How can Fashion Brands Enhance Value and Life-Span Extension of Products? An Exploratory Study of Circular Economy in Regard to the Economic Viability of Product Life-Span Extension

TABL E OF CONTENTS

I. Acknowledgements

II. Abstract

V. List of Tables

VI. List of Figures

VII. Abbreviations

1 . INTRODUCTION
1.1 Context
1.1.1 The Fashion Industry
1.1.2 The Sustainability Challenge
1.1.3 Circular Economy
1.2 Rationale and Research Questions
1.3 Aim and Objectives
1.4 Research Methodology

2 . LITERATURE REVIEW
2.1 Introduction
2.2 Fast Fashion
2.3 The Impact of Fast Fashion
2.3.1 Social Concerns
2.3.2 Environmental Impacts
2.3.3 Opportunities
2.4 The Need for Alternative Business Models
2.4.1 Business Models
2.4.2 (Sustainable) Business Model Innovation
2.5 Circular Business Models
2.5.1 Drivers, Principles and Strategies
2.5.2 Post-retail Initiatives
2.5.3 Service-based Business Models
2.5.4 The Four Resource Loops
2.5.5 The Sources of Circular Value Creation
2.5.6 Circular Business Models
2.6 Circular Economy in the Fashion Industry
2.6.1 Post Retail Initiatives in the Fashion Industry
2.6.2 Circular Business Models in the Fashion Industry
2.6.3 Five Circular Business Models
2.6.3.1 Reuse and Resale
2.6.3.2 Closed Loop & Recycling
2.6.3.3 Repair and Warranty
2.6.3.4 Renting and Leasing
2.6.3.5 Redesign
2.6.4 Conclusion

3. RESEARCH METHODOLOGY
3.1 Introduction
3.2 Philosophical Assumptions
3.3 Research Approach
3.4 Research Design
3.4.1 Case Study Research
3.4.2 Sampling Strategy
3.4.3 Data Collection Techniques
3.4.3.1 Secondary Data
3.4.3.2 Primary Data
3.4.4 Time Horizons
3.4.5 Analysis of Data
3.4.6 Evaluation and Validity of Data
3.4.6.1 Secondary Data
3.4.6.2 Primary Data
3.5 Critical Discussion of the Methodology
3.6 Research Ethics

4. ANALYSIS43
4.1 Introduction
4.2 Analytical Approach

5. FINDINGS
5.1 Introduction
5.2 Internal Motivations
5.2.1 Brand Values Shape the Business Strategy
5.2.2 Long-term Strategy
5.3 Enabling Factors
5.3.1 Independence Enables Long-term Goals
5.3.2 Store Presence Enables Story-telling
5.3.3 Human Centered Design/ Design for Longevity
5.3.4 External Enablers
5.4 Challenges and Risk Factors
5.4.1 Lack of Consumer Awareness
5.4.2 Logistic Barriers and Poor Take-back System
5.4.3 Financial Barriers
5.5 Economic Feasibility
5.5.1 Brand-customer Relationship
5.5.2 Service as USP
5.5.3 ROI
5.5.4 Circular Advantage

6 . DISCUSSION AND CONCLUSION
6.1 Introduction
6.2 Discussion
6.2.1 Motivations
6.2.2 Enablers
6.2.3 Challenges
6.2.4 Economic Feasibility
6.3 Conclusion
6.3.1 Implications and Recommendations
6.3.2 Limitations and Future Research

7. REFERENCES

Acknowledgements

This dissertation, although researched and written over a rather short, three-month timeframe, has been an essential part of my personal journey and academic journey. It has been both, a rewarding and challenging experience that has involved many ups and downs. Because during my BA thesis I have already explored the topic of value towards garments in the fashion industry, this dissertation was written out of a strong personal rationale, to contribute to potentially shaping the fashion industry of the future. Along this journey, I have received help and support from various people. Therefore, I want to express my gratitude.

First, I would like to thank my supervisor, Dilys Williams for her guidance, advice, feedback and critique throughout this dissertation. Furthermore, I am very grateful for the support of my tutor, Chitra Buckley, who has helped me to develop a strong confidence in my work. I also want to thank Neliana Fuenmayor for our inspirational conversations that have broadened and expanded the horizons of my imagination.

On a personal note, I want to thank my family, who have strongly supported me throughout the MA program and especially, throughout my research, as they have always achieved to restore my confidence in challenging moments.

