Fashion Strategy Weekly - 18 Oct 2022
A publication of It's A Working Title LLC
This weekly publication focuses on how business and economics trends, technology, and the drive for sustainability impact the global luxury, fashion, and experience economy industries. Prepared by the staff of content strategy agency and think tank It’s a Working Title LLC, each week’s issue provides a summary of recent trends across the globe and a leader that conducts a deeper dive into content strategy.
Leader - Fashion and Sustainability: How Content Strategy Can Help the Industry Move Beyond “Greenwashing”
Leader - Luxury and Sustainability: How Content Strategy Can Help the Industry Move Beyond “Greenwashing”
Everyone knows that the global apparel industry has a sustainability problem. How big is it? According to the World Bank, the $2.5 trillion fashion industry is responsible for 10 percent of annual global carbon emissions, more than all international flights and maritime shipping combined, and they will rise by another 50 percent by 2030. Around 20 percent of wastewater worldwide originates from fabric dyeing and treatment. Of the total stock of fiber created for clothing, 87 percent is incinerated or dumped in a landfill. Each year, half a million tons of plastic microfibers are poured into the ocean (the equivalent of 50 billion plastic bottles) and these fibers cannot be easily extracted from water and spread throughout the food chain for animals and humans. Beyond the macro numbers, if you follow the lifecycle of how a single garment is made with Maxine Bédat in her book Unraveled you will travel from chemically ravaged soil in which cotton is grown to chemically drenched manufacturing factories, and ultimately to landfills where discarded garments are burned. It is a story of pollution, waste, and human and natural suffering.
Looking at the various sectors that make up our economies, fashion is certainly not alone in having a poor environmental record, yet the reasons why are unique. The operating model of the industry is about maintaining an ever-frenetic pace of design and production. Given that fashion is the third largest manufacturing industry in the world (after automobiles and technology), this is a lot of stuff. Designers at brands from high-end luxury to low-priced fast fashion and everything in between have long been under pressure to deliver collections much more frequently than the old seasonal periodicity. Some fast fashion retailers offer new designs weekly. The average person buys 60 percent more clothing than they did just 20 years ago according to the World Bank. More wardrobe turnover translates into more clothes discarded, which is a major problem as less than 1 percent of clothing is resold or recycled despite the strong push by parts of the industry, such as The RealReal, to accelerate the trend. Global fiber production doubled from 2020 to 2021 in spite of commitments to reduce production growth.
The industry has not been silent in response to this track record and commitments to introduce greener materials and improve labeling have proliferated. Driven by changing consumer preferences and, in some jurisdictions, government action (beginning in 2023, France will require that all clothing sold in the country to identify its climate impact), there are an enormous number of public and private sector initiatives to introduce new fabrics that are both less polluting and more durable to reduce waste and encourage recycling. And everyone from the Ellen MacArthur Foundation to the UN to private sector initiates such as the recently created 27 private sector partner initiative Cisutac Horizon Europe that we discussed in our previous edition are involved as well as countless others. There are numerous catalytic funds, such as the $250 million Aii Fashion Climate Fund, up and running to identify, scale, and measure verified impact solutions. Thanks to some of these efforts, athletic shoes and attire are getting made out of materials extracted from the plastic dumped into the ocean. Fish skins and natural dyes are replacing chemicals, fruit skins are substituting furs, and backpacks and purses are getting made out of discarded canvas and mushrooms. Some companies have a return policy so they can recycle the consumers’ garments after they have worn out.
And yet, the industry does not seem to be making real progress. A report published this month by the Textile Exchange reported that global fiber production reached an all-time high in 2021 and is expected to increase by a third in the next 8 years. Though consumers’ buying preferences, particularly those in the highly coveted Gen-Z demographic, are reportedly increasingly driven by sustainability concerns, industry’s biggest players still aren’t disclosing basic data about environmental and social impact, putting them in the firing line as regulators look to crack down on “greenwashing.” A class action suit filed against H&M in a New York federal court on July 22 complains that the retailers’ extensive environmental labeling is based on spurious information. This year, the average score for the 250 fashion companies assessed for sustainability by the Fashion Transparency Index was just 24 (brands are scored out of nearly 250 possible points). Nearly a third of companies scored less than 10. Even those with the highest scores aren’t disclosing key data points, the report found. Big companies’ focus on long-term targets without substantive data to back up any action is “frighteningly inadequate,” it said. It’s a position that’s increasingly untenable as time to meet climate goals runs short and regulators step up scrutiny of the industry, putting companies in the firing line for a crackdown on greenwashing.
Getting to the root of putting the industry on a truly sustainable path and moving beyond greenwashing is, of course, complex but we believe that a good content strategy can be part of that package of changes that are needed. Putting the textiles and fashion industry on sustainable footing that goes beyond marketing and hype will naturally involve long-term action by manufactures, brands, consumers, and regulators. It involves technical, logistical, design, and supply chain adjustments which need to also be sensitive to the role that a changing industry can have on those whose livelihoods depend on the current business model. Getting the content strategy right will be a critical component of making this adjustment successfully whether that is through changes in transparency and labeling, marketing and communications, and production management.
