Context and Background
To consider whether sustainable materials and product sourcing decisions can lead to lower profit levels, one must first understand what sustainable fashion is. Sustainable fashion refers to clothing that is designed, manufactured, distributed and used in ways that are environmentally friendly (Backbone, 2022). Sustainability is a value system and as such, ethical fashion cannot be separated from sustainable fashion. Consumer demand for sustainable fashion is growing rapidly. Remake, a global advocacy organization and fashion watchdog, reported that 80 percent of fashion consumers are in favour of greater ethical and sustainable practices within the fashion world (Team Backbone, 2022). If the fashion industry is going to meet these higher ideals it will need to make some substantial changes. There will need to be wider use of sustainable materials, a decreased ecological footprint, increased transparency, and strengthened supplier relationships. It is important to understand the headwinds that the industry will face, and indeed that some businesses currently face as they aim to be sustainable. One of the challenges is that sustainable materials and product sourcing decisions can lead to lower profit levels. Ahead, a discussion will consider this statement.
Sustainable and ethical sourcing is challenging and time-consuming which makes it a prevalent problem in the industry. Small fashion brands have proven that sustainable and ethical sourcing is possible but it requires time, patience and often copious amounts of research and travel. Sustainable fashion at this point has mostly been limited to small brands or capsule wardrobes within mega brands such as H&M. To understand the challenges of sustainable sourcing and whether it leads to lower profit levels, we must first consider how the supply chain for the production of sustainable fashion differs from the traditional supply chain in the fashion industry.
There are several crucial cost drivers that are involved in sustainable fashion. Ethical sourcing is one of the biggest differentiators of sustainable fashion. Beyond the choice of fabrics, sustainable fashion also considers the process of procurement of materials. Higher costs begin with raw materials. Natural fibres like silk and cotton cost more than polyester-blend materials which are essentially plastic. The factors that influence the cost include: the type of raw materials, where the raw materials come from and how and where the product is made as well as who makes the product and under what conditions (Khatib, 2021). Ensuring that workers are provided with sufficient wages is another factor that drives up costs. Shivangini Padhiyar, founder of The Summer House, explains “Ethically produced and sustainable fashion pays not just a minimum wage, but a living wage - which means the women who make our clothes are able to afford a life of dignity and safety” (Khatib, 2021). A living wage is determined by the country the worker lives in as this impacts the standard of living. Also considered are: access to healthcare, transportation, housing and severance and unemployment benefits. The scale of production is another factor. Sustainable fashion is synonymous with slow fashion; it adheres to a smaller scale of production. Slow fashion cannot take advantage of economies of scale because it is produced in small batches. It is therefore more expensive than making something on a larger scale. Sustainable fashion also respects craftsmanship. It has maintained a dedication to ensuring that age-old crafts and skills are sustained and passed down to future generations (Khatib, 2021). This is in sharp contrast to the traditional supply chain in the fashion industry.
Over the past 25 years the traditional supply chain has become highly globalized. Garments are often designed in one country, materials are sourced from another country, assembled in another and sold worldwide. This process can require a lot of transportation as the farms that produce the raw materials are often located far from the mills which can be in different countries than the manufacturers. Most companies outsource production to manufacturers in countries with cheap labour and they source from the lowest priced supplier of materials. Typically, production takes place in low wage countries in Asia such as China, Bangladesh, Cambodia and Myanmar and takes advantage of economies of scale. These contracts can be negotiated and signed from a corporate headquarters in another continent. The suppliers and manufacturers are known; often one garment factory is cutting and sewing for several brands at the same time. The aim of this supply chain is efficient and low cost manufacturing and it results in low cost clothing. This fast fashion model has seen the cost of clothing plummet while consumption has skyrocketed. These two supply chains are at opposite ends of the spectrum: the first is about slow, thoughtful production whereas the second is about efficiency and low cost. The first is relatively unknown and the second is well established.
There is a higher cost associated with producing sustainable fashion but that is not the only struggle. Finding suppliers and producers who understand the brand’s vision and who align with their commitments to how they believe workers should be paid, treated and respected is challenging (Brucculieri, 2018). It is also difficult to find suppliers who can provide the quality and quantity in a professional and timely manner (Brucculieri, 2018). Sustainable materials are not easily accessible. Kathleen Talbot, head of sustainability at eco-friendly Reformation, says that “both materials and vendors that meet sustainability criteria are still more fringe than they should be”(Brucculieri, 2018). The problem is therefore twofold: higher costs for materials and products and difficulty accessing the material and producers who align with the tenets of sustainability.
