Business Model Innovations and Sustainability Transitions : The Case of Circular Business Models in the Fashion Industry

University essay from KTH/Skolan för industriell teknik och management (ITM)

Abstract: The concept of circular economy has gained a lot of interest among both researchers and practitioners. Moving from the traditional linear “take, make, disposal” resource management approach towards circular economy principles that aim to keep resources in a loop of usage is considered to be a possible way for material-intensive industries to decouple economic growth from environmental constraints. This could enable increased value creation while maintaining a decreased environmental footprint. The transition towards circular economy has stimulated companies across industries to introduce varying types of circular business model innovations. By using the case of clothing resale in the fashion industry, this thesis aims to explore how companies innovate their business models in the context of circular economy. The study uses the Multi-Level Perspective framework to analyze the emerging business model innovations within the clothing resale markets, incumbent fashion retailers’ reactions towards them, and the role of innovating business models in possible future stages of the fashion industry’s transition towards circular economy. The findings show that the main types of business model innovations emerging in the highly growing clothing resale markets are born-circular fashion retailers, online resale platforms, B2B back-end services for clothing resale and clothing as a service. Most incumbent fashion retailers have been actively monitoring the development of the clothing resale market, but only a small part of them have introduced resale-related business models themselves. Some fashion retailers that have taken a more active approach towards clothing resale have followed a business model diversification strategy where the existing business model stays in place and a secondary resale business model is established parallel with the core business model. Although the clothing resale business model innovations can entail some short-term economic and brand benefits especially with specific product types and price segments, the largest benefits are likely to be related to preparing for future changes. Fashion retailers that are currently reacting early to the circular economy transition by diversifying their business model with novel resale business model innovations strengthen their future position if changes in regulatory frameworks, consumer mindsets and technologies further accelerate the importance of circular economy in the industry.

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