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Faculty Insights

Fast Fashion Business Model May Speed Up Environmental Decline

Variety, not quick response, is a key driver behind the industry’s waste

By Clare Becker

October 19, 2022

rack clothing and mannequins in a retail shore

Fashion’s ever-changing nature is a big part of its appeal. While e-commerce has all but replaced the elaborate department store window displays of the past, online shoppers can easily spend hours perusing a brand’s new seasonal looks with multiple styles and options to choose from.

That variety factor may also be what makes it lethal to the planet, at least for what’s known as “fast fashion.” A new study by Xiaoyang Long of the Wisconsin School of Business suggests that fast fashion companies producing multiple styles within a season may be creating more waste for the landfill than non-fast fashion companies who offer a single seasonal trend or two.

Fast fashion—Zara and H&M are examples—is a sector of the clothing industry that offers generally affordably priced, up-to-the-minute fashion for a younger demographic that is highly attuned to mass culture. The fast fashion business model is based on flexible design and responsiveness. Unlike more traditional clothing retailers and fashion houses, fast fashion companies are able to roll out a large number of styles per season and respond quickly to market demand for their products.

Long, an assistant professor of operations and information management, examines the link between the fast fashion business model and environmental impact. She finds that a company’s decision to create multiple styles means it must offset manufacturing costs by making products of lower quality—clothes ultimately more likely to be tossed out by the consumer rather than reused.

Determining key tradeoffs

Long’s study used a two-period analytical model that took into account product quality, variety, and inventory, and also defined environmental impact by looking at production amount, leftover inventory, and consumer waste.

In the first period, a company decides the level of quality and the number (variety) and quantity (inventory) of styles it will debut. During the second period, the company can decide to restock inventory of its most popular style (quick response), which leaves the other styles discontinued and leftover inventory discarded. The company is hedging its bets with variety—hoping at least one of the styles will be a hit with consumers—and therefore must cut costs in order to manufacture that variety. Should the company only have the design flexibility to produce one or two styles, they would likely be of higher quality, and also result in less leftover inventory and less waste.

“Fundamentally, this is about a tradeoff between ‘variety’ and ‘quality,’” Long says. “Without variety, we find that since quick response saves the firm money by reducing the number of unsold products, the firm may invest that money into producing higher-quality products. However, with variety (and unpredictable trends), the firm always prefers to invest in producing more styles instead, and sacrifices quality.”

Sustainability and fashion

One of Long’s main avenues of research is supply chain management, where the fast fashion business model has been studied by scholars and taught in the classroom. She says the field has traditionally only looked at the profit aspect of the model, such as how speed of production and design can boost profit in the face of uncertain demand.

“This perspective seems increasingly at odds with the public perception that fast fashion companies produce low-quality clothing that is bad for the environment,” she says. “So, the motivation of this work was to try to establish a link between these two perspectives.”

Long says issues around sustainability and the fashion industry are not only starting to come to the fore for consumers, but regulatory bodies and nonprofits, as well as companies themselves, are taking action. Supply chain is crucial to this process. “Any valid solution would require an understanding of the supply side: why the firm produces clothes the way it does, what could incentivize it to change, etc. I think this is an opportunity for supply chain management scholars to contribute.”

Several environmental policy initiatives are also considered in the study: waste disposal regulation, consumer education, and production tax schemes. While tax schemes and regulations targeting pre-consumer waste disposal can indeed lessen the amount of leftover inventory (i.e., the amount of waste the firm produces), they may inadvertently increase negative environmental impact because they may incentivize firms to further reduce product quality—hence increasing post-consumer waste. Educating consumers on the value of higher-quality, more sustainable clothing, on the other hand, could eventually lead to better environmental outcomes overall.

The study’s big picture message, Long says, is that, left to their own devices, fast fashion companies will almost always go with lower quality clothing in order to maximize their profits; it’s simply the business model.

“On a more constructive note, we show that certain policies can be effective in changing the companies’ incentives and raising product quality. A key message from the environmental initiatives part of the study is that we cannot expect to solve all problems at once. Policies that only focus on pushing the firm to raise quality may result in higher waste (unsold inventory), and vice versa. It is important to consider multiple aspects of the system and design policies accordingly.”

Read the paper: Long, X., Nasiry, J. Sustainability in the Fast Fashion Industry” published in Manufacturing & Service Operations Management.

Xiaoyang Long is an assistant professor in the Department of Operations and Information Management at the Wisconsin School of Business.