When retailers ranging from Nordstrom to J. C. Penney and Macy’s start to stock used clothing in their flagship stores, you know something in the zeitgeist has definitely shifted.
Where We Are Today: The Rise (and Fall?) of Fast Fashion
Aside from the retail apocalypse brought about by e-commerce, traditional fashion retailers have been dealing with two major trends that have upended their traditional business models. And now it looks as though another big one is waiting in the wings.
The first shift for many retailers that traditionally appealed to middle-class buyers is the well…near-disappearance of the middle class. With the advent of what some call the “hourglass” economy, with growth at the top-end of the market and at the low-end, the middle is eroding. That means that companies like J. C. Penney (my mom’s solid go-to for durable, if not particularly exciting basics) found themselves struggling to stay relevant to a shrinking pool of potential customers. Attempts to move upmarket proved disastrous, and Penney’s has been in strategy limbo for years now. The company is weighed down by over $4 billion in debt and an acquisition—or worse—looks likely.
Another big shift that took a number of traditional retailers by surprise was the rise of so-called “fast fashion.” Pioneered by companies like Inditex with its Zara stores and cheap-and-cheerful destinations such as H&M, fast fashion providers abandoned the conventional rhythms of apparel selling. There were once four defined seasons a year. Inventory shipped from Asia sold for top-dollar at the start of each season. Whatever didn’t sell ended up in the discount bin. Fast fashion changed the model.
The flow from runway to shop floor was continuous so that adjustments to inventory, style, and whim could be made more readily in real-time. Further, these stores might stock only a few articles of any particular piece of clothing, creating a sense of scarcity among buyers. Zara, in particular, chose high-street locations and clothing that, let’s just say, honored by imitation that of designers, to convey the impression that its buyers were getting great deals on their stylish clothing.
As I’ve written about in my recent book, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen, clever business models aside, fast fashion companies also benefitted from another shift in buyer behavior, one which hasn’t attracted as much attention as the Zara-type business model. This is that, beginning in the early 2000’s, cell phones started to include cameras (for a fun reaction to this initial innovation, have a look at this 2001 BBC article). The first “selfie” was taken in Australia in 2002. By the end of 2003, cameras in smart phones had gone mainstream.
And what were people doing with those cameras? An awful lot of snapping pictures of themselves and sending them to friends. And who wants to be in the same clothes photo after photo? No one. The influence of digital photography on people’s fashion choices is a great illustration of why thinking your major competition is within your own industry can create major blind spots.
Weak Signals of a Pending Inflection Point
All, however, is not well in the world of fast fashion. Today a $2.4 trillion a year industry, a rising chorus of voices is condemning the model for disastrous ecological effects and horrible labor practices. A 2019 book Fashionopolis decried the industry and American shopping habits. Consumers send 14 tons of barely-used clothing to landfills, while at the same time shopping frantically, a practice the author, Dana Thomas, calls “fashion bulimia.”
Specific impacts of the sector include increased carbon footprint (much of this clothing is made from fossil-fuel based synthetics), huge amounts of water consumption, and pollution and waste piling up in landfills. The micro-plastics that the clothing disintegrates into, moreover, have been found in the deepest waters and the highest mountains. Researchers argue that textile dying is the second largest polluter of clean water after agriculture.
Change is afoot. There is an increased level of conversation and noise about sustainability in the apparel business. The activities range from the fairly modest (Stella McCartney’s use of recycled plastic and bottles in her designs) to the extreme and dramatic (climate change activist group Extinction Rebellion staging a mock funeral procession to protest London Fashion Week). Protesters argue that we probably already have enough clothing for every human being on the planet as it is, without doing further environmental damage.
Which brings us to the emergence of something rather different. It used to be that if you wanted to get rid of clothing you were no longer using, you donated it to a charity or, if it was of good quality, you sold it to a consignment operator. Post-2008 and especially for a younger demographic, the stigma once associated with buying used clothing has evaporated. The Wall Street Journal in August of 2019 estimated that the secondhand goods market would represent $51 billion in sales by 2023. Thirty-three percent of Generation Z would be making secondhand purchases. And 56 million women bought secondhand in 2018. This change in attitude has attracted startups to the secondhand market, including TheRealReal, PoshMark, and ThredUp. Like Dollar Shave Club and Harry’s in shaving, or Warby Parker in glasses, these companies bring the direct-to-consumer model to the used clothing business.
Let’s take ThredUp as an example. The company began in 2009 when its founder found he had a closet full of clothes he barely wore and wondered if there might be a business in solving this problem across the economy. Since then, it has emphasized its contributions to the “circular economy” in which an intermediary such as ThredUp takes in things that are used up or unwanted, works some rejuvinative magic, and re-sells those same items. Or it turns them into something else, a process called Upcycling. One of my favorite leaders in this idea is New Jersey-based TerraCycle. The idea is that rather than a system that manufactures, sells, and results in waste, a circular system takes waste out of the equation.
ThredUp, still venture backed, is drawing enthusiastic endorsements from investors and retail partners alike, having raised a $175 million round in 2019. Perhaps even more important, it and its peers have brought the circular economy concept into mainstream clothing sales, with customers like Macy’s and (perhaps you guessed it) J. C. Penney signing up to receive consignments of secondhand clothing and accessories from the company. With the apparel resale market gauged at about $24 billion in sales annually, there is a lot of growth potential for a company that gets this right. Among the advantages ThredUp has is that a typical consignment store only accepts a limited number of brands, while it can accept 25,000 because of its national footprint and little real estate expense. And, echoing Extinction Rebellion’s sentiments, its website proclaims, “There are already enough awesome clothes on the planet.”
