Hauteclaire Lulin, MiM student at ESSEC Business School and finalist in the CoBS 2023 Student CSR Article Competition, takes a deep dive into the retail industry to provide a blueprint for a clean, green and more equal business model.

By Hauteclaire Lulin. Originally appearing in Global Voice magazine #26 under the title The Retail Crossroads: Stitching together regenerative business models for profit, sustainability, and social responsibility.

In the 17th century, the Flying Shuttle transformed the weaving industry, dramatically accelerating the production of textiles. Today, the fashion retail sector faces an equally momentous challenge: transitioning from traditional supply chains to more sustainable, regenerative ones. Standing at a crucial crossroads, the retail industry grapples with striking a balance between economic imperatives and the environmental repercussions of conventional linear supply chains. As the fashion world embraces a new approach to commerce—integrating profitability, sustainability, and social responsibility—regenerative models are increasingly gaining prominence.

Regenerative business models, defined as those that enhance and thrive through the health of socio-ecological systems (SES) in a co-evolutionary process (Hahn & Tampe, 2021), are emerging as the future of fashion retail. Since over 50% of an average corporation’s carbon emissions come from its supply chain (Carbon Disclosure Project, 2011), understanding the strategies and benefits regenerative business models offer fashion retailers is crucial to creating a more prosperous and sustainable future for all.

Retail Supply Chain Quandaries: Re-threading the approach

The fabric of retail supply chains has long prioritized cost efficiency and globalization. However, as sustainability and social responsibility capture the spotlight, it’s time to rethink our approach. The fashion industry must navigate dilemmas in global sourcing, transportation, and waste management head-on.

First, even though global sourcing has been able to trim consumer prices, it has often been done at the expense of the environment and social justice. Non-organic cotton, for instance, is a water-intensive crop that accounts for 10% of global pesticide use (Striepe, 2011), and a shocking 93% of brands surveyed by Fashion Checker fail to pay garment workers a living wage. Retailers must prioritize ethical sourcing and sustainable materials to mitigate these issues, reduce supply chain disruptions and legal risks, and enhance brand reputation while contributing to community and ecosystem well-being.

Second, with 60% of fashion retailers offering one to three-day delivery (Deloitte, 2022), the pressure to provide rapid and convenient shipping options is mounting. However, this haste contributes to the fashion industry’s annual 1.2 billion metric tons of greenhouse gas emissions (Ellen MacArthur Foundation, 2017). Retailers must balance consumer demands with environmental concerns by adopting low-carbon shipping methods and direct-to-consumer models, reducing their transportation footprint and fostering brand loyalty among eco-conscious consumers.

Third, retailers struggle to maintain stock levels and minimize overproduction. With overproduction at 30-40% per season, the fashion industry wastes approximately $500 billion annually due to unsold stock (Ellen MacArthur Foundation, 2021). By implementing circular design and closed-loop production, retailers can decrease waste, cut production costs, and establish a more sustainable business model, benefiting both the environment and the company’s financial performance.

Beyond Green: The business case for regenerative practices

Contrary to conventional wisdom, embracing regenerative supply chains not only yields environmental and societal dividends but also unlocks a trove of financial opportunities. By promoting circular design, low-carbon shipping methods, closed-loop production, and ethical sourcing, retailers can curtail carbon emissions and waste while elevating product quality—ultimately gaining a competitive edge, attracting eco-conscious shoppers, trimming operational costs, and fostering brand loyalty.

First, implementing circular design principles enables retailers to reduce material consumption, minimize waste, and slash production costs, resulting in lower operational expenses and increased profit margins. Moreover, by sourcing materials locally and collaborating with suppliers adhering to ethical labor standards, retailers can mitigate the risks of supply chain disruptions and costly legal entanglements. Indeed, firms incorporating sustainable and ethical practices into their supply chains outperform their less conscientious counterparts financially (Santis et al., 2016). Additionally, retailers adopting regenerative models can benefit from government incentives and tax breaks designed to promote sustainable business practices, further reducing operational costs and enhancing overall profitability.

Regenerative supply chains also foster brand loyalty and reputation, which are crucial in the fiercely competitive retail landscape. As consumers become more discerning about the social and environmental implications of their purchases, they are more likely to support brands that resonate with their values. By endorsing sustainable and ethical practices throughout their supply chains, retailers can build a strong brand reputation and establish a devoted customer base, boosting the company’s financial performance while enhancing the collective well-being of society and the environment.

