Is your business wasting money on waste?
Waste is considered business as usual for apparel and home goods brands. Should it be?
Waste — product that is made, but is unsellable — costs brands money and damages the environment. This is such a well-documented and understood business risk that it is accepted and accounted for as a foregone conclusion. It doesn’t have to be. A shift to a circular model for apparel and home goods transforms products that previously were a financial loss into new profit.
"We’ve found that 1–3 percent of a brand’s total production is wasted," says Jeff Denby, co-founder of the Renewal Workshop. "At 100 million units per year for a big brand, the scale of 1–3 percent waste becomes huge. And, the larger the brand is, the more complicated their business operations, means that rate can increase to as high as 5 percent."
Brands are losing money to waste at multiple "dead ends" in the existing linear business model. The usual suspects include returns, warranty and overproduction. And, with the constant demand of the next seasons' products coming, warehouse managers are forced to make due with the bad options for managing inventory. Current waste management systems send the majority of apparel to landfill or incineration at end of life.
At any brand, at any scale, waste is a perpetual burden and a liability to manage, warehouse, transport and pay to dispose. When waste is an acceptable cost of business, companies learn to be bad at tracking it, good at masking how big the problem is and blind to opportunities for change.
The Renewal Workshop was founded in 2015 to help brands recover losses from garments that had been considered waste.
These garments went out to sales channels and came back for various but manageable reasons such as a lipstick smear in the changing room, a missing button or a garment returned in perfect condition but couldn’t be restocked in time to sell again. For apparel under warranty, it is often simpler for the brand to issue replacement product or a gift card to a customer than to repair and return an item.
Brands write this waste off their accounting books but that doesn’t make it — or the other expenses it drives — disappear. They are still stuck figuring out what to do with the physical product. "30 percent of the product we take in at the Renewal Workshop has nothing wrong with it at all," says Denby, "it’s because of an inefficient return system that these clothes are categorized as waste."
Losing the value of the product is one waste channel; paying to manage waste-that-was-product is another. Denby says, "We see employees who should be contributing to the generation of revenue for a company spending valuable time managing product that has already been written off."
Generally, it’s not somebody’s job to think smart about waste management and dealing with isn’t an enticing responsibility, especially when rewards systems are set up for maximizing generating new profit, not dealing with lost sunk costs. No one’s getting bonused for spending time on that. Waste management taps teams from multiple departments including operations, legal, product, brand and marketing. Lastly, it’s emotionally difficult to face down the obvious environmental impact of landfilling or burning product for lack of a better option.
In addition to allocating people-power to waste management, brands pay fees to warehouse unsellable inventory. When the inventory piles up to an intolerable level, the company pays again for it to be collected, shredded, landfilled or incinerated.
But the biggest loss from waste well may be the missed opportunity for brands to resell in the seconds market. If a brand’s only growth strategy is sell more new product once, it forfeits the opportunity to innovate — to develop, own and profit off its products’ recommerce value.
Online used clothing shopping has sprung forward in a sophisticated and trackable way. Brands can see non-affiliated companies such as Ebay, Thredup, Tradesy or Rent the Runway making money off their clothing. In other industries, there are many examples of recovering unsellable product and restoring it back to sellable. Used cars, electronics and building materials, for example, are readily refurbished and resold thanks to service providers that support a recovery system for the original equipment manufacturer.
What might these services look like in the apparel industry?
Circulating apparel is a multifaceted growth opportunity. The Renewal Workshop is the leading provider of circular solutions for apparel brands. Put another way, the waste nerds of the apparel industry, experts in helping every brand recover value and profit by reducing negative environmental impact. The opportunity starts with what’s in the warehouse but extends to the broader customer relationship.
Denby asks, "What if brands build from what they’re learning with us renewing the unsellable or damaged product in their warehouses to also offering consumers a take-back-resell option for their closets? A circular business model along these lines returns customers and products to the brand for another round of commerce. Brands expand profit and customer growth without new manufacturing."
This serves a customer who loves a brand but longs for alternative to buying new. It serves the brand by creating a new product line from product it already has invested in. It serves the bottom line and the top line.
Employing people to stash, bury or burn product instead of moving, marketing and selling product sounds counterintuitive to good business, but that’s what happens every day.
"Looking at consumption through a circular lens, it’s a little mind-boggling, especially in these days of narrowing profit margins, for retail to habitually tolerate losing money to waste instead of resetting the model and claiming full-profit potential," says Denby.
At a linear brand, waste is being collected and managed reluctantly and ineffectively for the end goal of writing it off. "Renewing and recommerce means that money and effort spent collecting waste is done to maximum value," concludes Denby. "And the brand that does this also claims first mover advantage of leading the market into a new circular retail frontier."