The Interview: Marilyn Martinez, Project Manager at the Ellen MacArthur Foundation
Marilyn Martinez was part of the team at the Ellen MacArthur Foundation behind its latest fashion-related report, which investigated the opportunity of circular business models.
The foundation's research revealed that circular business models in sectors such as rental and resale have the potential to claim 23% of the global fashion market and grasp a $700 billion opportunity by 2030.
In this interview she provides a more in-depth understanding of the report and her work at the Ellen MacArthur Foundation.
When did you join the Ellen MacArthur Foundation?
I joined in the summer of 2018, about three and a half years ago now. And it was right at the beginning of Make Fashion Circular initiative. So right after the launch of the new Textiles Economy report and the kick-off workshop for Make Fashion Circular.
Today we’re speaking about the newly published Circular Business Models report. Can you just briefly explain how this report builds on the landmark publication of the New Textiles Economy from 2017?
In the New Textiles Economy report from 2017 we identified the linear model – so the take-make-waste model of the fashion industry. It had loads of data and facts on the current flow of materials and how much of that is actually going straight to landfill. And then it presented the circular economy as both a solution to these challenges and also a significant economic opportunity. We're missing out at about $460 billion because of clothes being barely worn. And actually, that report put circular business models as key to arrive to that economic opportunity because circular business models effectively decouple revenue growth from producing and using more natural resources. And since then, services have boomed. We saw this in the headline that ThredUp got valued at $1 billion and many more in the last three years.
For the Circular Business Model report you worked with a number of partners, including H&M, Ganni and Farfetch, of which you feature case-studies in your report. Why was it important for you to feature real-life examples of circular business models?
We have around 30 contributor organisations and 20 case studies that are publicly available right now. And I mean, just to say that when writing this report, we included insights from extensive one-to-one interviews with all of these contributors, out of which we wrote case studies. It was important for us because we wanted to make sure each of our points and action areas was as tangible as possible. And we felt that we needed to illustrate a point and show who is doing it right.
The report outlines that today’s linear systems are very vulnerable to disruption and inefficiencies, with the industry suffering a 90% profit decline last year compared to 2019. Can you outline how circular business models could help retailers find more stability in the future?
I mean, that happened in 2020 obviously due to the whole pandemic lockdown situation. And I think that we can learn from this. Even though the industry suffered so much there were winners last year and the resale models were particularly benefiting from the lockdown, which shows how much both customer demand and our habits have changed. And there's some stats that even rental companies grew in user base. I think they doubled or tripled – By Rotation, for example, I think it grew in the last year by 300%. It just shows that people are willing to try these new things. And I think the way that circular business models can bring more stability to companies that are working with traditional business models, is that they can locally generate revenues without having to rely on all of that global complex supply chain.
You touched on this kind of local aspect, and I think that is something that has not really been mentioned in the sustainability conversation that much. Do you see the future of sustainability in terms of circularity, as a more localised or decentralised approach, perhaps?
I will say definitely it is not decentralised but rather more distributed. So right now, supply is highly centralised in Asia and demand is centralised in the western economy, say in Europe, the US, and so on. So, it's about balancing supply. So how do you balance the way that you are creating stuff and following the circular economy principles - so eliminate waste, circulating it for as long as possible and regenerating natural system. To make this happen and to ensure that things are circulated effectively locally as well as globally, you need to redesign the whole fashion system and fashion supply chain and try to develop new networks.
One of the key things that struck me about this report is that it really tackles this fashion industry idea of “growth at all costs” and states that to become truly circular businesses have to change their performance indicators. Do you see big retailers, who have to answer to their shareholders, resisting this shift?
I think that with big retailers they take longer to adopt innovation because of their size. For start-ups to change, they can do it in a blink of an eye. They're so flexible because they're small and they're agile. What happens with big retailers is that they have so many internal processes and sometimes they operate at group level. We've got the H&M Group, Inditex - they're huge. That's not to say that they're not willing to change, but rather that the process of change will take longer. So, what I see and it’s probably also because of the pandemic that unveiled this supply chain risk, is this huge interest to see how they can really start creating more revenues per product. All these big companies right now are piloting and trying new models with a hope that they will fully shift towards them in the future. I can definitely attest that what they're doing right now shows that the willingness is there.
The four models that the report outlines – resale, repair, rental and remaking – have the potential to provide a third of the emission reductions necessary to put the fashion industry on a 1.5-degree pathway. Can you just expand on this statistic?
Yes, so we based that calculation on the McKinsey and Global Fashion Agenda report called Fashion on Climate. Their research shows that the global fashion industry produced around 2.1 billion tonnes of greenhouse gases in 2018. And that was 4% of the global total. What they're saying is that by 2030, if we assume that the industry is still shifting towards zero emission production and so on, then we can effectively maintain that global total at 4% so at 2.1 billion tonnes. But if we want to reach the 1.5 degrees pathway, we actually need to halve the emissions by 2030. And if we try to answer - how can we do that? Then circular business models, if they grow by 23% by 2030, they can provide up to a third of that solution. So up to a third of the 50% that we need to cut.
Another fascinating thing in the report is the way that specifies how, if the four circular business models are not separated from the linear revenue model, the environmental benefits are limited. And the report specifically mentions three limitations and also shares recommendations. Can you say which three they are and how you arrived at them?
So currently not all circular business models have environmental benefits and the reason for that is because there are three main challenges.
The first one has to do with the performance indicators. And it's that the companies that hold the most amount of volume in the market still have their traditional business model and they have circular business model pilots as add-ons on the side. Our model shows that 3.5% of the market is circular - you can definitely say that's niche. So traditionally the whole industry measures success in terms of the more you sell, the more money you make. And because it's linear, then the more you sell means that you're producing more. So that means that revenue goes hand in hand with production and resource use. So, if that's the whole incentive for how they measure success, then obviously when we have circular business models on the side, they're using it to feed demand almost. And that defeats the purpose of the whole circular business model in the first place.
Then the second one is regarding product design. Because if you want to start a rental model tomorrow, for example, you will realise quickly that if you just take any dress and it goes through two rental cycles, you might see that it fades or it breaks and then it might be too hard or too manual to repair that dress. Then you end up with a rental model that is not economically or environmentally viable because you can only rent stuff two or three times before it gets damaged.
And then the third one is on the supply chain. Currently, what happens is that most of the used clothes are in the West. And the infrastructure is not in place to further reverse logistics, at least at the scale that is needed for the amount of volume of clothes that we have here that are being discarded. So, it's how do we create a whole new network that is distributed and more balanced, where supply is more balanced in the world, so that we can effectively circulate clothes at a local and global level?
With water scarcity increasingly becoming a concern and environmental climate disasters becoming more frequent, will fashion retailers soon have little choice but to embrace the circular economy?
Yeah, exactly. Because you cannot build a system that will grow indefinitely when it's based on finite resources.
Is there anything you would like to add?
I would just like to add that the circular business models we are speaking about in this study are those that exist today. So that's resale, rental, repair and remaking. But those are not the only ways that companies can regenerate revenue without having to produce more. It's almost like a call to innovation – how can we make sure that people are really starting to innovate or combining these models or even thinking about ways that they can create revenue without having to make anything on the first place? And by combining models can we maximise the environmental and the economic benefits of those clothes. That's why it's important to show that there are already people doing it.