One of the main challenges is that the industry lacks a common language to define sustainable fashion. Initiatives such as the Sustainable Apparel Coalition’s Higg Index have made a start in this regard, but it is still difficult for industry practitioners to talk about sustainability with a shared vocabulary and common standards (McKinsey & Co., 2019). Sustainability encompasses a vast spectrum of factors. Sustainable fashion can be a capsule collection released by a fast fashion mega brand or a brand that has fully integrated sustainable practices, apparel and strategies. The concept of sustainable fashion is often downsized to focus on sustainable material options without providing measures of sustainability or dealing with the broader issues involved such as ethical wages and production. There is currently no way to communicate a garment’s degree of sustainability (McKinsey & Co., 2019).
The result is that brands have to do their own research and source farmers, suppliers and producers. They need to be able to take the time to establish relationships with the farmers, suppliers and producers to assure that their vision and philosophy align as well as their aesthetic. They need to know everyone in their supply chain well to ensure transparency and traceability. This is time consuming and costly. In large corporations the Chief Production Officer handles contracts with suppliers and producers. However, the relationship is limited to the fulfillment of contracts involving timely supply of quantity and quality apparel. The incident of the Rana Plaza factory complex collapse on the outskirts of Dhaka, Bangladesh in 2013 was proof that many brands either turned a blind eye to the horrific conditions where their apparel was produced or were unaware (Choraria, Jain & Goel, 2020). However, sustainable fashion requires that the entirety of the brand or corporation be involved in the commitment to sustainable and ethical fashion - from ethical sourcing of supplies and materials, to ethical production including worker wages and a safe work environment, to sustainable packaging and reducing the carbon footprint of transportation. It requires a restructuring of governance or organizational structure to allow people to work together across departmental boundaries. While it may appear to be simpler for smaller brands, the cost and time required can be a deterrent. These are costs that are often not considered in the move toward sustainable fashion production (McKinsey & Co., 2019).
Fast fashion promotes throwaway culture. The low price of the garment or its trendiness give the consumer an excuse to get rid of the garment after little wear. Fast fashion promotes the idea of never having enough clothing; there is always something new you should buy. The average consumer is not interested in researching what they are buying, rather they just want to buy apparel. Consumers are used to low cost and disposable clothing. The price tag on a sustainably-produced garment with fair wages for labour is higher than a mass-produced piece of clothing. This results in the perception that sustainable fashion is only for an exclusive clientele. It will take effort, marketing and education to reverse the impact of fast fashion of peoples’ insecurities. For years consumers have been told that they will be left behind if they don’t jump on to the latest trends.
Key Players
There are many small brands that are implementing solutions to this issue. They are trying to break the fast fashion mold by producing stylish garments made with sustainable and ethical practices. They are proving that it is possible to sell trendy apparel with a low environmental impact. It’s not easy, but they have put the time and effort into finding the right materials, suppliers and producers. Kotn is a Toronto, Canada based brand that launched in 2015. Kotn sells ethically made, sustainable cotton basics. Building its unique supply chain was a major challenge, says Rami Helali, co-founder of Kotn (Brucculieri, 2018). Helali describes Kotn’s supply chain model as “like farm-to-table, but for your clothes” (Brucculieri, 2018).
Kotn began as a quest to make the perfect t-shirt. Helali moved to Egypt to learn about cotton production. He learned how to make yarn, how to make fabric, and how to dye things without harming the environment. This boots-on-the ground experience led him to form relationships with farmers, makers and producers throughout the region (Petros, 2023). Helali says that Kotn has a partnership and a relationship with every facility involved in the supply chain, from the farm to the yarn mill to the fabric mill to the dye house to the cut and sew. It took time, effort and patience to cultivate these relationships which he credits as being the key to Kotn’s success. He notes that in the first two years they often sold out of pieces because they were struggling to find suppliers that could provide both the quality and the quantity in a timely manner. Since then, Kotn has formed partnerships with over 2,300 cotton farmers in Egypt’s Nile Delta and Faiyum regions (Petros, 2023). “There were a lot of learnings from the initial period that helped create the company that Kotn is today” states Helali (Petros, 2023). That seems to be the pivotal difference from the traditional fashion supply chain - the relationship between the brand and its farmers, suppliers and producers. Rather than the brand placing orders or telling producers what they want, Helali works with his suppliers and producers so that together they can anticipate needs and solve issues that arise.
