Circular Economy: The Rise of Resale
In our last piece highlighting the start of a global shift to a circular economy, we discussed recent progress to reduce food waste through the development of a plant-based coating which can increase the shelf life of food. Extending the useful life of consumer products is a major contributor to advancing the circular economy. Expanding upon this theme, we are focused on major advancements in the apparel and luxury industry aimed at extending the useful life of products to help reduce the outsized negative impact the industry has on the environment. The rise of the resale market is one trend we are closely monitoring.
We believe the COVID-19 pandemic will have a lasting impact on consumer habits, specifically how consumers view their relationship with apparel and luxury. As they rethink their impact on the environment, we could see a rapid adoption of resale. Through our engagements with private and public companies, we believe resale is in the early stages of a long-term secular growth trend which will have significant positive impacts on the sustainability of fashion and luxury at the industry and company level.
A recent report from the Ellen MacArthur Foundation, a leader in the move to a circular economy, highlights why changes in consumer behavior are necessary. More than $500 billion of value is lost every year from clothing underutilization and lack of recycling. Textile production results in more greenhouse gas emissions than all international flights and maritime shipping combined. Finally, clothing production has doubled in the past 15 years while the number of times the average garment is worn has decreased 36%. If consumer habits do not change, the fashion industry will use up a quarter of the world’s carbon budget by 2050. Governments are also beginning to take notice. Last year British Parliament declared that “the current exploitative and environmentally damaging model for fashion must change.” While the data is discouraging, there is hope. Younger generations are more cognizant of their environmental footprint and are driving change in the apparel and luxury industries through their shopping habits.
Similar to their early adoption of the rental economy, including vacation rentals and ridesharing, Generation Z and Millennials are the driving force behind the resale market. Younger generations are driven by a desire to own less and leave a smaller environmental footprint than their parents. We recently met with a leading resale apparel company that has experienced significant growth over the last few years. The management team estimated that last year approximately 40 to 50% of millennials purchased something from the resale market. If you include Generation Z in that mix, the number is well over 50% of consumers that purchased something from resale. Consumers aged 18 to 37 are adopting second hand apparel at 2.5 times the rate of older generations. Last year the resale market was $7 billion in sales, and is estimated to grow at an impressive compound annual growth rate (CAGR) of 39% over the next five years, totaling $36 billion.
The luxury market is quickly adopting this trend as well. While the luxury resale market accounts for only 7% of the overall luxury space, it is in the early stages of a long-term secular growth trend. The resale market is forecast to outgrow luxury sales by four times from 2018 to 2021 and double by 2023 as more luxury companies embrace this trend and better understand consumers’ changing habits, especially those of Millennials and Gen Z. Through resale, luxury companies can also improve their environmental, social and governance (ESG) initiatives by extending the life of their products. We believe the resale market will have a significant positive impact on the environment by keeping luxury goods in circulation for a far longer period of time.
We will continue to engage with apparel and luxury brands to drive change and voice concerns and opportunities we see in relation to the negative impact these firms have on the environment. We expect that the resale market will continue to grow as consumer spending shifts and resale becomes a key focus for apparel and luxury companies. The firms that embrace this trend should deliver stronger future growth, as well as leave a smaller environmental footprint, leading to continued improvements in the circular economy.
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