Lastly , I would like to thank all the participants for taking their time, providing me with insights on their pioneering work and answering my questions.

Abstract

Awareness of the fashion industry’s harmful impacts that significantly affect the environment and the society has increased enormously, specifically the problem of an ever-growing throwaway culture. This has led researchers and practitioners to find feasible solutions, dealing with post-consumer garment waste. In that respect, the CE has undoubtedly become the focus of current research. Substantial economic benefits are expected to accompany the transition from a linear to a circular economic model. However, there is still a lack of frameworks that explain how companies have to adapt their BMs in order to succeed in a circular environment. Furthermore, the question remains, if this could be economically feasible from a company perspective because the economic model of the fashion industry is still highly linear and its success depends on product obsolescence.

Therefore, the purpose of this study is to identify motivations, enablers and challenges of implementing circular strategies and PLE initiatives in BMs, and explicitly exploring the economic feasibility of prolonging the lives of products.

To explore these phenomena, pioneers in the field of CE and PLE were studied. The researcher employed an inductive-exploratory case study design that allowed her to investigate the practical implementations of circular approaches and contribute to existing CE and PLE theory.

The findings of the cross-case analysis revealed that the transition towards a CE has been voluntary, underlying the companies’ internal motivations and sustainability agendas. External pressures do not play a role at this moment. Circular approaches support the companies’ visions to realise long-term strategies. Despite the higher costs of circular strategies and PLE initiatives, this study found that these have a positive effect on the businesses regarding enhanced customer loyalty and long-term relationships with the customer.

The study is one of the first academic studies that investigates the economic feasibility of PLE initiatives from a company perspective. However, the findings of this research cannot be generalised, as the scope of the study and the sample size are constricted. Therefore, further research in this field is required.

Keywords : Circular business models, Product life-span extension, Circular business model innovation, Service-based business models, Implementation, Economic feasibility.

Total word count: 18.192

Ow n words: 16.277

List of Tables

Table 2.3: The relation between drivers and ideas of the CE and its principles and strategies

Table 2.4: Post-retail strategy definitions by EMF 2013

Table 2.7: Business Model Innovations

Table 2.8: Circular vs. Servitization Strategies

Table 2.10: Advantages and Disadvantages of Reuse and Resale

Table 2.11: Advantages and Disadvantages of Closed Loop and Recycling

Table 2.12: Advantages and Disadvantages of Repair and Warranty

Table 2.13: Advantages and Disadvantages of Renting and Leasing

Table 2.14: Advantages and Disadvantages of Redesign

Table 2.15: CBM Application in Fashion Brands

Table 3.2: Initial Screening of Case Study Candidates

Table 3.3: Interview Candidates

Table 3.4 : Interview Themes

Table 4.1 : Data Structure

Table 4.2: Data Supporting the Analytical Interpretations

List of Figures

Figure 1.1 : The CE – an industrial system that is restorative by design

Figure 2.1: Textile Flow in the UK

Figure 2.2: Business Model Framework

Figure 2.5: The Flow of Resources in a CE

Figure 2.6: 4 Sources of Circular Value Creation

Figure 2.9: The Circular Fashion System

Figure 3.1: Research Onion

Figure 3.5: Case Study Method

Figure 6.1 : Circular Business Model Framework

List of Abbreviations

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Chapter One

INTRODUCTION

1. INTRODUCTION

1.1 Context

1.1.1 The Fashion industry

Today’s fashion industry is an extremely complex, highly globalised system (Kant Hvass 2016). It is one of the world’s largest industries and vital part of the world economy (Allwood et al. 2006). According to EMF (2017), the global fashion industry is worth $1,3 trillion and employs over 300 million people worldwide of which approximately 1.7 million in Europe alone (EURATEX 2017). It is a significant contributor to the economies of the UK and the rest of Europe. According to the HMRC, approximately 1,13,000 tons of clothing were bought by British households in 2016 (WRAP 2017). The global apparel consumption is expected to increase by 63% to 102million tons in 2030 (GFA and BCG 2017 p.8).

However, the environmental and societal impacts are huge. The fashion industry is an enormous contributor to putting pressure on natural resources and negatively affecting the environment and the society, as it highly depends on non-renewable resources (EMF 2017). If the industry continues to operate in its current manner, resource depletion, environmental and social malpractices will intensify and will eventually threaten the fashion industry’s economic performance. This may result in continuing resource scarcity, rising material and energy costs. As well as contributing to irreversible climate change, thereby being responsible for the loss of habitat, social unrest and inhospitable conditions for human life (EMF 2017; GFA and BCG 2017). Therefore, a transition towards a sustainable textile economy seems inevitable.

