Starting from the Business Model
Three main types of brand categories represent the fashion industry:
- High-end and often Slow Fashion
- Premium brands
- Fast Fashion
While there are several commonalities between Premium and Fast Fashion brands, there are still many differences with High-end fashion brands.
High-end and Slow Fashion
When we talk about high-end fashion, the brand's business model revolves around the dream of an unattainable product of extremely high quality.
Luxury materials are crafted in an artisanal way, using traditional and fascinating production processes that make the products unique and extremely valuable. People are willing to spend their entire salary or even more to get one of these items. These products are very durable and can often be easily repaired, extending the lifetime of the garment and allowing it to be passed down through generations.
In this case, the product has a very high margin for the brand, which can still generate significant revenue with limited quantities.
These brands don’t need to emphasize sustainability because it doesn’t add value to the dream of creating the best product for life. However, many factors resonate with sustainability. These brands are not familiar with this type of communication with consumers and often do not pay attention to it until recent years when some began to measure ESGs while disclosing as little as possible.
Fast Fashion and Premium
The goal here is to create an affordable product that people can easily buy for one season without spending their entire salary.
The focus is on efficiency, cutting costs as much as possible by producing in countries with the lowest labour costs, using the cheapest yet sufficiently good materials, and overproducing to secure better deals with suppliers.
Of course, this does not represent the most sustainable business model, but it accounts for most of the products we see today because only a few people can afford high-end fashion.
Over the years, these brands have managed to reduce their prices significantly, educating consumers to use garments for only one season before discarding them and buying new ones. In this way, brands can earn more by selling two products instead of one, and customers feel happier (the dopamine effect) because they bought two items instead of one.
We might also interpret this differently: customers have been partially fooled by brands, as they become more confused about what they really like while accumulating a larger wardrobe filled with cheaper products made from inferior materials that cannot last long or be repaired.
This leads to a massive waste of products, coming from garments worn just a few times before being thrown away, as well as from the large stock produced by these brands, resulting in excess inventory that turns into waste.
Until now, brands have not had to consider the end of a product's life, treating disposal as a non-issue.
With Extended Producer Responsibility (EPR) taking effect, brands will need to be responsible for their products from production to end-of-life. They will have to disclose what happens to unused products and what consumers should do when their product is broken or reaches the end of its lifespan.
This brings us to the third fashion business model, one that doesn’t exist yet.
New / Responsable Fashion
It is becoming obvious that we need to change the way we operate, as the overproduction business model has limited sustainability. The products are becoming too cheap with the lowest quality ever, and there aren't enough wardrobes in the world to accommodate all of them.
Starting from the principles of high-end fashion brands, which already incorporate sustainability values, we should consider how to make these products accessible without necessarily making them cheap.
New startups are emerging, focusing on renting clothes, reselling second-hand items, and recycling products at the end of their life to create new materials.
Currently, there are not many profitable solutions available, but these startups are gradually learning from their mistakes and seeing the light at the end of the tunnel.
ThredUp is one of the first start-ups that after trying different options like opening to retailers, made a positive revenue in 2022. There is no one way but there is still a lot to experiment to find the right path.
Here is an example of a formal resell platform:
So far brands are not able to create revenue out of it, but working together with some of these promising start-ups can help them to discover the future while taking smaller risks and eventually, they will acquire them later on, when they see it is making a profit.
They will be both happy, the brand finding the new business model, and the start-up that is able to get good value for the project.
Conclusion
The question is: how will the business model of future brands look in ten years?
Will they really incorporate these startups, or will they create their own?
Will they educate consumers to buy less but buy better, thereby increasing profit margins?
Will they foster a culture where people are happy to share high-quality products?
What role will the Digital Product Passport, which will be implemented in 2027, play in this transformation?
There are still too many questions, and no single answer, but one thing is certain: current Fast Fashion practices will increasingly face challenges from regulators and the sheer volume of products, especially if the global population growth stabilizes.
I'm sure the smartest one won't give up and they will find a different solution and maybe create a new Fashion Business Model.
