The Circular Fashion Model: Innovating Business Models in Fashion From Ownership to Usership

Abstract

The global fashion industry is driven by overproduction and underutilization of garments to accelerate overconsumption and profits, resulting in severe environmental deterioration. In response, the European Union has introduced regulations to improve textile quality and extend product life cycles, while industry incumbents have launched sustainability efforts and circular pilots. Yet, effective large-scale transformation to linear consumption has yet to materialize, as fashion is the fourth most polluting industry in the EU. While academic literature identifies societal developments in circular economy and collaborative consumption, and barriers to sustainability and business model innovation as causal dynamics, research remains limited on strategic application amongst fashion companies. In particular, Denmark with its sustainability ambitions and regulatory compliance with EU legislation lacks targeted, empirical studies. Hence insights about how Danish fashion companies can leverage circular business model innovation to navigate structural barriers and competitive dynamics to drive sustainable value creation were investigated in this study. To explore both structural barriers and practical implications, the study employed a dual critical realistic and pragmatic stance through an exploratory multiple case study approach, investigated through semi-structured interviews with 12 case companies. A comprehensive four-layered conceptual framework, adapted to include sustainability theories, initially framed a macro-environmental PESTEL analysis, revealing regulative and cognitive barriers to sustainability including global regulative inconsistency, and cognitively embedded consumer behaviour accelerated by fast fashion and social media. Second, the Porter’s Five Forces industry analysis identified a competitive threat of circular business models gaining consumer traction and pressuring industry profitability. To exploit industry changes, a circular business model is recommended for incumbents, integrating resale, rental and subscription as new revenue streams combined with a reduced linear stream, resulting in a new value proposition emphasising usership over ownership. The risks and profitability of the model were evaluated in a business case to enhance practical application. Limitations of the thesis were acknowledged, focusing on Danish companies and the sales and service value chain activities of the finished products, hence delimiting supply chain technologies and recycling. Despite the limitations, the findings generate valuable insights and managerial recommendations, while presenting opportunities for future research in case-specific implementation and consumer adoption of the recommended business model.