1.1.2 The sustainability challenge

The current era is shaped by massive challenges: a growing social gap, poverty, inequality, natural disasters, resource depletion, environmental degradation, water pollution and scarcity and loss of biodiversity (UN 2015). Growing concerns about these unsustainable developments have led to a willingness to deal with these issues and to find feasible solutions. Therefore, a growing interest in the field of organisational sustainability has emerged (Joy et al. 2012; Robèrt 2000; Schaltegger et al. 2015). The WCED (1987 p.41) has defined sustainability already in 1987 as: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This definition suggests an understanding of sustainability that is mainly focussed on environmental and economic considerations. However, scholars today understand sustainability management as a three-pillar approach that considers environmental, economic and social wellbeing, referred to as “triple bottom line” (Brandenburg et al. 2014; Koh et al. 2017; UN 2015). These three pillars ought to be integrated at an organisational level and in a company’s BM. This however, poses a challenge to businesses, organisations and entrepreneurs, because such a shift requires new innovative markets, alternative BMs, new institutional mindsets and mechanisms as part of the solution (McKinsey Global Institute 2011). Scholars, researchers and practitioners are therefore investigating if alternative BMs can generate economic growth while respecting environmental and societal wellbeing (Schaltegger et al. 2015).

1.1.3 Circular economy

One potential BMI that could lead us towards a sustainable future is the CE. The origins of the CE can be dated back as far as the 1960s when the economist Kenneth E. Boulding acknowledged that a circular development would be inevitable in the future, because the earth is a closed system and that the current economic model is reckless, exploitative, and violent. He alternatively proposes a “spaceman economy” that acknowledges the earth’s limited availability of resources, which should cycle in a closed ecological system (Boulding 1966 p.7). The most common definition of CE, developed by the EMF describes it as an economic model that is designed to be regenerative and restorative . It replaces the discarding of products with the restoration of materials and aims for a transition towards using green energy and rejecting hazardous chemicals. One main objective is the “elimination of waste through the superior design of materials, products, systems and business models” (WEF 2014 p.15).

There are multiple parallel definitions of the CE concept, rooted in different schools of thought (Capitalism, Blue Economy, and Regenerative Design, Permaculture, Industrial Metabolism, Deep Ecology and Industrial Symbiosis) (EMF 2018b; Lewandowski 2016; Lieder and Rashid 2016). These different approaches complement each other and provide the fundamental ideas of the CE: designing out waste and pollution, building resilience through diversity, using renewable energy, systems thinking, waste is food, thinking in cascades and sharing value through collaboration and symbiosis.

In contrast to a linear system, in which resources are transformed into waste via production, creating pollution as a by-product (Murray et al. 2017), in a CE economic profitability is achieved by integrating environmental wellbeing in a sustainable manner that has no adverse net effect on the environment because it restores any damage it has done. Furthermore, the CE can be separated into two distinct cycles - the biogeochemical cycle and the technical cycle (Franco 2017; Murray et al. 2017), also referred to as the product's consumable and durable elements (WEF 2014).

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Figure 1.1: The CE- an industrial system that is restorative by design; Source: EMF (2013 p.24)

The biogeochemical cycle incorporates the flow of biodegradable or renewable resources. They are often plant-based, non-toxic and can be composed and reintroduced safely to the biosphere. In the technical or durable cycle, finite materials circulate such as synthetics and minerals (e.g. metals or plastics). Materials in this cycle cannot be reintroduced into the biosphere and are recovered and reused. They need to be designed for reuse (Franco 2017; WEF 2014). It is essential to keep the nutrients from the two cycles separate to avoid a loss of material value (McDonough and Braungart 2003). The CE requires a mindset shift of organisations and consumers, in which the relationship between both parties needs to be redefined, and a transition from a buy-consume to a service-based BM approach is vital.