Content strategy is about aligning changing corporate objectives to flow of data and messaging, both internally and externally. Ensuring that data is managed across your various distribution channels to consumers (whether this is through digital product advertising or clothing labels that detail its origins and environmental impact) as well as backend to frontend (such as identifying how ESG corporate standards are implemented through each link of the supply chain) is the heart of a good content strategy and will be an essential, though of course not sufficient, condition to move the industry forward on sustainability commitments. Consumers need to know the true environmental impact of their choices and regulators are increasingly demanding it. This information must be accurate and well aligned with what corporate leaders mandate and the activities of the production process. A content strategy is what unifies these disparate elements.
LVMH continues to report strong revenue despite steepening global macroeconomic headwinds. The world’s largest luxury group, LVMH, reported 19 percent Q3 revenue growth due, in part, to Americans traveling to Europe to take advantage of the weakening Euro offsetting sluggish growth in China. At the product level, organic revenue growth was driven by the group’s fashion and luxury goods division (+24% y/y during Jan-Sep), followed by watches and jewelry, wines and spirits (+14%), and perfumes and cosmetics (+12%). These results are likely to be similar to those reported by other luxury conglomerates this quarter (Q3 organic revenue growth was 12% at Kering) and come as the IMF further downgraded its expectations for global economic growth in 2023. At its Annual Meetings last week, the Fund downgraded expectations for global economic growth next year by a full percentage point from its April forecast to 2.7 percent. The Fund expects that Europe will basically not experience any economic growth next year while Germany and Italy will fall into recession. Spending on luxury brands has been resilient in advanced economy markets this year, yet rising interest rates and signs of weakening labor markets will push down sales on high volume, lower priced goods and will challenge this resilience in the next year.
A study by KPMG found that U.S. consumer spending during the holidays will increase from last year, but will likely be weaker in real terms due to inflation. The holiday edition of KPMG’s Consumer Pulse Survey is justifiably entitled ‘A little less jingle this holiday season’ and found that American consumers planned to spend 6 percent for the December holiday period. This is probably lower than the rate of U.S. inflation which is likely to average about 5.5 percent this year and be even higher during the main holiday spending period. Most of the increased spending will go to essential categories, rather than discretionary, and retailers should expect to see margins narrow as consumers indicated that they would be more vigilant in searching for promotions this year. By distribution channel, brands’ investments in in-store experiences in 2022 may be rewarded as online retail sales are expected to be flat this year, indicating an interest in returning to IRL shopping experiences.
Fashion United, Morgan Stanley, and Technavio forecast that fashion’s monetization of the metaverse is set to explode. Fashion United report that fashion’s current love affair with the metaverse is quickly moving towards a phase of generating real revenue. Brands big and small have flirted with metaverse applications in the past 18 months often in gaming environments and increasingly in phygital experiments. This periodical reports on multiple experiments each week. Yet, the actual revenue impacts have been negligible. Morgan Stanley forecasts that even though the metaverse (or maybe ‘metaverses’ is more accurate) will take many years to develop, extra sales for fashion brands coming from the metaverse could reach $50 billion by 2030. This seems to be in line with Technavio’s forecast for a CAGR of over 35 by 2026, including a 30 y/y growth rate by the end of 2022. The consumer engagement channels that underlie these predictions vary widely. They include enhancing brand awareness and customer engagement with Nike’s presence on Roblox coming to mind. Others include blending physical and digital retail in unexpected ways, including AR fashion platform ZERO10’s collaboration with Crosby Studios to open a physical pop-up store that invited consumers to try on digital-only clothing pieces in a physical store. The implications of some of these experiments remains murky, but the sheer quantity of industry investment points to the growth of this market segment.
Givaudan extends the application of its AI fragrance co-creation service with a new China service. The world’s largest flavor and fragrance company, Swiss-based Givaudan announced the creation of a tailored, fragrance creation service joint with Alibaba’s Tmall Innovation Centre. The service is targeted to Chinese brands and built on its Carto AI creation tool. The tool allows customers to select raw materials for their scents and an algorithm produces an instant sample. The end-to-end service includes customer-driven research and analysis, olfactory visual exploration, the application of Carto’s algorithm, and a launch strategy and marketing plan. China’s market offers enormous growth potential as only 2.5 percent of its 1.4 billion population use personal fragrance as compared to 52 percent of Americans.
The fashion resale market has tripled in size in the past two years. A study by BCG and resale firm Vestiaire Collective estimated the size of the global resale market in apparel, footwear, and accessories at possibly as high as $120 billion, perhaps three times as high as 2020 levels. Driven principally by the coveted Gen Z demographic, this puts the resale market at 3-5 percent of the overall fashion market and the study authors. Though much is made of the role that resale can play in improving the sustainability of the industry, as we discuss in this week's Leader, affordability and product variety were cited by the study as the key drivers of resale spending.
Blockchain gaming company ChainGuardians launches a grant program to, in part, spur web3 developments in fashion and luxury. Among other things, entrepreneurs seeking to build out applications in digital wearables, metaverse fashion experiences, AR/VR fashion, and phygital tools can apply for up to $100,000 in grant funding. The program will eventually be rolled out to other sectors including wine and spirits, toys, electronics, and music.