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Social Innovation Offers Five Golden Opportunities to the Apparel Industry

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Social Innovation Offers Five Golden Opportunities to the Apparel Industry Social Innovation Offers Five Golden Opportunities to the Apparel Industry The global apparel industry has grown significantly in the past decade, but at a heavy environmental and social cost. Social innovation can bring healthier, more holistic future growth. Social Innovation Offers Five Golden Opportunities to the Apparel Industry 1 Clothing transcended its function as a basic need centuries ago. Today, the global textile industry is one of the most influential sectors in terms of financial power and how it shapes wider trends, attitudes, behaviors, identity, and culture. Valued at up to $3 trillion, the global textile market accounts for 3 percent of the world’s gross domestic product (GDP). If the textile industry were a country, it would be the seventh-largest based on GDP. Yet success has come at a high environmental and social cost. Water pollution, high use of pesticides and insecticides, and labor abuses, among other negative practices, will increase as the industry grows. At the same time, even as consumers enjoy “fast fashion,” they are becoming aware of fashion’s impact on the world. There is a multitude of social enterprises in the apparel industry helping to solve its complex issues. We look at some of the forward-thinking companies and social movements that are poised to take advantage of consumers’ growing social awareness as they strengthen their businesses through social innovation. We believe there are five particularly crucial social innovation opportunities for apparel and textile companies to consider as they plan their short- and long-term growth strategy. We will examine each of these opportunities and provide successful real-life examples, after taking a closer look at the industry itself. Portrait of an Industry Growth and manufacturing The apparel industry has enjoyed steady revenue growth—with a CAGR of 8 percent during the past 15 years—and is forecasted to grow to as much as $5 trillion by 2025 (see figure 1). It contributes a significant share to the economies of many countries and has created mega brands—such as Nike, Zara, and LVMH—while producing many billionaires, and the numbers continue to grow (see figure 2 on page 2). Figure The textile industry has shown steady growth over the past years Global textiles revenue ( trillion) % increase in garments purchased annually +–% .–. +% .–. f Sources: World Bank reports; A.T. Kearney analysis Social Innovation Offers Five Golden Opportunities to the Apparel Industry 1 Figure Textiles account for a large share of exports in a number of countries Textiles exports (% of total exports, ) Haiti Bangladesh Cambodia India Sources: World Bank reports; A.T. Kearney analysis Because of fashion’s growing importance to the global economy, textile manufacturing has become the world’s third-biggest manufacturing industry, behind only automotive and electronics manufacturing.1 The apparel industry has served as a stepping-stone to growth in many countries, especially developing ones.2 Clothing accounts for 88 percent of exports in Haiti, 79 percent in Bangladesh, 59 percent in Lesotho, 52 percent in Cambodia, 43 percent in Sri Lanka, and 18 percent in India.3 Employment Textiles are one of the most labor-intensive industries, directly employing at least 60 million people.4 Nearly twice as many people are indirectly dependent on the sector.5 Across many developing countries, handcraft production is the second-largest employer, with 30 million people employed this way in India alone.6 About 75 percent of garment workers worldwide are women.7 Global value chain The retail textile industry has a buyer-driven value chain. Large retailers decide what and where to produce and how much to charge. These retailers—and the big brands they carry—are typically in developed countries in Europe, Japan, and the United States. The brands carry out the branding, design, and marketing, and typically outsource the production of garments. Consequently, the knowledge-intensive part of the value chain is in developed countries, while the labor-intensive part is in developing countries. 1 “Mending the Capitalist Model,” Diane Francis, Financial Post, 2014 2 “Creating Sustainable Apparel Value Chains: A Primer on Industry Transformation,” Dr. Maximilian Martin, Impact Economy, 2013 3 “5 things you probably didn’t know about the fashion industry,” Michele Petruzziello, World Economic Forum, 2015 4 “Textiles, clothing, leather and footwear sector,” International Labour Organization, 2014 5 “The role of textile and clothing industries in growth and development strategies,” Jodie Keane and Willem te Velde, Overseas Development Institute, 2008 6 “To assess the value and viability of a global scale Artisan goods certification model on behalf of the Alliance for Artisan Enterprise, and determine its worth to retail and artisan partners,” by Michele Kahane, Alliance for Artisan Enterprise, 2014 7 “The values of the worldwide fashion,” TextileFuture, Virginia Social Innovation Offers Five Golden Opportunities