1.2 Rationale and Research Questions

Since the beginning of the Industrial Revolution in the late 18th century, it seems that in many parts of the world the standard of living has improved enormously, due to the cheap availability of resources and energy that have made it possible to lower product prices immensely (Lieder and Rashid 2015; Tse et al. 2016; Webster 2017). The industrialisation fuelled a linear “take-make-dispose” consumption model, in which resources are taken regardless of their scarcity, turned into products that are consumed and finally disposed of (Guldmann 2016; WEF 2014). The results of such economic behaviour have negatively affected the climate, environment and society (Bocken et al. 2016; Robèrt 2004) and have led to risks for businesses, including resource uncertainty, resource price volatility, reputation, investment and legislation risks (Remy et al. 2016), which may severely affect the fashion industry’s economic performance (McKinsey Global Institute 2011; WEF 2014). However, the demand for resources is continuously rising (Nyquist & Oppenheim 2012; Koh et al. 2017) and may put future growth at risk, because of the rising number of middle-class consumers, which are expected to increase by 3billion by 2030 (McKinsey Global Institute 2011; WEF 2014). This also raises concerns about the wasteful consumption patterns promoted by the industry that have created a throwaway culture, as people consume garments faster, due to product obsolescence. There is an urgency to find new solutions for economic development that are decoupled from virgin resource use and that incorporate waste management and PLE strategies at a BM level (Franco 2017). An economic shift from a linear to a circular economy may potentially be one of the most radical economic transitions. It currently attracts increasing awareness from both, companies and governments (Lewandowski 2016). The CE has the potential of shaping BMI, initiating real economic change and even generating economic prosperity in an environmentally friendly way (Bocken et al. 2016; Guldman 2016; Lacy and Rutqvist 2016).

However, there is still a lack of literature on the practical implementation of CE in a fashion brand’s BM. This dissertation aims to fill that gap by analysing successful incorporations of circularity and PLE strategies in BMs, exploring their economic viability and facilitating the comprehension of challenges, enablers and opportunities that accompany such a transition. Hence, this research paper poses the following questions:

- How are CE principles implemented at a practical level in fashion companies – what are the motivations, enablers and challenges?
- How can fashion brands capture value in implementing circular strategies in their BM and specifically, what is the feasibility of PLE in economic terms?

1.3 Aim and Objectives

This dissertation aims to analyse the opportunities and challenges that accompany the implementation of circularity in a fashion brand’s BM and specifically, whether product life-span extension initiatives are economically feasible.

The aim is subdivided into the following objectives:

- To contextualise the CBMI theories and practices.
- To explore the concept of PLE and the implementation of CBMs in the fashion industry.
- To investigate best practices, motivations, challenges and enablers of reducing post-consumer waste by extending product and material value from a fashion brand perspective.
- To examine the ROI and the economic feasibility of PLE, specifically repair and maintenance.
- To suggest a CBM framework for companies and make recommendations for the practical implementation of circular principles.

1.4 Summary of Research Methodology

The author has conducted an inductive-exploratory approach, with an underlying interpretive research philosophy. After reviewing the current literature, multiple-case study research was conducted among five pioneering fashion brands. The selection criteria for suitable candidates included their circular approaches and PLE strategies. The data derived from semi-structured interviews with company representatives and analysis of company reports and other secondary sources. The evidence was then analysed using the framework suggested by Gioia et al. (2012).

Chapter Two

LITERATURE REVIEW

2.LITERATURE REVIEW

2.1 Introduction

The urgency for change in our economic system and behaviour has become apparent in recent years. Society, the government and increasingly businesses are aware that our current development is unsustainable and cannot be retained in the future. However, economic profit still outperforms societal and environmental wellbeing, especially in the fashion industry, in which negative impacts are huge (Allwood et al. 2006; Black 2012; EMF 2017). The industry contributes significantly to CO2 emissions, water pollution and consumption, the use and release of toxic chemicals, growing waste volumes and social inequality (Allwood et al. 2006; EMF 2015). With the emerging fast fashion phenomenon, these malpractices have further intensified, and it has become progressively apparent that the industry is obliged to take responsibility in a transition towards a more sustainable system with an underlying systematic change (Ditty & Siegle 2015). Whether or not fashion companies should acknowledge the consequences of their actions is not open for discussion any longer (Epstein and Rejc Buhovac 2014). Therefore, it is important to come to an “alignment on the case for change” (EMF 2017 p.26). There seems to be an inherent need for a new alternative way of doing business, which should be rooted in the development of innovative BMs. This chapter will first outline the malpractices that have emerged with the increasing popularity of fast fashion. Second, it will put these malpractices in relation with current problems such as resource depletion and an ever-growing human population. Third, it will introduce the fundamental concepts of BMI, and finally, possible CBMs for a circular development of the fashion industry will be introduced, with a focus on prolonging the products’ lives.

