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3 lessons from the bankruptcy of circular fashion startup Renewcell

It is notoriously difficult to transform used cotton into new garments, but new regulations and ongoing demand is unlikely to stop companies from trying.

Credit: Sophia Davirro/GreenBiz Group

Credit: Sophia Davirro/GreenBiz Group

After nearly 12 years, $10.6 million in venture funding, and a failure to secure long-term financing in December, Swedish circular fashion company Renewcell filed for bankruptcy in a Stockholm court last week.

The company transformed castoff cotton from blue jeans and factory scraps into a recycled-fiber product named Circulose, which was used in new clothing by H&M, Levi’s, Tommy Hilfiger, Calvin Klein and Zara. H&M agreed to buy 18,000 tonnes of it between 2024 and 2025.

The end came after product development delays in the summer — the product still wasn’t perfect — and zero sales in November.

"This is a sad day for the environment, our employees, our shareholders, and our other stakeholders, and it is a testament to the lack of leadership and necessary pace of change in the fashion industry," Michael Berg, chairman of Renewcell’s board of directors, said in a press release.

Some fear the flop marks a hard stop for textile recycling. It is notoriously difficult to reuse cotton because older fibers are short and difficult to spin into the longer threads needed for quality garments. Used cotton more is frequently downcycled into furniture stuffing or carpet fabric.

Is this the end for circular fashion? Absolutely not.

"Even prior to this event, the circular economy was not advancing," Ken Pucker, a professor of practice at the Fletcher School at Tufts University said. "Sustainability professionals in fashion remain no match for finance managers," he added, noting the low price of virgin fibers versus pricier new options such as Circulose.

The relatively high price of Circulose reflected a first-to-market premium, according to Nicole Rycroft, founder and executive director of Canopy. The Vancouver organization works with hundreds of companies, including Renewcell, to reduce deforestation. Renewcell had hoped to become competitive after a few more years of scaling and the addition of a couple more pulp mills, she said.

But experts told GreenBiz that Renewcell’s failure doesn't mean efforts to build a circular industry are dead. 

"Is this the end for circular fashion? Absolutely not," said Ashley Holding, principal consultant at Circuvate in Frankfurt, Germany. "Innovators will surely learn from Renewcell's mistakes. There will be winners, but also some losers."

Here are three lessons from the Renewcell collapse: 

1. The demand is there

The need for circular fashion is obvious. The fashion industry caused 4 percent of the world’s carbon emissions in 2018, with 70 percent of that coming from production, processing and other upstream activities, according to McKinsey. After they have been worn, two-thirds of garments end up in landfills or incinerators.

Each year 150 million trees wind up in fabric such as viscose, lyocell and acetate, according to the nonprofit Canopy. Circulose, by contrast, contains no virgin material, and its pulp can be used to produce those fabrics. 

Renewcell’s plan was to keep cotton out of landfills. It planned to recycle 1.4 billion T-shirts each year by 2030.

Renewcell had no difficulties with fiber quality.

And although H&M Group Ventures ended seven years of material support for Renewcell totaling $29 million (300 million Swedish kronor), including a last-ditch short-term loan in December, the company has poured millions into other circular textile startups such as Infinited Fiber Company, sustainable dyeing company Colorifix and bio-polyester producer Kintra Fibers.

Progress often comes in fits and starts: Take solar power. Solar panel maker Solyndra went belly-up in 2011. However, within five years, photovoltaic solar was cheaper than fossil fuel in more than 30 countries, and without subsidies. Renewcell may have failed the commercialization "valley of death," said Rycroft, but so did other startups ahead of their time.

2. A future for the factory

Renewcell wants to sell its factory and is optimistic about its continued operation, Renewcell Chief Commercial Officer Tricia Carey wrote on LinkedIn last Thursday. It has enough fiber and pulp for customers for up to two years. None of the more than 15 brands involved have declined to use Circulose, she told GreenBiz.

Meanwhile, members of the Circulose Supplier Network are campaigning to "save" the company. Burak Orhan Arifioglu, a board member of yarn seller Karacasu Tekstil in Turkey, is circulating a petition on LinkedIn urging fellow suppliers to continue developing Circulose fibers.

A sheet of Circulose, made from Renewcell's 100-percent recycled-cotton pulp.

A sheet of Circulose, made from Renewcell's 100-percent recycled-cotton pulp. Credit: Renewcell

"Renewcell had no difficulties with fiber quality," he said. "In fact, I think it is probably the best I've ever seen in [the] textile market."

Renewcell stakeholders, and even brands that weren’t customers, last fall began exploring the possibility of a new, noncompetitive alliance to advance "next-generation solutions" and circularity in apparel, using Renewcell as a "case in point," according to Rycroft. She is flying to Sweden this week to meet with Renewcell stakeholders.

"There's a recognition on the brands’ part that they can't do this alone; no single company can transform this entire supply chain and bring a whole new supply chain to market by themselves," she said. "And it does require different ways of working together, working brand to brand," she said.

3. There are new mandates coming

A slew of new regulations, particularly in the European Union, will soon force apparel companies to follow circular practices.

Europe is already banning large companies from piling returned clothes into landfills, requiring them instead to repurpose, recycle or give items away. It’s also mandating that all imports and exports in Europe prove they did not contribute to deforestation.

Next January, an extended producer responsibility directive comes into effect in EU nations for textiles, forcing companies to pay for sorting and recycling. Europe’s Ecodesign for Sustainable Products Regulation promises to bring higher standards for recycled content and durability, as do updated rules against greenwashing.

In the United States, new federal rules are unlikely anytime soon. However, in 2022 Massachusetts became the first state to ban placing textiles in the trash. Legislation working its way through the California state legislature includes extended producer responsibility bill SB 707, which would require manufacturers to collect and recycle used garments.

All of these new mandates are likely to spur future demand.

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