Transparency and traceability are important to Kotn; Helali believes that they are the key pillars to sustainability. He states that “you cannot make a single claim about your product until you know every person who is touching your product and in what part of the world” (Petros, 2023). On the website the company shares its transparency and traceability in a storyline format (Kotn website). The connection with their suppliers and producers helps Kotn understand the needs of their communities and make meaningful contributions to education, gender equality and generational poverty. And because they are connected to the communities they feel responsible and are continuously aiming to become more circular by focusing on biodegradable materials, alternative power sources and water recycling (Petros, 2023).
In all of this, Kotn continues to show a profit and to expand. It now has locations in Toronto, Montreal and Vancouver and has plans to move into the United States (Toneguzzi, 2022). “It is absolutely possible to build a profitable and sustainable and responsible - ethically and socially - fashion company. It is 100 percent possible. The math adds up. I’m looking at the math every day, it is definitely doable” says Helali (Brucculieri, 2018). Despite the challenges, sustainability and profitability can co-exist. According to Forbes, Kotn has seen a 37 percent growth month-over-month since launching in 2015 (O’Connor, Valet, Love, 2018). Kotn and other brands like Reformation are proving that sustainable and ethical sourcing and manufacturing is possible along with financial profitability. And they are proving that sustainable fashion does not necessarily translate into lower profit margins. That’s because the consumer who buys sustainable fashion has so far been willing to pay a higher price (Brucculieri, 2018). Consumers of sustainable fashion have tended to view their purchases as an extension of their commitment to the environment and to reducing their carbon footprint. They have stepped out of the fast fashion consumer culture and adopted a slow fashion philosophy sustainability and quality trump quantity. So although sourcing and sustainable decisions may cost more on the front end, consumer willingness to pay more for apparel makes up for it and in the end does not necessarily equate to lower profit margins.
Big brands and fast fashion are driven by speed and seasonality. They place multiple orders to test what sells. This translates into razor-thin margins, taking on debt to pay for fabric and keeping workers on short-term contracts while chronically under paying them and demanding excessive overtime. Their costs for materials and manufacturing may be considerably less, but the volume of apparel that is sold at sale prices and the losses associated with returned and unsold items is huge (McKinsey & Co., 2019). Consumers of fast fashion expect lower prices. The challenge for big brands will be to source sustainable materials at scale. Or, perhaps they will be persuaded to re-think the ridiculous level of consumption that fast fashion has bred.
Small brands that were founded on a commitment to sustainability have proven that sustainability and low profit margins are not synonymous. However, when a company is built from the ground up on the goal of consumption and quick delivery it’s difficult and expensive to reverse those. “They’re giant ships on open water, and even if they know they’re headed in the wrong direction, it takes so much effort and time for them to change direction or pivot” (Brucculieri, 2018). Big companies have started to invest in some of these solutions - they do capsule collections using sustainable materials - but they fundamentally can’t support some of these changes because all of their infrastructure and organizational set up cannot facilitate that (McKinsey & Co., 2019). The fashion industry has thrived on the fast fashion model perpetuated since the 1990s which has seen the cost of clothing plummet and the consumption of clothing skyrocket. In England alone, 4 billion items of apparel were bought in 2019. It will require serious pressure from consumers and creative thinking and solutions that prioritize the planet over profit by big brand companies to move them toward sustainable fashion.
There are a range of possible solutions being tested, implemented and discussed. The 2021 Copenhagen Fashion Summit, one of the fashion industry’s key events on sustainability, was themed “prosperity vs. growth”. It sparked industry dialogue about whether value is only growth and volume or whether it is how value is created in both the supply chain - for the workers, artisans, the consumers as well as the shareholders (Pinnock, 2021). Looking at growth as something that incorporates environmental and social impact as well as financials is only smart business sense. Questioning how growth is defined is an important first step. The “degrowth movement” is redefining how value is defined in fashion. Climate change and the biodiversity crisis is not something that may happen - it’s happening. Some brands are beginning to figure out approaches to tackling it within their own business, while others are responding to pressure and regulations imposed upon them by the government. The British Fashion Council has set as an objective “to reduce the volume of new physical clothing” and replace it with a circular fashion system (Pinnock, 2021).
Bard Bringeus of Asket argues that the finance sectors need to make changes to accommodate new business models like his. Most financing is based on the short term horizon which is challenging. He suggests that to change the finance market and the stock market, regulations must be in place that make it harder for businesses who continue to extract resources and exploit people and the planet to get financing (Pinnock, 2021).