2.2 Fast Fashion

The pace of the fashion industry has increased immensely, from traditionally offering seasonal collections to now offering new products almost weekly (Black 2012). Therefore, garment production has doubled since the 2000s, and the average garment purchases have increased by 60% (EMF 2017; Greenpeace 2017; McKinsey 2016; Remy et al. 2016). This fast turnover of garments has shaped the term “fast fashion”. Fast production and distribution pace, very fashionable product design, a wide product range, prime location, intensive sales promotion and constant monitoring of the markets, trends and consumer tastes are the main strategies to maintain a profitable position in this progressively demanding market (Cachon and Swinney, 2011; Choi 2014; Joy et al. 2012). Fast fashion aims to “satisfy consumer demand at its peak” (Barnes and Lea-Greenwood 2006 p.259). The nature of the industry has always encouraged product obsolescence and frequent purchases by continually flooding the market with new products and thereby promoting shortened product life-cycles and a societal move towards a throwaway mentality (Fletcher 2008; Joy et al. 2012). However, this phenomenon has come to an extreme with the emergence of fast fashion (Remy et al. 2016). Consumers have become the demanding power, due to the easy accessibility and availability of information. In an era, that is extremely fast- moving, trends have evolved into fads, with a significantly shorter life-cycle than the traditional trends and have created the desire for constantly finding new, cheap garments (Bhardwaj and Fairhust 2010).

Compared to the rising prices of other goods, garments are one of the commodities where prices have decreased since the beginning of the century and are continuously declining (Shephard & Pookulangara 2014; WRAP 2017). The highly competitive nature of the fashion market calls for low prices and therefore, lays pressure on manufacturing costs, resulting in broad acceptance of ethical and environmental malpractices (Kant Hvass 2016). Low product prices lead to overconsumption and finally result in vast amounts of textile waste, as almost 50% of the clothing produced today, is disposed within a year (EMF 2017; Moorhouse and Moorhouse 2017). Products are worn less and disposed of quicker because purchasing a new garment is usually cheaper than the product’s repair (Shephard & Pookulangara 2014). Therefore, the impact of the fashion industry is significant (Remy et al. 2016).

2.3 The Impact of Fast Fashion

Although researchers have begun to theorize sustainability in relation to fashion since the 1960s, the literature on merging both topics has just recently gotten significant attention (Black 2012). As the world’s second largest polluter, after the oil industry (Moorhouse and Moorhouse 2017; Sitra 2015), and because of its substantial societal and environmental impact, the term sustainable fashion seems quite a paradox. The fashion industry’s linear nature that is based on product obsolescence and rapid “change and newness” (Kant Hvass 2016 p. 29), makes sustainability and fashion seem to be two contradicting principles (Black 2012). Raw materials are taken, garments are produced and discarded after their use (EMF 2015; Kant Hvass 2016). These linear practices lead to a significant contribution to greenhouse gas emissions, water pollution, textile waste, modern slavery and social inequality (EMF 2017; Mistra Future Fashion 2017; Muthu 2017). This section gives an overview of the externalities of the fashion industry.

2.3.1 Social concerns

Human resource consumption and ethical malpractices, such as child labour, low wages, dangerous working conditions, exploitation and health issues are major issues in garment manufacturing (Remy et al. 2016). The catastrophic Rana Plaza incident in 2013, where 1,130 garment workers died, has shed light on these problems and can be considered a turning point that has made the practices questionable (EMF 2017; Ditty and Siegle 2015; Arthur 2017). However, many workers still live below the international poverty line (GFA and BCG 2017).

2.3.2 Environmental impacts

CO2 emissions, water use and pollution, toxic chemicals and waste are the most severe environmental concerns related to fibre and garment production (Allwood et al. 2006; Sandin and Peters 2018). One kilogram of average clothing accounts for 15kg of carbon emissions and the use of 10,000 litres of water (GFA 2017). According to WRAP (2017 p.12) “the most harmful practice is the production of fibres through polymer extrusion or agriculture”, especially of cotton, wool, silk and flax. However, also the post-purchase water use for laundering needs to be acknowledged as a significant concern (Remy et al. 2016). The fashion industry contributes to 20% of the global water pollution, leading to water scarcity in many areas around the world (WRAP 2017). The water use is even expected to double by 2030, which puts the fashion industry in the predicament of having to choose between fibre production and ensuring safe drinking water (GFA and BCG 2017). Additionally, the usage of hazardous chemicals, fertilisers, insecticides and herbicides, which are often discharged into the rivers and waterways, result in extreme impacts on human health (GFA and BCG 2017; Remy et al. 2016).

