Pulse of the Fashion industry 2017_stickynotes_1

PARIS — Making fashion more sustainable is not only a question of good citizenship, but also of preserving future profitability and revenues for apparel and footwear firms, according to a report published ahead of the Copenhagen Fashion Summit.

Fashion brands risk seeing their earnings before interest and taxes margins shrink by up to 3 percentage points between now and 2030 if they don’t take rapid action to address their environmental and social footprint, said the inaugural Pulse of the Fashion Industry study co-authored by the Global Fashion Agenda, a year-round initiative launched by the summit’s organizers and the Boston Consulting Group.

The authors aim to provide a common baseline of facts and ideas to spur action in the apparel and footwear industries, which generated estimated revenues of 1.5 trillion euros, or $1.66 trillion at average exchange, in 2016 and employed around 60 million people along their value chain.

“The facts show a clear need for acting differently. The good news is that by changing practices, the industry can both stop the negative impact and generate a high amount of value for society, while also protecting profitability,” the report said.

“We estimate that the world economy would gain about 160 billion euros [$176 billion] annually if the fashion industry would successfully address those environmental and social issues,” it added.

Assuming the global population rises to 8.5 billion people by 2030 and gross domestic product per capita grows at 2 percent a year in the developed world and 4 percent in the developing world, overall apparel consumption will rise 63 percent to 102 million tons in 2030, GFA and BCG project.

Soaring demand for apparel will drive the annual retail value of apparel and footwear up to at least 2 trillion euros, or $2.2 trillion at current exchange, by 2030, they estimated. The report calculated how much this would cost in environmental and social terms by putting a price on water use, carbon dioxide emissions, use of chemicals and generation and disposal of waste.

“Given that the natural resources of the planet are already burdened, the projected increase in the industry’s environmental footprint will exacerbate the situation. In the worst case, the fashion industry will face distinct restrictions on one or more of its key input factors, leaving it unable to grow at the projected rate and in the long run unable to continue under its current operating model,” it warned.

“If no action is taken, fashion brands will find themselves likely squeezed between falling average per-item prices, deeper discount levels, rising costs and resource scarcity along the value chain. Indeed, the sector today is built on a linear ‘one-way street’ of take, make and waste: Take, with raw material inputs that are becoming more expensive; make, with labor costing more and more, and waste, with value lost as clothing ends up in landfills,” it added.

Specifically, even if base-case projections are used for growth in energy prices and in wages, GFA and BCG forecast that by 2030, fashion brands will see their profits shrink by up to about 45 billion euros, or $49.5 billion, a year.

The report said that although many laudable efforts are being made across the industry, it is fragmented and does not perform well on sustainability, with an overall Pulse score of just 32 out of 100.

This was calculated on the basis of data from the Higg Index designed by the Sustainable Apparel Coalition, an alliance for sustainable production. The tool helps brands, retailers and facilities of all sizes measure their environmental and social and labor impacts and identify areas for improvement.

The Higg Index results were complemented by a survey of industry executives and interviews with experts.

The largest companies and a few niche players are ahead, while small and mid-sized firms, which together account for more than half the industry, lag behind. To bring the latter up to speed, the report outlined Good Citizen Principles that lay out the minimum requirements and current best practices for companies to follow.

But for the industry to access the full value of potential cost savings requires a collective effort, with measures including reducing conventional cotton use; increasing renewable energy use; establishing minimum wage pay; offering in-store end-of-use collection schemes, and increasing transparency on chemicals usage, among others.

The Copenhagen Fashion Summit, scheduled to take place on May 11, founded the Global Fashion Agenda in 2016 with strategic partners Kering, Hennes & Mauritz AB, Target Corp. and the Sustainable Apparel Coalition. Its stated mission is to mobilize the international fashion industry to transform the way clothing is produced and consumed. The four strategic partners were chosen to represent the luxury, high street and mass-market segments.

“In preparing and producing this report, GFA and BCG have signaled the urgency and hidden potential of the sustainability issue and shone a light on practical ways forward. It is our hope that the report becomes a powerful catalyst for real change,” the study concluded.

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