BY 08/05/13

Introduction A study of alternative business models in the fashion industry, with an aim to: Assess their commercial viability for take up by a large scale retailer Assess their potential to reduce resource impacts, particularly waste, water and carbon

UK Waste Footprint

Resource Price Index

The Business Models Model 1 – Retailers providing repair and upgrading services and repair workshops for their own garments Model 2 - Retailers providing large-scale leasing services (e.g. for baby clothes) Model 3 - Retailers providing large-scale services for one-off hire Model 4 – Retailers offering a reuse section for own-brand garments within their store Model 5 – Peer to peer exchange

Model 1: Retailers offering in-store repair services

Model 2: Baby Clothes Leasing

Model 3: large-scale online hire services

Model 4: Buy-back & resale

Model 5: peer to peer exchange

Methodology: Scope What was included in the study: IPSOS-Mori data used to gauge consumer demand Desk based research and interviews Scenario analysis Erred on the side of caution in building the conservative scenarios Where possible, validation of assumptions applied What was excluded from the study: Impact on existing small scale business providers Net impact on sales of products under retailers existing models Industry wide implications

Methodology: Financial Analysis A financial model created for each business model Commercial viability measured against the following key performance indicators: - 2 year payback on capital invested - a return on capital of 15% - a positive Net Present Value of cash flow Scenarios created for each model (except Model 3) - a conservative (or realistic) scenario - a tipping point scenario

Methodology: Resource Impacts Calculations: Cotton t-shirt used as basis to calculate resource savings Resource saving of a garment saved or displaced based on weight kg/adult garment & 0.07kg / baby garment Carbon and water saving based on displacement effect applied to each model: Carbon - 21 tonnes of CO2e saved per garment displaced Water litres of water saved per garment displaced Waste savings is a combination of garments displaced and saved from going to landfill Displacement effect varied across models

Scenario 1: Conservative Assumptions Scenario 2: Tipping Point Summary: Financial Performance

Scenario 1: Conservative Assumptions Scenario 2: Tipping Point Summary: Financial Performance

Scenario 1: Conservative Assumptions Scenario 2: Tipping Point Summary: Financial Performance

Scenario 1: Conservative Assumptions Scenario 2: Tipping Point Summary: Financial Performance

Scenario 1: Conservative Assumptions Scenario 2: Tipping Point Summary: Financial Performance

Summary: Resource Impacts Scenario 1Model 1Model 2Model 3Model 4Model 5 Repair WorkshopBaby Clothes LeasingFormal Clothing hireBuy-back & resalePeer to peer 5Y10Y5Y10Y5Y10Y5Y10Y5Y10Y Resource Impact overallAcceptableGood Not AcceptableAcceptable Good Not Acceptable No of Garments419,7871,534,6303,455,3188,829,023153,635327,245570,9101,643,47122,601106,973 Garments saved in weight* Carbon saved*7782,8443,2118, , Water Saved** , Scenario 1: Conservative Assumptions Scenario 2: Tipping Point

Summary: Resource Impacts Scenario 1Model 1Model 2Model 3Model 4Model 5 Repair WorkshopBaby Clothes LeasingFormal Clothing hireBuy-back & resalePeer to peer 5Y10Y5Y10Y5Y10Y5Y10Y5Y10Y Resource Impact overallAcceptableGood Not AcceptableAcceptable Good Not Acceptable No of Garments419,7871,534,6303,455,3188,829,023153,635327,245570,9101,643,47122,601106,973 Garments saved in weight* Carbon saved*7782,8443,2118, , Water Saved** , Scenario 1: Conservative Assumptions Scenario 2: Tipping Point

Summary: Resource Impacts Scenario 1Model 1Model 2Model 3Model 4Model 5 Repair WorkshopBaby Clothes LeasingFormal Clothing hireBuy-back & resalePeer to peer 5Y10Y5Y10Y5Y10Y5Y10Y5Y10Y Resource Impact overallAcceptableGood Not AcceptableAcceptable Good Not Acceptable No of Garments419,7871,534,6303,455,3188,829,023153,635327,245570,9101,643,47122,601106,973 Garments saved in weight* Carbon saved*7782,8443,2118, , Water Saved** , Scenario 1: Conservative Assumptions Scenario 2: Tipping Point

Summary: Resource Impacts Scenario 1Model 1Model 2Model 3Model 4Model 5 Repair WorkshopBaby Clothes LeasingFormal Clothing hireBuy-back & resalePeer to peer 5Y10Y5Y10Y5Y10Y5Y10Y5Y10Y Resource Impact overallAcceptableGood Not AcceptableAcceptable Good Not Acceptable No of Garments419,7871,534,6303,455,3188,829,023153,635327,245570,9101,643,47122,601106,973 Garments saved in weight* Carbon saved*7782,8443,2118, , Water Saved** , Scenario 1: Conservative Assumptions Scenario 2: Tipping Point

Model 4 – reuse & restyling The business model: A retailer provides an incentive for consumers to return used garments A roll out of stores acting as collection points A select number flagship stores carry a ‘pre-used’ collection, consisting of reused and restyled garments. Income generation: dependent on number & quality of garments collected, falling into three categories Recycle (85%) – not sufficient quality for reuse. Income of £0.6 per kilogram Resale (15%)– highest quality. Retail sales price of £30 Restyle (2.5%) – repair required before reuse. Retail sales price of £30 Key Cost base: Discount voucher Logistics Staff costs – picking & packing, restyling Warehousing/retail space cost

Model 4 – reuse & restyling Two scenarios created Scenario 1Scenario 2 Number of garments collected per collection point1,000/year2,500/year Number of retail outlets: By end of year 5511 By end of year % discount voucher issued re-sold & restyled garments only all garments Staff training cost£500 per collection pointNone

Factors that contribute to the viability of this model: low set up and running costs low initial funding required Model 4: Financial Outcome

Garments saved: for every garment collected, 0.7 of a garment is saved from going to waste Garments displaced: for every garment re-sold, including re-styled garments, 0.6 of a garment is displaced Scenario 1 - generates acceptable level of resource savings Scenario 2 - higher volume of clothing collection/sale leads to a good level of resource savings *weight in tonnes ** in cubic metres ***includes garments displaced Model 4: Resource Impacts

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