The New Sharing-Models in Fashion Retail
The Rise of the Sharing Economy and its Influence on the Fashion Industry.
The Idea in Brief
The surge in collaborative consumption or the sharing economy has brought forward new business models in many industries, such as in hotels (e.g. Airbnb), transportation (e.g. Uber), and more recently, in the fashion retail industry (e.g. Rent the Runway).
While the exchange of fashion items commonly used to take place between private individuals, an increasing number of retailers have innovated their business models to provide a platform that facilitates renting or sharing of clothing items between consumers.
In our study, based on a sample of twenty-six retailers that engage in fashion-sharing (from the US, UK and Scandinavia), we identified three fashion-sharing business model archetypes. Interviews with CEOs of these companies provided further insight into the main motivations and challenges in adopting fashion-sharing business model.
In so doing, we offer retailers a practical framework to guide business model innovation in the sharing economy.
From Fast Fashion to Fashion-Sharing
The traditional business model in the fashion industry has been built around a four-step process:
(i) designing and creating a new collection
(ii) presenting the collection to showrooms
(iii) sourcing and producing the collected orders, and
(iv) distributing and selling the final product through wholesale channels comprising multi-brand stores, department stores, and franchise stores.
One important development within the fashion industry has been the emergence of fast fashion business models. In social media where trends quickly go viral, companies such as Zara, Uniqlo and H&M have developed business models that allows them to respond to the latest trends by transforming from seasonal lines, usually planned a year ahead, to clothing that goes directly from the factory to the store in a matter of weeks.
In stark contrast to fast fashion, an increasing number of retailers build their business model around the idea of collaborative consumption, offering consumers the possibility to rent, swap, lend, and share their personal wardrobe. A number of factors have contributed to the rise of collaborative consumption in the fashion retail industry.
First, smart phone technology and the Internet have given rise to a variety of fashion apps, i.e. online platforms where ‘fashionistas’ can purchase, share, and sell their clothes, as well as get inspiration and fashion advice from their peers.
These apps create a sense of community but also facilitate ease of access, where consumers can easily upload and share pictures of clothing items. Second, economic drivers, such as rising production costs and the desire to maximize resource utilization and consumer interest have contributed to the growth of the collaborative economy in fashion. Characteristics such as fair price, uniqueness, and environmental concerns have further boosted the emergence of these new business models. Especially, the ‘Millennials’ – born between 1985 and 2000 - have shifted society’s values and concerns for the environment and ethical and mindful consumption.
Thus, motivations for individuals to engage in collaborative consumption range from social (interacting within a community), economic (saving money), sustainable (protecting the environment), and practical considerations (saving time). However, the motivations for retailers to offer fashion-sharing as part of their business model, and the challenges they face, have not been sufficiently explored to date. Further, to date no study has shed light on how these different fashion-sharing models look like. That is, how can fashion retailers innovate their business models to take part in the sharing economy? How do these new business models look like?
A Roadmap to Business Model Innovation for Fashion Retailers
Based on our sample of fashion-sharing retailers, we found three business model archetypes: The Fashion Rental Model, the Fashion Swapping Model, and the Second-hand Retailing Model.
We analyzed these different business models with regard to the four components mentioned below and discussed the various challenges in implementing these business models in practice:
1. Value Proposition – What does the company offer to its customers (e.g. renting, swapping, lending, etc.)?
2. Customer Segments – Who are the relevant target customers (e.g. fashion-enthusiasts, mindful consumers, etc.)?
3. Channels – How does the company communicate with and reach its customers to deliver its value proposition, and the resources used in the delivery (e.g. online versus physical stores, fashion apps, etc.)?
4. Cost/Revenue Structure – What are the company’s value capture mechanisms (e.g. how does the company make money)?
The full paper is available at SSRN: https://ssrn.com/abstract=2860021
Perlacia, A.S., Duml, V., & Saebi, T. 2016. Collaborative Consumption: Live Fashion, Don't Own It - Developing New Business Models for the Fashion Industry (October 27, 2016). Available at SSRN: https://ssrn.com/abstract=2860021