Degrowth sounds very counterintuitive to business. But it is about better business with lower volumes. All of these solutions involve customer education and buy in. Businesses need to realize that every dollar spent on bringing sustainability to life is not a cost, but an investment in order for their brand to stay relevant. This is an opportunity for creative thinking. Consumers have a role to play as well. We need to accept responsibility for our role in the consumption of fast fashion. Being locked down in our homes made us all more aware of how much space clothing takes up in our households. Starseeds founder and designer Natalia Zawada believes that the pandemic offered otherwise busy people a chance to slow down and start caring about sustainability. “Collectively, we became more conscious and careful about consuming” (Wanderlust, 2022). Hopefully that collective consciousness can be directed into mindful consumption.
The sad truth is that the implementation of solutions and innovation in the fashion industry have failed to lessen its planetary impact. This should be a wake up call for anyone who has faith that the voluntary efforts of brands and corporations can successfully address climate change and other challenges and inequalities in society. Kenneth Pucker, former COO of Timberland points to the production of shirts and shoes, which has more than doubled in the past quarter century (Pucker, 2021). Three quarters of them end up burned or buried in landfills. That is a dismal statistic. He says that pressure for unrelenting growth combined with consumer demand for cheap, fast fashion is much stronger than any movement toward sustainability. The unyielding pursuit of growth drives strategies that are unique to the fashion industry. Says Pucker “Because it is hard to make a better performing or more efficient blouse or pair of socks, the industry pushes for change. Not better - just different, cheaper, or faster” (Pucker, 2021).
What is most discouraging is that increasing environmental damage has come at a time of increased transparency. Sustainability is on the agenda for most fashion companies. But Pucker suggests that the steps that companies are taking are not having their intended effect. Many companies present their environmental and social performance. But as a recent Business of Fashion report noted, “with no standardized language or regulated frameworks, deciphering what companies are actually doing is challenging” (Pucker, 2021). Most companies do not mention their carbon emissions profile and worse, most remain unaudited by external parties.
Recycling is oversold. There are many reasons why including the limits to recycling technology and the limited infrastructure. As a result, less than 1 percent of all clothing is recycled into new garments (Pucker, 2021). Recycling bins in Zara and H&M stores are a guilt-free placebo that encourages more consumption. The “next-gen materials industry” has innovators growing bio-based substitutes for conventional livestock derived material such as leather. These can be engineered to deliver performance features along with biodegradability. But unfortunately the high initial start up costs, large requirements for capital and resistance to change often makes these initiatives prohibitive (Pucker, 2021).
Pucker is very critical of the new business and supply chain models which claim to reduce consumption of raw materials and extend product life cycles. Thrift stores which have been touted as part of the circular economy, actually reject most of the items that are donated to them for resale. It’s predicted that this percentage will likely increase because of the low quality of fast fashion. The sharing economy of rental fashion was a novel and fun idea also credited for promoting a circular economy. However, Pucker claims that a closer look reveals that the rental model is not a sustainable solution as it only reduces CO2 by 3 percent versus purchasing new apparel (Pucker, 2021). He also notes that many rental companies remain unprofitable.
Pucker has very dismal projections that the fashion industry will continue to grow over the next decade. He predicts that the same trends that have powered its growth will more than overwhelm any gains associated with bio-based materials, new business models or circular economy initiatives (Pucker, 2021).
The Best Solution
It is time to shift from the voluntary market-based approach to sustainable fashion. Hoping that consumers will match their dedication to the environment with more expensive sustainable fashion purchases is not realistic for many consumers. And hoping that consumers will spend time reading labels and researching brands is too much to ask. It is also “greenwishing” to hope that investors, with their short time horizons and index-based performance goals will pressure companies to respect ecological boundaries.
Less unsustainable is not sustainable! Fashion companies should not be allowed to simultaneously declare their commitment to sustainability while opposing regulatory proposals. Pucker cites Nike as an example of this. Nike has committed to science-based targets but has been called out by ClimateVoice for lobbying against the Build Back Better legislation and its provisions to address climate change (Pucker, 2021). Businesses must disclose their lobbying efforts. And, stewardship reports should be mandatory, quantitative and subject to annual external audits.
Governments must price negative externalities - carbon and water should be taxed to include social costs. This would discourage excessive use and lead to innovation and the use of renewable energy. Governments must ]be assertive and adopt extended producer responsibility legislation. This has been done in California for many years for several items including carpets, mattresses and paint. This law requires the manufacturer to pay up front for the costs of disposal of their goods (Pucker, 2021).