Another major impact is the growing amount of post-consumer waste that is increasingly occurring, as a by-product of fast fashion consumption. A massive part of clothing is discarded before it is even worn out because it is not seen as having any further value (Black 2012; Gwilt and Pal 2017). Consequently, 15 million tons of textile waste end up in landfills in Europe and North America annually, of which 5.8 million tons are landfilled in the EU. Of the used textiles only 15% are reused in some way (Lee 2017). This leads to a global loss of over $100billion worth of materials per year (EMF 2017). The major amount of garment waste is landfilled, which does not prove to be economically efficient, as the costs of disposing and landfilling clothing are high, in the UK alone these costs account for roughly GBP 82 million a year (EMF 2017).

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Figure 2.1 shows the textile flow for the UK.

2.3.3 Opportunities

Different organisations have predicted enormous opportunities and savings that could potentially accompany a transition towards a CE. The economic outlooks in these reports seem immense. The EMF published a report in 2013, estimating that the CE could save annual material costs of up to $630 billion (EMF 2013; WEF 2014). Additionally, 54,000 new jobs could be created by 2030 just in the UK, due to higher labour input requirements (Stahel in Webster 2017). Effective waste management strategies may result in massive reductions of emissions (DeAngelis 2016; Rizos et al. 2016) and reduced costs for companies and consumers due to reduced supply chain and price volatility risks (Accenture 2014). A recent report suggests that, from solely stopping harmful practices, the fashion industry can create societal and environmental value and a total gain of €160 billion annually (GFA and BCG 2017). This report, however has been largely critiqued by Greenpeace (2017), who argue that reducing environmental and social malpractices will merely secure the industry’s unsustainable growth. It does not address the problem of low-quality products and product longevity. Instead, the focus lies on recycling, which to date is still somewhat costly because recycling technologies are still in their infancy and not sufficiently developed (Greenpeace 2017; Remy et al. 2016). Greenpeace criticises the CE’s promise that infinite recycling of garments could even increase “guilt-free consumption” (Greenpeace 2017 p.6). Especially, because circular strategies today are mostly implemented in the traditional take-make-dispose model (Kirchherr et al. 2017a). In that respect, addressing the transition towards a CE from a BM perspective might potentially facilitate an understanding of how fashion brands can capture value. A holistic redesign of the industry and its BMs should incorporate design for longevity and recycling, reducing environmental and social impacts and establishing efficient take- back systems (Greenpeace 2017).

2.4 The Need for Alternative Business models

It is a basic economic principle that in a world with limited resources, the number of products that can be produced are constricted (Nicholson & Snyder 2008). This demonstrates that the “take-make-dispose” model, in which overconsumption and overproduction mainly contribute to economic growth, contradicts the earth’s natural laws, as the earth is a closed system in which materials circulate. Therefore, “business, as usual, is not an option for a sustainable future”, and the need for a transition to alternative business models seems inevitable (Bocken et al. 2014 p.42). Progressively, it becomes apparent that sustainability may lead to an increased financial performance and an opportunity for companies to capture value, lower costs and boost revenue (Epstein and Rejc Buhovac 2014). But the lack of alternative BMs may put sustainable development at risk because the transition towards a sustainable society is highly complex, requiring a systematic change and a holistic redesign of the system, within the boundaries of sustainability (Bocken et al. 2014; Guldmann 2016; Greenpeace 2017; Robèrt 2014). This means managing “the paradox of simultaneously improving social, environmental and economic, on the one hand, and financial performance, on the other” (Epstein and Rejc Buhovac 2014 p.2).

Therefore, a new industrial model is needed, which is capable of regenerating natural capital and achieving economic growth that is no longer dependent on the use of virgin materials and human exploitation (WEF 2014). In order for sustainability being of value to businesses and its stakeholders, it requires integration at the heart of the business – its BM (Epstein and Rejc Buhovac 2014). To master such a shift, BMI is vital for the implementation of changes and a successful transition towards a closed-loop system (Geissdoerfer et al. 2018; Kant Hvass 2016). The following sections will explain those two concepts.

