The Economics of Independent Sustainable Fashion Brands

Independent sustainable fashion brands usually consist of a small team, and sustainable garments are either made to order or collections are created a few times a year. This allows design teams to research and source deadstock fabrics and recycled or environmentally friendly materials and manufacturing methods (including the development of eco-technologies). Sustainable fashion brands guarantee their workers fundamental human rights, encourage consumers to be more considerate with their buying choices and create quality garments that are timeless. They are committed to reducing the amount of raw materials introduced in the supply chain, produce very little waste and follow a slow fashion/circular model (Cataldi et al., 2010). The global Ethical Fashion market increased by 19.9% in 2018, was worth $6.35 billion in 2019 and is expected to reach $8.25 billion in 2023 at compound annual growth rate of 10.33% (Business Wire, 2020).

Industry Structure and Market Participants

The fashion industry has typically been viewed as having a monopolistic competition infrastructure due to the fact that many fashion brands sell similar garments that have slight variations (a competitive advantage that makes them more profitable than others; Quain, 2019). Anna Nagurney and Min Yu have developed a new model of oligopolistic competition that is exclusive to sustainable fashion brands. The model assumes that each sustainable brand is distinctive and they will compete until an equilibrium is achieved. The intention of each brand is to maximize its profits while minimising its emissions throughout manufacture, storage and distribution (Nagurney and Yu, 2012:1). Independent sustainable fashion brands’ biggest competition is fast fashion. Regardless of the environmental or social costs, Fast fashion’s primary focus will always be reducing costs and maximising profit (Environmental Audit Committee, 2019:50). When rivalry from fast fashion is high, sustainable brands will not attract customers with sales and spend millions on advertising campaigns. As a result, consumers see more fast fashion brands advertised and may resort to buying cheap garments (Environmental Audit Committee, 2019:51).

Most independent sustainable brands work directly with their manufacturers, mills, partners and customers to avoid unnecessary costs. However, there are few suppliers (with very strong positions) enabling them to charge more, and environmentally friendly materials are also expensive due to their scarcity, impacting brand profit. It is also hard to get a foothold in sustainable fashion due to current garment labelling schemes (e.g. Fair Trade and the Global Organic Textile Standard) being costly and time intensive for gaining certification. As a result, new brands are not able to access them (Cataldi, 2010:30). The sustainable fashion brands that perform the best are the larger, more known brands in addition to some mid-sized, family owned companies (Environmental Audit Committee, 2019:8). As there are few sustainable brands (each with a USP) they may have huge strength and healthy profits. Market participants in the independent sustainable fashion industry include nu-in, MaisonCléo, House of Sunny, Reformation and Olivia Rose The Label (Cary, 2020). Buyers of Sustainable Fashion Brands are typically middle class, as sustainable garments are usually more expensive and time consuming to source than fast fashion.

Dynamics of supply and demand

Traditionally, when the price of a garment increases, our willingness (and ability) to purchase it decreases. The law of demand still exists with sustainable fashion brands, however it relates to our elasticity. Elasticity is the extent that quantity will react to a price change, and as consumers our price elasticity for sustainable fashion depends on our generation. For example, Millennials statistically have the most inelastic demand for sustainable fashion, as according to the global web index, 61% of Millennials agree that they would pay more for eco-friendly products. In comparison, only 46% of Baby Boomers agreed that they would pay more (Schwartz, 2019). Most sustainable fashion

Fig. 1 Economic Growth (2020) brands’ garments are made to order, or have a “defined demand,” the price is inelastic. The price of sustainable garments is representative of their environmentally friendly manufacture and fair labour prices. As a result, sustainable fashion brands will not participate in sales. This ensures that there are no fluctuations in the price of garments (the price is inelastic, therefore the quantity of garments purchased stays the same).

