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dc.contributor.authorPereira Sánchez, María Ángeles
dc.contributor.authorVence Deza, Xavier
dc.contributor.authorAlcalde García, Xosé Miguel
dc.contributor.authorCarballo Penela, Adolfo
dc.description.abstractThis report presents the case study corresponding to the textile company Inditex, which has been selected by the R2PI project given its importance in the world fashion market. The adoption of a circular model by fashion companies is extremely important, given the relevant environmental impact of this industry. Based on the common methodology of the R2PI project, this report presents the analysis of the “Circular Sourcing" CEBM, although it also highlights other activities of circularity that complement the aforementioned and that the Inditex Group is partly implementing, such as "Co-product recovery" and "Resource-recovery", the latter in collaboration with non-profit organisations in Spain and other markets. The objective of the report is, therefore, to offer a general view of how Inditex is facing the challenge of circularity, taking into account both contextual and internal factors, as well as to assess the level of circularity, the outcomes obtained and the SWOT. Finally, the report tries to offer key insights with regards to the “Circular Sourcing” CEBM pattern. The analysis of the context indicates that there are certain factors in the policy framework that are conditioning the development of circularity in fashion, especially the regulations that affect garments trade, its labelling, and textile waste trade –and will do so even more in the future. The market situation and competition reveal important elements of influence, such as the general race among leading fashion companies towards more sustainable and circular business models. In addition, still uncertain economic factors, such as the evolution of raw materials, water and energy prices and wages, are pointing to the need to adopt measures towards a circular change. As far as the factors of the technological framework are concerned, there is a clear commitment to developing new raw materials and more environmentally friendly processes; likewise, developments in recycling technologies and other advances may change the face of the textile industry in a few years. Finally, while the fast-fashion consumer model continues to be very successful, there is already an increasing demand for healthier and environmentally friendly clothing. The characteristics of Inditex's business model centred on circular sourcing are analysed in detail. This model is based on the group power along the value chain. Thus, a value network is formed in which some suppliers are key partners, because they share Inditex vision and are doing strong efforts towards a more circular sourcing, while also supporting the development of the local textile recycling industry. At the heart of the business model, Inditex continues offering fashion at competitive prices, but the group is increasingly searching for the environmentally friendliness attribute. The analysis of the circularity of Inditex Group indicates that it is currently limited in the sense that it is still focused on the sale of a product, and the revenues and costs are clearly linked to the sale and manufacture of that product, not to added services, for example. Although garments are manufactured with more sustainable raw materials, the industry might become more circular yet if fashion companies decide to innovate the business model in more radical ways. With regard to the financial outcomes, the available data allows to indicate that the manufacturing costs of more sustainable garments are generally higher than those of conventional garments. It is important to remark that Inditex does not pass this higher cost on to end consumers through a price premium. Moreover, sustainable garments are increasing greatly in Inditex's fashion sales. Existing information points to important non-financial outcomes linked to circular sourcing: the reduction of environmental impacts, greater employment generated through social initiatives by means of projects linked to donated garments; and possibilities for the creation of a stronger industry and employment associated with textile recycling. In addition, technological innovation is very important to support this business model, with investments in R&D aimed at the development of new products (fibres) and processes (design, traceability, recycling). Using a SWOT tool, Inditex business model is assessed and put in relation to potential circularity. Weaknesses are identified, such as the dependence of the Inditex circular business model on its ability to influence suppliers and the success of the current dominant business model based on continuous and quick sales. There are also strengths, such as the design skills and the ability to anticipate the market, the power to influence suppliers and to play an intermediary role in the fashion industry. As far as external aspects are concerned, the greatest opportunity lies in taking advantage of the favourable state of opinion and the general movement of the fashion industry towards the Circular Economy. The threats may also be high competition, but they rely mainly in the challenges of regulation for the clothing and waste trade and in the current low cost scenario (raw materials, energy and water, and labour), which make sustainable manufacturing more expensive. Inditex's route towards the Circular Economy will be based on going deeper into the circular sourcing CEBM pattern, especially in the sense of trying to close the loops for some fibres; moreover, in the longer term, it is also part of its plans to explore other business models in which the services added to the product will take on greater relevance. The business model analysed is replicable and transferable. In fact, a large number of leading companies in the sector are already taking action in the same direction. However, there is a need for greater commitment from industry and consumers. Based on this research, some policy measures are highly recommended to further promote the uptake of the circular business model, including: the establishment of clear objectives for garments reuse and recycling; regulation for favouring the implementation of eco-design, durability and quality of garments; and incentives and education for consumers to change towards more responsible and sustainable patterns of fashion consumption
dc.description.sponsorshipThis project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 730378
dc.subjectCircular economy
dc.subjectBusiness model
dc.subjectFashion industry
dc.titleINDITEX A Circular Economy Business Model Case
dc.contributor.affiliationUniversidade de Santiago de Compostela. Departamento de Economía Aplicada

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