The long run for sustainable fashion; our thoughts.

Building a circular economy is one of the biggest challenges society has ever faced, and, according to the consulting firm Accenture, this major shift in business paradigm represents a market worth €4.1 trillion between now and 2030.

In Italy, the second-hand market has reached €25 billion and is led by four main sectors: cars, home hobbies, clothing, and electronics. This market alone accounts for 1.4% of the GDP.

According to BCG studies, the second-hand apparel market value ranges between $100 and $120 billion worldwide and forecasts a considerable projected growth, reaching $250 billion by 2027. Some, like the online resale platform ThreadUp, are even more optimistic, estimating it will reach $350 billion.

The global second-hand apparel market is expected to grow three times faster than the global apparel market.

Why is second-hand fashion surging? The amount of pollution the fashion industry generates is clearly one of the main reasons. Fashion and its supply chain are the third-largest polluting industries after food and construction. It emitted 10% of global greenhouse gas emissions, with 39 million tons of trash produced yearly. The main culprit can be attributed to fast fashion, which has started a vicious cycle that is extremely harmful to humanity and the planet.

This means that it has become necessary for companies to find solutions to reduce their environmental impact.

Approximately 70% of the pollution in the fashion industry stems from the production process.

Directly entering the second-hand market undoubtedly enhances a brand’s image, as it is perceived by consumers as a more sustainable and responsible player, actively contributing to the circular economy and waste reduction.

Furthermore, another key factor driving the growth of the second-hand market in Europe is the implementation of Extended Producer Responsibility (EPR) schemes mandated by the European Directive 851/2018. These schemes impose “environmental contributions” on producers and importers, encouraging more sustainable management of garments at their end-of-life stage. This directive has already been incorporated into national laws in Italy, France, Germany, and Spain and is being adopted by other member countries.

Younger buyers are the ones who most frequently purchase second-hand items. In 2021, 42% of millennial and Generation Z respondents in a global survey stated their inclination to shop for second-hand items.

Younger generations are more inclined to buy second-hand products, and there are primarily two motivations behind their purchase decision: affordability and sustainability. Consumers can save an average of 35–40% by purchasing second-hand products, which becomes an excellent opportunity considering the rising inflation. Furthermore, in the luxury segment, 60% of products are unworn or scarcely worn, and the second-hand merchandise sold is of excellent quality.

Similarly, younger generations are increasingly attentive to environmental issues.

47% of Generation Z in the USA refuses to buy from non-sustainable apparel brands.

However, customers still encounter several problems, for example, when it comes to aftercare. Although they rely on the artisan’s skills in doing the service, consumers need help predicting the product repair outcome. Moreover, repairing a piece of clothing is long and expensive and often requires more digitisation, leading to an overall lack of transparency. The situation is further complicated by the demographics of the artisans (70% of artisans fall into the over-40 age bracket). Simultaneously, echoing trends in the USA, Europe is also experiencing a steep decline in the artisanal population.

Current market trends and solutions

These trends are focused on selling and extending the life of second-hand clothes, bags, and accessories.

Trend 1: Resale-as-a-service

In the first case, companies operate under a resale-as-a-service (RaaS) model, allowing brands to directly integrate resale and circular fashion into their business model, creating a platform for their customers to sell their pre-loved items. Some, like Reflaunt, handle the complete operational steps, including item authentication, photography, and pricing. After that, the item is listed for sale on Reflaunt’s extensive network of resale sites. Some create tailored e-commerce for brands such as Archive to add a second-hand component to their business. Brands may, therefore, manage the complete consumer experience.

This segment of the second-hand market is led by a few players that cover almost entirely the value chain, making it difficult to enter. Moreover, establishing a commercial partnership with brands is challenging, as it usually requires long discussions.

Trend 2: Marketplace

Powered by a network of fashion enthusiasts, second-hand marketplaces are expanding significantly.

Prominent are Vestiare Collective (which has just partnered with Gucci), Stockx, Poshmark, and The Real Real, where everyone can buy and sell their items. In Italy, a company called ArmadioVerde launched the same service but failed.

Even if the involvement of major brands such as Gucci and Balenciaga in building such a service demonstrates the growing popularity of second-hand fashion, poor profitability of this business is an explicit limitation, especially if the products are outside the luxury segment.

The number of companies offering this service continues to grow, increasing competition. At the same time, signing off on brands is a challenging task, as it requires clear benefits and long discussions.

Trend 3: Aftercare

When faced with buying a new product or repairing an old one, consumers usually choose the former, though the latter is cheaper and more sustainable. Yet, in recent years, things have changed. Testament to this new trend is the growth of companies like Patagonia and Golden Goose, which put a strong focus on providing repair services to promote sustainability and increase the lifespan of their products.

Consumers usually need help to have access to mending and repair services. This is why startups have emerged to facilitate access to the world of aftercare, including Sojo, also called “the Deliveroo of clothing repairs,” which uses a D2C model and allows customers to request repairs and adjustments through an app. Moreover, other players are working on a B2C marketplace to connect the consumer with the nearest tailor; one example is Mendit.

Finally, other players launched a similar business model applied to the leather segment (shoes and bags), such as The Cobblers, which has successfully expanded their business across the US and has attained a significant level of notoriety, and Coblrshop, which recently launched in the States. In this space, other than focusing on the consumer, there might be an opportunity to expand to a B2B service targeting brands and marketplaces. Only a few luxury fashion brands offer a structured aftercare service, which needs to be added for many smaller and lower-end businesses. This would enable customers of any brand to access an end-to-end verified service of repairs and alterations from the seamstresses. At the same time, the resale platforms mentioned earlier could benefit from such a service to restore the garments that are not in an optimal state and be able to increase their profitability and extend their life.

Trend 4: Product Authentication

One of the central challenges in this area concerns the authentication of items in the second-hand market. Consumers are often worried about the authenticity of valuable items purchased on the secondary market, and solutions to verify the products still need to be improved.

To address this issue, companies are increasingly embracing AI-based technologies. For example, GOAT, a luxury shoe retailer, leverages deep learning and neural networks to authenticate their shoes.

Another example of leveraging similar technology is Entrupy, which specialises in authenticating luxury items. The company has devised an advanced algorithm capable of recognising different materials. Authentication is done through an iOS app, which allows photos to be sent for detailed evaluation by artificial intelligence.

In addition, other companies follow the same model to which authentication can be entrusted, such as Authenticate First and Real Authenticate. Despite the multiple startups attempting to disrupt this industry, there is yet to be a clear winner in the space that guarantees a digital passport to any fashion product.

After extensive research, we have identified several viable solutions that are customised to suit the particular requirements of our target market. Our team has invested significant time studying this topic and developed a distinctive investment strategy reinforced by a solid founding team. Our ultimate objective is to uphold sustainability standards within the fashion industry.

We will keep you informed of any progress or updates that arise.