Fashion Strategy Weekly - 21 Nov 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 - COP27, Rule-Making, and Regulating Sustainability in Fashion
Leader - COP27, Rule-Making, and Regulating Sustainability in Fashion
This November is becoming another month for policy-makers, market commentators, and the industry to again propose solutions to their failure to act decisively or substantively on their and policy-makers’ climate commitments. Last week saw the launch of the 27th UN Conference of the Parties (COP) and the 2022 Textile Exchange conference in Colorado. There have been so many public and private initiatives to make progress in reducing carbon-intensity, minimizing waste, and introducing circularity in the supply chain and consumption cycle of the apparel industry that it is hard to follow. Yet, in this important month for this topic, we thought it might be useful to take stock of where we are in the kaleidoscopic world of fashion, sustainability, and standard-setting.
First of all, the industry’s problems with emissions and waste are fairly well known. The World Bank estimates that 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. And of the total stock of fiber created for clothing, 87 percent is incinerated or dumped in a landfill. The industry’s operating model, whether high-end luxury, fast fashion, or anything in between, leans heavily into overproduction to meet constant demand for new inventory, which creates a lot of waste and less than 1 percent of clothing is resold or recycled.
So what is coming out of this month’s climate meetings, particularly COP27? This conference began with the UN secretary general urgently pleading for meaningful action because time is running short and, “We are on a highway to climate hell with our foot on the accelerator.” But, what came from the summit, at least as far as the apparel industry is concerned, were less new initiatives but rather a focus on tightening up existing efforts and laying out a concrete path forward. There were some new announcements. A number of leading companies, including Kering, announced a joint commitment to purchase alternative fibers for textiles and paper packaging. The UN Fashion Industry Charter for Climate Action and Sustainable Apparel Coalition announced a call for ideas on new guidelines for how the industry should measure supply chain emissions. Global Fashion Agenda announced the launch of its Fashion Industry Target Consultation.
In general, shoring up existing agreements is not a bad idea as there are a lot of them. At COP26, the 2018 UN Fashion Charter was beefed up by asking 100+ participating companies to halve their emissions by 2030 (the previous goal was a 30 percent cut), reach net zero by 2050 and specify how they will achieve these commitments. And COP is the tip of the iceberg. 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 the private sector collectives are involved.
Despite all of these initiatives, the industry does not seem to be making real progress. A report published 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 their environmental and social impact, putting them in the firing line as regulators look to crack down on “greenwashing.” And simulations of carbon emissions to 2030 by 10 leading fashion companies conducted by Stand.Earth found that only one (Levi Strauss) was on course to hit the UN Fashion Charter goal of halving emissions by 2030. Emissions at the other 9 companies were between 9 and 70 times higher than the 2030 target.
Taking stock of all of these developments, it is hard to escape the conclusion that the industry may not make much progress without a single, global standard. The diffusion of so many regulations and standards makes benchmarking too complicated. For companies, it makes selling the need for changes in their supply chains to investors too murky. For those working on supply chain management, it makes it almost rational to delay the tough work of working with suppliers from fiber production and processing to apparel production and ultimately distribution. Why initiate expensive and time consuming changes with individual suppliers or investigate how dyes are used or disposed of or adjust the supply chain’s reliance on coal, if the target standards are unknown and may change quickly? Good regulation needs to be global (to prevent free riding), transparent, and have buy-in from those who are being regulated and know their business better than policy-makers. So there is much work to be done.
As in previous historic episodes, the luxury sector is remaining resilient to the slowing of the global economy. Unlike other areas of consumer discretionary spending, household luxury expenditures tend to be robust during the early phases of a weakening macroeconomic cycle, experience less of a dip, and then bounce back faster in a V-shape style recovery. With GDP growth slowing in the U.S., Europe, and Asia we are seeing a similar pattern so far this year. A study released by Bain & Co. on November 25 reported that the global luxury market is expected to grow by 21 percent in 2022. This growth comes as the IMF forecasts that global economic growth this year will be less than half the 2021 rate at 2.4 percent with the U.S. growing at 1.6 percent (vs. 5.7 percent in 2021), Europe at 3.1 percent (5.2 percent), and China will record its slowest economic growth rate in 70 years at 3.2 percent (8.1 percent). Bain expects luxury’s annual growth rate to fall to the range of 3-8 percent in 2023 as even luxury consumers will scale back spending amid fears of a global recession, stubbornly high inflation, and rising interest rates.
A Razorfish study finds that virtual goods are seen as luxury items by younger demographics. Luxury brands have invested heavily in digital assets and immersive digital environments. Each week, this periodical identifies several new initiatives by luxury retailers in the areas of NFT creation or metaverse experiences. Many of these platforms now encourage the use of cryptocurrencies to facilitate exchange for physical and digital products. Brands have shrugged off chatter of a crypto or even metaverse winter and ignored concerns that products that encourage collaboration and openness may create brand dilution in an industry that has traditionally appealed to exclusivity. A web3 study by Razorfish found that consumers, particularly the industry’s coveted Gen-Z demographic, see no contradictions in play and embrace digital goods issued by luxury retailers as luxury goods. In fact, 71% of survey respondents reported seeing virtual goods as a luxury item that is equal to or more valuable than physical goods. The survey is a bit skewed as over 75 percent of respondents are Gen-Y or Gen-Z and about all currently own virtual goods already. How would these numbers adjust with a survey of respondents that are not already purchasing digital assets? Maybe not that much as a study by Obsess found that 75 percent of Gen-Z have already purchased digital properties. Better data would light the path here but given the huge investments that we are seeing by luxury brands in these areas, we know that many are betting on these numbers to be broadly right.
Nike launches dotSwoosh, a new web3 shopping platform, to bring virtual NFT sneaker drops to the general public. Nike’s new web3 sneaker shopping platform, dotSwoosh, has the potential to change the virtual apparel market. The athletic brand is making a major play to legitimatize virtual clothing and sneakers as part of its overall product strategy, largely building upon tts 2021 acquisition of NFT platform RTFKT. Although still in its nascency, the goal of DotSwoosh seems to bring virtual sneaker drops, like its highly touted Cryptokicks launch earlier this year, to a wider consumer group.
Snapchat’s recent efforts to extends its reach with creators largely fall on deaf ears. Snapchat has increased its outreach to creators in an attempt to win them over but it does not seem to be working. The app has launched a number of differentiated initiatives in an attempt to woo creators over to its mobile messaging interface. These high-profile programs include its first accelerator program, the $120K Black Creator Accelerator Program and Snapchat Sounds Creator Fund. But, neither have drawn the expected interest from creators in spite of the business support and cash draw of Snapchat’s multi-faceted approach.