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Business Model Innovations and Sustainability Transitions

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Business Model Innovations and Sustainability Transitions DEGREE PROJECT IN INDUSTRIAL MANAGEMENT, SECOND CYCLE, 30 CREDITS STOCKHOLM, SWEDEN 2020 Business Model Innovations and Sustainability Transitions The Case of Circular Business Models in the Fashion Industry RIKU SALMI KTH ROYAL INSTITUTE OF TECHNOLOGY SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT Business Model Innovations and Sustainability Transitions: The Case of Circular Business Models in the Fashion Industry by Riku Salmi Master of Science Thesis TRITA-ITM-EX 2020:232 KTH Industrial EnGineerinG and ManaGement Industrial Management SE-100 44 STOCKHOLM AffärsmodellsutvecklinG och Hållbara ÖverGånGar: En Fallstudie av Cirkulära Affarsmodeller inom Modeindustrin Riku Salmi Examensarbete TRITA-ITM-EX 2020:232 KTH Industriell teknik och manaGement Industriell ekonomi och orGanisation SE-100 44 STOCKHOLM Master of Science Thesis TRITA-ITM-EX 2020:232 Business Model Innovations and Sustainability Transitions: The Case of Circular Business Models in the Fashion Industry Riku Salmi Approved Examiner SuPervisor 2020-06-08 Cali Nuur Emrah Karakaya Commissioner Contact Person 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. Keywords: Circular Economy, Business Model, Innovation, Fashion, Multi-Level Perspective, Clothing Resale Examensarbete TRITA-ITM-EX 2020:232 AffärsmodellsutvecklinG och Hållbara ÖverGånGar: En Fallstudie av Cirkulära Affarsmodeller inom Modeindustrin Riku Salmi Godkänt Examinator Handledare 2020-06-08 Cali Nuur Emrah Karakaya UPPdraGsGivare KontaktPerson SammanfattninG Begreppet cirkulär ekonomi har fått ett stort intresse bland både forskare och utövare. Genom att förflytta ifrån den traditionella linjära resurshanteringsstrategin: "ta, göra, bortskaffa", till principerna för cirkulär ekonomi. Principerna syftar till att istället hålla resurserna i en slinga av användning och anses vara ett möjligt sätt för materialintensiva industrier att koppla från den ekonomiska tillväxten från miljöbegränsningar, där en cirkulär ekonomi kan möjliggöra ökad värdeskapande samtidigt som ett minskat miljöavtryck bibehålls. Övergången till en cirkulär ekonomi har stimulerat företag över en mängd olika branscher att införa olika typer av cirkuläraffärsmodellsutveckling. Genom att studera det nya fenomenet av återförsäljning av kläder inom modebranschen, syftar examensarbetet att undersöka hur företag utvecklar sina affärsmodeller i samband med cirkulär ekonomi. Studien använder ett multi-perspektivramverk för att analysera de nya affärsmodellinnovationerna inom klädåterförsäljningsmarknaderna. Utöver det studeras även de nuvarande modeförsäljares reaktioner gentemot dessa samt rollen som innovativa affärsmodeller kan ha i framtida stadier av modebranschens övergång till cirkulär ekonomi. Resultaten visar att de viktigaste typerna av affärsmodellinnovationer på de signifikant växande marknaderna för återförsäljning av kläder är de `föddes-cirkulära´ modeförsäljarna, återförsäljningsplattformar på nätet, samt B2B-tjänster för återförsäljning av kläder och kläder som en tjänst. De flesta nuvarande modeförsäljare har aktivt övervakat utvecklingen av marknaden för klädåterförsäljning, men bara en liten del av dem har själva infört återförsäljningsrelaterade affärsmodeller. Vissa modeförsäljare som har tagit ett mer aktivt förhållningssätt till återförsäljning av kläder har följt en strategi för diversifiering av affärsmodeller där den befintliga affärsmodellen förblir på plats och en sekundär affärsmodell för återförsäljning upprättas parallellt med den huvudsakliga affärsmodellen. Trots att utveckling av affärsmodellens klädesåterförsäljning kan medföra ekonomiska fördelar och varumärken på kort sikt, särskilt med specifika produkttyper och prissegment. Förutses de största fördelarna troligen vara relaterat till förberedelser för framtida förändringar. Modeaktörer som reagerar tidigt på övergången till cirkulär ekonomi genom att diversifiera den befintliga affärsmodellen med nya innovationer eller kompletterar med en ny affärsmodell, stärker sin framtida position om förändringar i regelverk, konsumentens tankesätt och teknik ytterligare påskyndar vikten av cirkulär ekonomi i branschen. TABLE OF CONTENTS 1. INTRODUCTION .................................................................................................................. 1 1.1 BACKGROUND .............................................................................................................................................. 1 1.2 PROBLEM FORMULATION ................................................................................................................................ 2 1.3 AIM AND RESEARCH QUESTIONS ....................................................................................................................... 3 1.4 CONTRIBUTION ............................................................................................................................................. 3 1.5 DESCRIPTION OF CASE AND DELIMITATIONS .......................................................................................................... 4 2. LITERATURE REVIEW .......................................................................................................... 5 2.1 INDUSTRIAL TRANSITIONS ................................................................................................................................ 5 2.2 BUSINESS MODEL PERSPECTIVE ...................................................................................................................... 18 2.3 SUMMARY AND THEORETICAL FRAMEWORK ....................................................................................................... 31 3. METHODOLOGY ............................................................................................................... 34 3.1 RESEARCH DESIGN ....................................................................................................................................... 34 3.2 DATA COLLECTION ....................................................................................................................................... 35 3.3 DATA ANALYSIS .......................................................................................................................................... 38 3.4 METHODOLOGICAL RIGOR ............................................................................................................................. 38 4. FINDINGS ......................................................................................................................... 40 4.1 LANDSCAPE CHANGES CREATING WINDOWS OF OPPORTUNITIES FOR NICHE INNOVATIONS ............................................ 40 4.2 BUSINESS MODEL INNOVATIONS IN THE HIGHLY GROWING CLOTHING RESALE MARKETS DRIVEN BY EMERGING ACTORS ...... 43 4.3 REGIME BEGINNING TO REACT TO EMERGING INNOVATIONS .................................................................................. 48 4.4 POSSIBLE FUTURE CHANGES IN REGIME DYNAMICS CREATING INCENTIVES TO REACT EARLY ........................................... 52 5. DISCUSSION ....................................................................................................................
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