It has been asserted that it is the threat of lower profit margins that has made companies hesitant to move toward sustainable fashion. That is not true. Many brands are proving that sustainability and profit can be achieved together. There is little incentive for big brands and companies to become sustainable. So the government must provide the disincentive for them not to be. It is legislators who must become creative with regulations that would incentivize the industry to become sustainable. And, they must be rigorous in fining companies that do not live up to the standards.
The benefit of industry regulations and standards is simple and obvious - an improved ecological footprint. The challenges however could be many. Passing legislation that makes regulations and standards into laws can get tangled up in politics, competing agendas and subject to strong lobbying efforts.
If the majority of consumers demand clothing that is made ethically and sustainably, brands won’t have any choice but to follow that lead. But there doesn’t seem to be enough pressure yet for it to become detrimental for fast fashion brands to operate in the way they are now. Consumers are leaning toward wanting sustainable and ethical fashion, but clearly not enough. If they did, it would be unprofitable for fast fashion brands to operate in an environmentally detrimental way. In the meantime, governments must pass legislation that regulates the industry and sets standards. This will not be easy in the current political climate. But it is necessary and long overdue.
References
Mckinsey Apparel, Fashion & Luxury Group, October 2019, Fashion's new must have: sustainable sourcing at scale (https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/fashions%20new%20must%20have%20sustainable%20sourcing%20at%20scale/fashions-new-must-have-sustainable-sourcing-at-scale-vf.pdf)
Nathalie Remy, Eveline Speelman and Steven Swartz, October 20, 2016, Style that's sustainable: A new fast-fashion formula (https://www.mckinsey.com/capabilities/sustainability/our-insights/style-thats-sustainable-a-new-fast-fashion-formula)
Team Backbone, May 17, 2022, The Cost of sustainable Fashion Materials: Affordable Sourcing (https://backboneplm.com/the-cost-of-sustainable-fashion-materials/)
Faye Lessler, (no date cited on website), What is sustainable fashion? (An introduction and 3 step for getting started) (https://greendreamer.com/journal/what-is-sustainable-fashion)
Wanderlust, (no date cited), Looking at true cost of sustainable clothing (https://wanderlust.com/journal/looking-at-true-cost-of-sustainable-clothing/)
Hasina Khatib, May 13 2021, What goes into the pri ing of sustainable fashion? (https://www.vogue.in/fashion/content/why-is-sustainable-fashion-expensive-the-cost-of-ethically-produced-garments)
Rohit Choraria, Medha Jain, Praguni Goel, May 1 2020, Global Fashion Brands: Does Sustainability Make Business Sense? (https://www.switch-asia.eu/site/assets/files/2463/does_sustainability_make_sense.pdf)
By Julia Brucculieri Oct 11, 2018, Sustainable Fashion Brands Explain That Yes, They Can Be Profitable (https://www.huffpost.com/entry/sustianable-brands-vs-fast-fashion_n_5bbe04c2e4b01470d057aecb)
Kotn website information (https://kotn.com/about/supply-chain)
By Kenneth P. Pucker January 13, 2022, The Myth of Sustainable Fashion (https://hbr.org/2022/01/the-myth-of-sustainable-fashion)
Olivia Pinnock, Sep 24, 2021, Sustainable Fashion Wants Brands To Redefine Business Growth
(https://www.forbes.com/sites/oliviapinnock/2021/09/24/degrowth-is-trending-in-sustainable-fashion-what-does-that-mean-for-brands/?sh=58c2ea094a6f)
(https://www.forbes.com/30-under-30/2018/retail-ecommerce/#5612c1461682)
By Mario Toneguzzi May 4, 2022, Toronto-Based Brand Kotn Launches Expansion with Several Stores Planned Including 1st Vancouver Location: Interview (https://retail-insider.com/retail-insider/2022/05/toronto-based-brand-kotn-launches-expansion-with-several-stores-planned-including-1st-vancouver-location-interview/)
Sophie Benson, September 12, 2022, Fashion Regulation: Making Unsustainable Against the Law (https://goodonyou.eco/fashion-regulation/)
ALEXANDRA PETROS, More Than Just A Brand: An Insightful Conversation With Kotn’s Co-Founder & CEO, Rami Helali (https://fashiontakesaction.com/articles/more-than-just-a-brand-%EF%BF%BCan-insightful-conversation-with-kotns-co-founder-ceo-rami-helali/)