On top of all this, the popularity of the Marie Kondo method and similar acolytes of the magic of tidying up and tossing out has a lot of people looking to empty their closets of unworn or unappreciated things.
Of course, before the emergence of the app economy and the Uber-ization of everything, there were organizations that took in used clothing and resold it, organizations such as Goodwill Industries and the Salvation Army. Goodwill was founded by the Reverend Edgar J. Helms in 1902, and has been a social enterprise for decades (despite some authors giving the impression that this is a new concept). The company uses funds raised by selling used goods in its numerous (and independent) thrift shops to support its substantial workforce-development mission. It is widely recognized as one of the most effective providers in its sector.
Interestingly, Goodwill employs a tremendously decentralized community-based model which means that local Goodwills can experiment with different store formats and customer approaches. For instance, on Manhattan’s Upper West Side a store concept developed by Fashion Institute of Technology students called “Curated by Goodwill” looks and feels like a trendy Village vintage-wear shop (only a lot less expensive!).
Creating Early Warnings Scenarios
As I’ll be doing for the newsletters in 2020, we’re going to use the technique from chapter two of my book Seeing Around Corners to create some plausible scenarios for the sectors I’m writing about. In this case, what might people in the fast fashion/thrift clothing/circular economy be facing in the future?
What I’ll illustrate is how to do the following:
- Articulate two (or more) crucial uncertainties in the sector.
- Create a story about the future states that different values of the future uncertainties might imply.
- Define a “time zero” event.
- Work backward from that event to create an early warning system.
The first step in the process is to posit two potentially important future uncertainties, with different values for each. This yields four possible future states for your organization (you can think of this as scenario planning “light”). So for this exercise, I’ll take as one dimension the continued success of the fast fashion model or its being overtaken by the circular economy model. For the other dimension, I’ll speculate about whether the direct-to-consumer business model in used clothing will eventually prove to be viable, or not.
That gives us a table that looks like this:
| Fast fashion continues its success | The circular economy overtakes fast fashion | |
| The direct-to-consumer model in clothing resale becomes highly profitable | ||
| The direct-to-consumer model in clothing resale suffers from poor performance |
The next step is to create a short “story” about the future state each scenario represents, as summarized in this table.
| Fast fashion continues its success | The circular economy overtakes fast fashion | |
| The direct-to-consumer model in clothing resale becomes highly profitable | Victory to the upstarts as traditional retail fades, coupled with high negative ecological and workforce impacts | Global textile trade slows with knock-on effects for logistics and transport sectors; DTC and re-sellers gain in volume and popularity |
| The direct-to-consumer model in clothing resale suffers from poor performance | High negative ecological and workforce impacts; blended DTC and physical stores take over from direct players | Global textile trade slows with knock-on effects for logistics and transport sectors; brick and mortar re-sale organizations such as Goodwill gain share |
Then, come up with what I call a “time zero” event for each scenario—in other words, something that might be in a newspaper headline that represents either positive or negative signal of an inflection point.
| Fast fashion continues its success | The circular economy overtakes fast fashion | |
| The direct-to-consumer model in clothing resale becomes highly profitable | Victory to the upstarts as traditional retail fades, coupled with high negative ecological and workforce impacts
Garment sales double as emerging economies adopt Western-style shopping behavior |
Global textile trade slows with knock-on effects for logistics and transport sectors; DTC and re-sellers gain in volume and popularity
Half the floor space once occupied by traditional retail is now devoted to omnichannel clothing resale |
| The direct-to-consumer model in clothing resale suffers from poor performance | High negative ecological and workforce impacts; blended DTC and physical stores take over from direct players
Admitting that the DTC model was “not sustainable” environmentalists look for other ways to stem the damage from fast fashion |
Global textile trade slows with knock-on effects for logistics and transport sectors; brick and mortar re-sale organizations such as Goodwill gain share
Goodwill Industries has the last laugh as millennial consumers reject even mighty Zara for its circular fashion, social venture model |
With the “time zero” events established, the task now is to work backward. Identify information that in your team’s view would represent leading indicators of the time zero event becoming more of a reality. If you start to see lots of indicators associated with that event piling up, the more likely the event is to be becoming more of a reality.
For instance, if I were considering the “Goodwill industries has the last laugh” time zero event, some indicators might include the following:
- The proportion of the population that has bought at least something secondhand is increasing.
- The direct-to-consumer clothing re-sellers struggle to make a profit.
- TheRealReal and ThredUp either don’t go to an IPO or find their IPO prices are underwater.
- Goodwill Industries’s decentralized structure allows it to launch successful experiments while its international connections scale the best of them.
- Incumbent fast fashion providers are pressured by their investors and boards to address chronic “sweatshop” conditions in their overseas factories.
- People selling their clothes to on-line consignment companies express dissatisfaction at what can be sold and at the amount they are paid for their used clothing; there’s a backlash.
For each of these indicators, make it someone’s responsibility to look after it. That way, anybody that has information with respect to it knows exactly who to send it to. Then set aside time regularly to go through the list and update it with any new information.
You can do the exercise for as many critical uncertainties as you would like to explore and have the time to think about.
As an additional exercise, go through each of the scenarios you have developed and see whether your current strategic plans are robust in the face of each. Sometimes, you’ll find that all your careful planning is only suitable for one, even though you can conceive of more plausible ones.
Implications
We certainly seem to be at an inflection point for the widespread popularity of fast fashion. But that most likely won’t herald the return to the slow-moving seasonal model beloved by traditional department stores and designers. The benefit, ironically, may well go to organizations, like Goodwill, that have been out there hiding in plain sight all along.