2.4.1 Business models

With the dispersal of the internet in the 1990s, the concept of BMs has gotten more prevalence, and the theoretical knowledge of BMs has increased (Geissdoerfer et al. 2018; Zott et al. 2011). A proper BM is vital for the success of a company and can be characterised as the “commercially viable architecture for revenue and for costs” (Malmström and Johansson 2017 p.2). It is a framework or “template of how a firm conducts business” and explains how a business functions (Zott and Amit 2010 p.222). Osterwalder and Pigneur (2010 p.14) suggest a widely recognised definition: “A BM describes the rationale of how an organisation creates, delivers, and captures value". An innovative BM is supposed to differentiate the business from other businesses and should offer a competitive advantage (Bocken et al. 2014; Malmström and Johansson 2017; Zott et al. 2011). This paper agrees with the BM framework by Bocken et al. (2014), which suggests that BMs should consist of a value proposition (product/ service, customer segments and relationships, the generation and delivery of value (key activities, resources, channels, partners, technology) and the capture of value (cost structure and revenue streams) (Bocken et al. 2014).

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Figur e 2.2: Business Model Framework; Source: Adapted from Bocken et al. 2014

2.4.2 (Sustainable) business model innovation

As defined by Bocken et al. (2014 p.43): “BMI offers a potential approach to deliver the required change through re-conceptualising the purpose of the firm and the value- creating logic, and rethinking perceptions of value”. It is a crucial requirement for a transition towards sustainability and CE (DeAngelis 2016) and describes a fundamental change of a business’s key activities. There has been a recent focus on merging BMI and sustainability management (Hvass 2016; Schaltegger 2015). SBMIs are innovative changes in a company’s BM that reduce a businesses’ negative environmental and societal impacts by transforming how a company operates, manages and communicates (1) its sustainable value propositions to its customers and stakeholders, (2) its creation and delivery of value and (3) how a company captures this value to stay economically viable, while regenerating environmental and social capital (Bocken et al. 2014; Geissdoerfer et al. 2018; Schaltegger 2015). SBMs aim to consider every aspect presented in the triple bottom line, integrate a broad variety of stakeholders and create a competitive advantage based on innovations (Sitra 2015). The theoretical aspects of SBMs, have been researched and theorised. However, the understanding at a practical level has widely been ignored (Bocken et al. 2014). A SBMI that has the potential of bridging the gap between economic performance and reducing negative environmental and societal impacts is the service-based BM that underlies circular strategies – the CBM.

2.5 Circular Business Models

The CE idea is of interest not only in theoretical research but is also attractive to practitioners, as it is seen as an operationalisation to implement sustainability in companies (Kirchherr et al. 2017b). For such a transition, circular strategies and principles need to be integrated into a company’s BM, meaning that these BMs should not only aim to reduce negative impacts but also find new solutions in “how clothes are produced, sold shared, repaired and reused” (Greenpeace 2017 p.6). This leads to the idea of CBM (Geissdoerfer 2018). CBM describe BMs that propose, generate, deliver and capture value in a sustainable manner, incorporate circular principles and aim to slow, narrow and close resource loops, while minimising a company’s environmental and societal impact (Bocken et al. 2016; Geissdoerfer et al. 2018). According to Lacy and Rutqvist (2016), CBMs can offer businesses a competitive or “circular advantage”. The following sections will explain how such a circular advantage can be captured.

2.5.1 Drivers, principles and strategies

The EMF (2015) and Lacy and Rutqvist (2016) have pointed out the main macroeconomic drivers of the CE, e.g. supply risks, resource price volatility, structural waste, environmental degradation, an increasing number of middle-class consumers and technological development (See Table 2.3). Incorporating solutions to these macroeconomic circumstances becomes increasingly attractive because it allows businesses to stay competitive (DeAngelis 2016). Therefore, companies should incorporate the three principles of a CE in their BMs: (1) protect and enlarge natural capital, (2) optimise resource outputs and (3) promote system efficiency (EMF 2015). Besides the fundamental ideas of the CE and three principles, there are specific strategies for its implementation. These are summarised by Potting et al. (2017) in the 9R framework of circular strategies, pointing out the hierarchies of post-retail initiatives that should be incorporated in CBMs. Table 2.3 visualises how the drivers, ideas, principles and possible implementation strategies of the CE relate.