to the Apparel Industry 2 At the same time, the complexity and global nature of the industry’s supply chain obscures its overall functioning (see figure 3). Baptist World Aid Australia recently analyzed the practices of more than 200 fashion brands selling clothing to the Australian market. Seventy-five percent of the brands did not know where the inputs were coming from, including for fabric, zippers, and thread.8 Neither consumers nor employees knew how the value chain worked, from fiber production to the final product. And there was limited awareness of what happens to clothing after consumers discard it. Figure Globally, textiles is a large, complex value chain worth . trillion at the retail consumption level Global textile value chain billion () Garmenting and Retail consumption Fiber Yarn Fabric non-apparel manufacturing ~ ~ ~ ~ ~, Airjet % Technical Others Open end Technical – % % – % – % Viscose Home % Home – % Knit – % PSF –% % Ring spun –% Cotton % Apparel Apparel –% –% Woven –% Filament yarn –% Note: PSF is polyester staple iber. Includes staple iber and ilaments; split based on volumes Split between knit and woven estimated based on trade data for fabrics and inished garments Split estimated based on value; market size is estimated at manufacturing prices Sources: Datamonitor, secondary research; A.T. Kearney analysis The linen value chain is geographically widely spread. High-quality flax imported from Belgium, France, and Egypt is processed in China and India, and the majority of production is then exported to France, Korea, Italy, Belgium, Greece, Turkey, Egypt, Brazil, Canada, Japan, and the United States. The value chain comes full circle, ending where it began in developed countries. 8 “The truth behind the barcode: Australian Fashion Report 2015,” Gershon Nimbalker, Jasmin Mawson, Claire Cremen, Haley Wrinkle and Elin Eriksson, Baptist World Aid Australia, 2015 Social Innovation Offers Five Golden Opportunities to the Apparel Industry 3 Success Has a Tarnished Lining The environment While the industry has generated great economic and social value, it has come at a heavy cost. In terms of the environment, producing and processing natural fibers consumes huge amounts of natural resources. Production of one kilogram of fabric, for instance, generates 23 kilograms of greenhouse gas emissions and uses 2,000 liters of water and four kilowatt hours of energy.9 Turning raw materials into textiles is a major source of water pollution, contributing to 20 percent of industrial water pollution. Manufacturers use some 8,000 synthetic chemicals around the world to turn raw materials into textiles, many of which are released into freshwater sources.10 Manufacturing clothing is a major source of pesticide poisoning. The Pesticide Action Network notes that growing non-organic cotton uses 22.5 percent of the world’s insecticides and 10 percent of all pesticides on 2.5 percent of the world’s agricultural land.11 Clothing also accounts for 3 percent of global carbon dioxide (CO2) emissions, in both its production and use phases.12 What’s more, the levels of CO2 emissions and water and land use are projected to increase in the coming years (see figure 4). Though many brands and retailers are addressing their carbon footprint now, the planet is progressing toward a temperature increase of two degrees Celsius, making it more urgent for the industry to slow or reverse global emissions. A toll on workers There has been a high social cost as well. In terms of income, the fruits have been unevenly distributed (see figure 5 on page 5). While the retail segment of the fashion industry has grown 10 percent year-on-year from 2012 to 2016, related wages grew at a meager 4 percent. Figure The environmental impact of producing and processing textiles is increasingly negative CO emissions Water use Land use million metric tons billion cubic meters million hectares kg +% +% +% fabric . . , kg kWh greenhouse liters of energy gases of water f f f World Bank reports LCA (life-cycle assessment) benchmarking, by Natascha M. van der Velden & Martin K. Patel and Joost G. Vogtländer 9 “LCA benchmarking,” Natascha M. van der Velden Martin K. Patel & Joost G. Vogtländer 10 “How can we stop water from becoming a fashion victim?,” Ravasio, P, The Guardian, 2012 11 “The deadly chemicals in cotton,” Environmental Justice Foundation and Pesticide Action Network UK, 2007 12 “International Carbon Flows – Clothing,” Carbon Trust, 2011 Social Innovation Offers Five Golden Opportunities to the Apparel Industry 4 Figure While the industry is growing, not everyone is growing equally The textile industry is growing … Fashion tycoons are some of the The fashion industry contributes a high richest men on the planet share to many economies (% exports) Amancio Ortega Inditex (Zara) billion % % % Haiti Bangladesh Lesotho Bernard Arnault LVMH billion Phil Knight . % % Nike billion Cambodia India … but so, too, is income disparity Inhumane working Cotton farmers’ conditions in While the suicides in India Bangladesh have fashion industry ...wages in number ~, led to a high has grown at Asia Pacific annually number of ~% (retail)... grew at % deaths Sources: ILO wage report ­- ­; A.T.
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