Adopting a regenerative business model can also help retailers build long-term resilience and growth. By proactively addressing the challenges associated with climate change and resource scarcity, companies can better adapt to potential disruptions in their supply chains and markets, leading to more robust and sustainable growth as businesses become better equipped to navigate future challenges and uncertainties.

The Sartorial Shift: Navigating the complexities of regenerative fashion supply chains

Despite the numerous advantages of shifting towards a regenerative supply chain, fashion retailers are faced with challenges and intricacies. The primary issue involves dedicating resources to researching, developing, and incorporating innovative sustainable materials and processes, a move demanding both capital and patience. This requires companies to shift their focus from short-term profits to long-term sustainability, potentially triggering resistance from suppliers and other stakeholders entrenched in conventional linear supply chains (Drift for Transition, 2018).

Another challenge is effectively monitoring and enforcing ethical labor standards and environmentally friendly practices throughout expansive global supply chains. Ensuring transparency and traceability is essential, which leads companies to consider advanced technologies like blockchain and digital tracing, despite their complexity and cost.

Consumers may also express skepticism about the sincerity of businesses adopting regenerative business models. For example, when H&M introduced its “Conscious Collection” and garment recycling programs, the company faced criticism for not adequately addressing overproduction and the negative impacts of fast fashion. To dispel doubts, companies must prioritize education and communication, emphasizing the long-term benefits of sustainable initiatives. Collaborating with NGOs and regulators to establish and follow industry-wide standards can also facilitate the acceptance and support of regenerative models.

The (Re)generation Game: Lessons from the trailblazers

As sustainability measures are implemented, companies may encounter higher production costs, reduced product variety, and longer lead times. To balance these trade-offs, businesses must demonstrate ingenuity and persistence while maintaining competitiveness and working towards sustainability goals. Three pioneering firms, Allbirds, VEJA, and Stella McCartney, have emerged as leaders in these areas, proving the profitability of integrating sustainability.

• Allbirds: Soaring to New Heights in Sourcing:
  • Allbirds, a footwear company founded in 2014, has revolutionized the sustainable sourcing of materials. By using responsibly sourced, natural materials like Merino wool, eucalyptus fibers, and sugarcane-based foam, Allbirds has significantly reduced its carbon footprint (Mainwaring, 2021). The brand’s commitment to transparency and traceability allows it to ensure ethical practices throughout its supply chain, while appealing to environmentally conscious consumers. This focus on sustainable sourcing has contributed to Allbirds’ impressive growth, reaching a valuation of $1.7 billion in 2020.
• VEJA: Kicking Up a Storm in Transportation:
  • French sneaker brand VEJA has made strides in rethinking transportation within the fashion industry. The company prioritizes low-carbon shipping methods, such as sea freight, over air transportation, effectively reducing their greenhouse gas emissions. Additionally, VEJA has adopted a direct-to-consumer model, eliminating the need for intermediaries and further minimizing its transportation footprint (Duarte, 2022). These initiatives have positioned VEJA as an environmentally responsible brand, driving sales growth of 50% between 2020 and 2021 (Fashion Network, 2021).
• Stella McCartney: Crafting a Circular Waste Management Masterpiece:
  • Luxury fashion designer Stella McCartney has long been a champion of sustainable and ethical practices, with waste management as a cornerstone of her brand’s strategy. The company actively reduces waste by using cutting-edge technologies, such as innovative zero-waste pattern cutting. Moreover, Stella McCartney embraces circularity by re-purposing and recycling materials for new products. The brand’s commitment to waste reduction has not only garnered critical acclaim but also contributed to a 14% increase in revenue between 2020 and 2021.

Thread by Thread: Refashioning the retail industry

As regenerative business models gain prominence, the retail industry must adapt and evolve. The retail industry’s future is intertwined with regenerative business models that emphasize profitability, sustainability, and social responsibility. As more companies adopt these models, a transformation of the fashion industry is imminent.

The question remains: Can the industry as a whole make the necessary changes to create a more sustainable and just world? The answer will determine the legacy we leave for future generations. By learning from trailblazers like Allbirds, VEJA, and Stella McCartney, other companies can follow in their footsteps and contribute to a better, more sustainable future for the retail industry and the planet.

Useful links:

• Link up with Hauteclaire Lulin on LinkedIn
• Read Hauteclaire’s article and others in the special summer issue of Global Voice magazine #26
• Read a related research insight: Sustainable Clothing: Why we buy it – and why not?
• Discover and apply for the Master in Management at ESSEC Business School.

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