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Table 2.3: The relation between drivers and ideas of the CE and its principles and strategies; Source: Author with content summarised from the CE literature (EMF 2015, Lacy and Rutqvist 2016, Potting et al. 2017)

2.5.2 Post-retail initiatives

The conversation today concentrates primarily on efficient resource use, short-term waste management strategies and recycling (Greenpeace 2017), however extending the lives of products is argued to be the most beneficial strategy from a CE perspective (Kant Hvass 2016). That means the CE should initially focus on preventing waste at the demand side, offering post-retail initiatives to extend the lives of products and consider resource requirements and supply specifications at the latter stage (Greenpace 2017). Therefore, this paper agrees with Lacy and Rutqvist (2016 p.24), who state that the most important aspect is: “how a company engages customers, their role during and after a product’s use and how they develop products and evolve r esou r c e requirements”. This study further focuses on service-based BMs that incorporate PLE strategies.

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Table 2.4: Post-retail strategy definitions by EMF 2013; Source: the author, adapted from EMF 2013

2.5.3 Service-based business models

According to Sitra (2015 p.7):

“ Service - base d business models & circular strategies are part of a broader group of SBMs and can be described as models applying one or more out of three main approaches: Circular (creating value from waste), Servitization (functionality over ownership) or Sufficiency (encouraging effective use of resources) “.

These classifications relate to the categorisation by Bocken et al. 2015 (closing, slowing and narrowing loops). Slowing resource loops refers to the durability and the life-span extension of products. This is mainly achieved through servitization, resale, renting, leasing, maintenance and repair (service loops). Closing resource loops suggests that resources circulate continuously and products are either fully recycled or partly remanufactured (Bocken et al. 2015; Guldmann 2016; Sitra 2015). Such a model aims to conserve and circulate resources as long as possible in a closed loop system (Guldmann 2016). Narrowing resource flows (resource efficiency/ sufficiency) aims to reduce consumption and production, resource use per product and using resources more efficiently. It does not aim at the cyclic flow of resources, nor does it affect the speed of resource flow (Bocken et al. 2015). It deals with demand management and co-creation (Sitra 2015). This paper does not address this concept in depth.

2.5.4 The four resource loops

Figure 2.5 visualizes how businesses can operate in four resource loops, which are related to the concept of slowing and closing loops and the different post-retail initiatives: first the life-span extension or maintenance loop, second, the reuse and resale of products, third, the remanufacturing loop and finally, the recycling loop (EMF 2013; Guldmann 2016; Stahel 2012; Webster 2017). The first two loops are related to slowing resource loops, while the third and the fourth loop are based on closing resource loops. The narrower the loops, the more economically and ecologically beneficial it is. Slowing resource loops should be prioritised while recycling should be considered as the last option (EMF 2013; DeAngelis 2016).

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Figure 2.5: The flow of Resources in a CE; Source: The researcher adapted from EMF 2013

2.5.5 The sources of circular value creation

The EMF (2013; 2015) and Guldmann (2016) suggest that the principles and fundamental characteristics of the CE drive circular value creation. There are four sources of circular value creation: the power of the inner circle, the power of circling longer, the power of cascaded use and the power of pure circles. Innovative business models usually contain a mix of the four value creation bases (Guldmann 2016). These four sources of value creation enhance material productivity, and instead of offering short-term solutions to resource restraints, they leverage on being applied over the long-term (WEF 2014).

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Figure 2.6: 4 Sources of Circular Value Creation; Source: Author, created from EMF (2013; 2015), Guldmann (2016), WEF (2014)

2.5.6 Circular business models

To incorporate the principles of the CE and the sources of circular value creation in BMs, Accenture (2014) proposes five circular models. Table 2.7 makes sense of the CBMs proposed by Accenture (2014) and is extended by the BM categorisations of other studies (Bocken et al. 2015; Lacy and Rutqvist 2016; WRAP 2018). Additionally, it aims to put the CBMs in relation to the four sources of circular value creation. However, the focus lies on BMs that slow and close resource loops and does not address BMs for narrowing resource loops.

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Table 2.7: Business Model Innovations; Source: The researcher with content from Accenture 2014; Bocken et al. 2015; Lacy and Rutqvist 2016, Stahel 2012; WRAP

The distinct resource loops, the principles for circular value generation and the CBM types offer useful frameworks for businesses to capture value in a CE (Guldmann 2016). However, besides the impossibility of achieving 100% circularity, the criticism remains that the CE still lacks a social dimension, as it focuses mainly on environmental and economic wellbeing (Mentik 2015; Murray et al. 2015; Stahel 2010). Despite the criticism, CE is seen as having an enormous potential to achieve real change, especially in the fashion industry.

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