The growth of environmentally friendly materials leads to an increased supply of sustainable fashion, however this “positive feedback loop could constantly increase demand,” which defeats sustainable fashion’s aim to slow down fashion production. As a result, sustainable brands must educate consumers about making conscious purchases to prevent them from “spiralling towards overconsumption” (Cataldi et al., 2010:28). In addition, COVID-19 has caused a global macroeconomic shock as “GDP fell by 10.4% in the three months from February to April” and sales in the fashion industry are down by 30%-40% globally (Environmental Audit Committee, 2021). Fashion brands are trying to protect their cash and liquidity, while struggling to pay employees and their suppliers (the government has tapered support packages). Furthermore, consumers will now spend less and “be concerned about where fashion comes from, that it is ethically manufactured, and that it is as good as it can be for the environment” (Willersdorf, cited in Danziger, 2020).

How Governmental and Central Bank policies affect the Sustainable Fashion Industry

Independent Sustainable Fashion Brands are becoming more visible in countries where governments are releasing reports to spread sustainability awareness among the fashion industry. Government legislation that has already been enacted “slightly levels the rules of the playing field for Slow Fashion producers” (Cataldi et al., 2010:32), as legislation, voluntary codes of conduct and pollution taxes could lead to increased production costs for fast fashion manufacturers and make them more responsible for their environmental impacts. In contrast, Sustainable brands should be unaffected as using environmentally friendly, non-toxic processes is the foundation of their business and they aim to reduce CO2 emissions by limiting the travel of garments, using new technology and upcycling textile waste.

The Central Bank is able to influence the amount of spending in the economy through the loans it grants, which in turn has an effect on sustainable brands’ decisions about the number of people to employ and what prices to set. Conflict of interest makes it hard for Sustainable Brands to find the right investment partner as when they “take investment from venture capital or private equity…they require you to grow at an unsustainable rate. They have more control of your company and end up fundamentally changing the mission” (Chitrakorn, 2020). When loans are taken out by sustainable brands, the investment partner can’t ensure that manufacturing sustainable clothing will match the turnover of fast fashion or make a profit (due to its new technology and expensive processes).

Fig. 2 Speedcurve Performance Analytics (2019)

Economic theories in the Sustainable Fashion Industry

Independent sustainable fashion brands’ products are more bespoke, so the pricing is not a free flow depending on the supply and demand curve. However in a free market there will always be a price which balances demand with supply, this is the equilibrium price. Price equilibrium is also known as the “market clearing price,” because it is when the exact amount of products that companies take to market are bought by consumers. This applies to the sustainable fashion industry, as most products are made to order, and as a result no garments are “left over.” Due to the fact that there is no overstock, the amount of material throughput in the system is reduced, clearing the market efficiently (Economics Online, 2021).

Conclusion

Independent Sustainable Fashion Brands use environmentally friendly materials, have triggered the development of eco-technology, and support fair wages and treatment of workers throughout the supply chain (with some working hard to support local economy and preserve local culture; Cataldi, 2010:56). These models have to become commonplace, as resources are diminishing and population pressure is increasing. Although it is rare that sustainable fabrics can be produced locally and textile recycling mills are also limited, sustainable brands can manufacture garments using deadstock materials while waiting for mills to be built (Cataldi et al., 2010:26). To make domestic sustainable garment manufacture more viable, goods must only be allowed into the UK if they are “made with the same Labour, Human Rights, Safety and Environmental standards” which would raise the cost of outsourced goods (Environmental Audit Committee, 2019:51).

If Independent Sustainable Fashion Brands want to increase product demand and shift customer purchases from fast fashion, they must increase brand marketing on social media to become more visible and increase availability of sustainable garments in physical stores (Cataldi et al., 2010:29). As Sustainable Fashion is generally more expensive, brands must educate consumers on the environmental impacts of fast fashion, encourage conscious consumption and emphasize their products’ high quality, ethical manufacture and timeless design; “heirloom pieces” (Cataldi, 2010:12). Finally, due to the amount of unsold garments that accumulated during COVID-19, made-to-order business models are a safer option for new Sustainable Brands (Cary, 2020).

Bibliography

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List of Illustrations

Fig. 1 Nygård, A. (2020) Economic Growth. [Photo] At: https://unsplash.com/photos/OtqaCE_SEMI (Accessed 09/01/2021).

Fig. 2 Chesser, L. (2019) Speedcurve Performance Analytics. [Photo] At: https://unsplash.com/photos/JKUTrJ4vK00 (Accessed 09/01/2021).