Professor Sophie Bernard and her student Pedro Cybis took a broad look at the phenomenon of fast fashion and, more specifically for one of their projects, at the destruction of unsold inventory by retailers. Read a summary of their research in circular economy.
Summary
Fast fashion increases global consumption and generates an increased need for new products each season. Trends fade quickly, so leftover products lose their value and take up valuable store space. The destruction of unsold stock contributes to the already high environmental impact of the fashion industry. In a fast fashion environment, retailers and brands order more than the actual demand, which generates unsold stock. This excess inventory needs to be managed, but there are currently few sustainable alternatives to landfills and incinerators.
Life cycle thinking establishes the relevance of addressing these disposal issues by examining how products are designed, manufactured and distributed. The first part of this project is an overview of the conventional supply chain of a garment by following the flows of cotton and polyester from the raw material stage to post-consumer used garments. It highlights the main activities generating negative externalities in the fashion industry and how the globalized context of the industry creates consumer countries that are dependent on imports for their garment consumption while being ill-equipped to manage textile waste. The study also shows how reuse and recycling are major strategies for a sustainable transition, but severely limited by saturated second-hand markets and the lack of reliable textile waste management practices.
The second part develops an optimization model proposing a demand function that includes consumers’ desire for novelty and the cross-elasticity of clothing considered fashionable at the beginning of the season and the same product on sale at the end of the trend. First, a retailer solves a production problem while considering the presence of public policies: a tax on the disposal of unsold inventory and an extended producer responsibility tariff. Then, the quantities put on the market in this equilibrium are compared to a social optimum found by a social planner maximizing the social welfare function. The objective is to highlight the effect of economic incentives on the retailer’s decision making regarding inventories. As additional costs to production, there is an expected decrease in the total quantity produced. Next, a comparative static analysis is performed for the parameters. Notably, consumer willingness to pay for novelty puts pressure on retailers to market fashionable collections each season, which drives price increases to support this production.
Primarily, the project provides a new interpretation of the mechanisms that generate unsold inventory and determine its end-of-life treatment. While the focus is often on DfE strategies, there is a lack of consideration of public policies capable of supporting the industry’s sustainable transition.
As both the literature review and the model show, public policy is essential to support the development and adoption of solutions to limit the impact of industry externalities. Given that unsold stocks are observed and expected by firms, it is necessary for policymakers to reduce the existing incentives and mechanisms leading to the creation and destruction of surplus stocks.
