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In a striking outburst of rebellious Baby Boomerism in 2021, US talk show host Bill Maher took aim at a group of young people who “constantly claim to be more concerned about climate change than other generations, but don’t act like it.”
While today’s young people are often romanticized as a Greta Thunberg-style eco-friendly generation, Maher argued that their purchasing habits seem to be influenced by the conspicuous consumption of celebrities like Kylie Jenner, who has far more Instagram followers than the Swedish environmental activist Greta Thunberg.
Perhaps the most vivid illustration of this tension is the rise of fast fashion, and in particular Shein, the Chinese company that promotes itself through social media and has offered phenomenal sales to young people for cheap clothing that is often barely worn and then discarded.
Bad news for the planet, but an exciting opportunity for profit-focused investors? Not necessarily, and we explain why below.
Fast fashion seems like a risky gamble
As speculation grows over a possible London listing for Chinese “fast fashion” giant SHEIN, would-be investors should keep an eye on what lawmakers are up to on the other side of the English Channel.
In Brussels today, representatives of EU member states are due to debate proposals to limit the export of textile waste from France, Denmark and Sweden, which has soared in recent years with the growing popularity of ultra-cheap, effectively disposable clothing brands such as SHEIN. Much of the exported material ends up dumped in countries such as Ghana and Kenya, causing serious environmental problems. “Africa must no longer be a trash can for fast fashion,” the French Environment Ministry said this month.
This is just one part of a larger French assault on the fast fashion business model: On March 14, French lawmakers unanimously approved a bill that imposes new restrictions on companies like Shein.
The new law requires the French government to declare a definition of “very rapid renewal” for the volume and frequency of new product launches by clothing companies. Companies that exceed this threshold will be banned from advertising. It also imposes fines of up to 10 euros ($10.80) for each item sold if they fail to take appropriate measures to address the environmental impact of consumers’ disposal of their products.
These measures may sound extreme, but so is fast fashion in many ways. The business model pioneered by Zara in the 1990s has accelerated in the age of TikTok, where a host of influencers have made careers by promoting clothes that are released at an increasingly absurd pace. According to French legislative documents, Shein lists around 7,200 new product models every day. (This investigative report by Rest of World might help make sense of the head-spinning numbers.)
Workers at a SHEIN pop-up sale in Paris last year © AFP via Getty Images
Clothing sales are soaring in developed markets as consumers often throw away clothes after wearing them just a few times or less: The number of items of clothing bought each year in France has nearly halved to 3.3 billion over the past decade (even though the country’s population grew by just 3% over that period), according to an industry study cited in the new French law.
These garments are often full of industrial chemicals, and when billions of them are discarded, the environmental impact is severe for local ecosystems. The rapid growth in apparel production is also having a negative impact on global warming. According to the United Nations, the apparel industry is responsible for 10% of global greenhouse gas emissions, more than the aviation and shipping industries combined.
Apparel companies have done a lot to prove their sustainability, including through industry coalition efforts such as Cascale. Even Shein has declared that the fashion industry needs “urgent transformation” when it comes to sustainability, boasting that it is limiting manufacturing waste through a “fully integrated digital supply chain.” Others, such as H&M, offer discounts on purchases to customers who bring in used clothing for safe disposal or recycling.
But a real shift to a more sustainable clothing industry would mean people buying far fewer clothes and wearing them for far longer. Shein and its European peers such as Zara have been nudging consumers in just the opposite direction.
A recent report by analysts at S&P Global revealed how little incentive these companies have to change their ways.
The report found that while fast fashion companies are reducing emissions from their own direct operations, emissions from their much larger supply chains continue to rise.
The report noted that despite all the environmental talk from bankers and investors, clothing companies’ “access to external financing has not been materially affected by environmental considerations”.
Indeed, the more enthusiastically companies pursue the fast-fashion model, the more investors are buying into their stocks. Spanish fast-fashion giant Zara is growing faster than ever (though not as fast as Shein); the company now overhauls its assortment roughly twice a month; and parent company Inditex’s shares have more than doubled in the past two years.
As long as sales continue to rise, investors stand to profit, but like any trend, this one won’t last forever and a reversal could come sooner than some realize.
Restrictive new EU laws now pose a real risk to clothing companies that have relied on a mass-production, low-cost model.
Indeed, it is not surprising that France, home to some of the most well-known and economically important traditional fashion houses, is taking the political lead in challenging fast fashion, but it is not at all clear that Paris will be able to forge an EU consensus on this issue. There will be concerns about new rules that could increase the price of clothing at a time when household budgets are under pressure.
But the goal of fast fashion companies isn’t for people to spend less on clothes: It’s to encourage people to spend more by buying large quantities of clothes that they’ll wear in a short amount of time — a deal that’s only good for clothing companies (and TikTok and its handful of influencers).
This trend, along with a growing public debate about fast fashion’s environmental impact, may well make the industry significantly less appealing to young women, who are its main customer base.
There’s nothing inherently cool about rushing to spend money repeatedly on newly released, low-quality clothing, at the instigation of large corporations, and perhaps the biggest risk for investors in companies like Shein and Inditex is that fast fashion will go out of style.
This provision has been amended to clarify the details of the proposals to be discussed by representatives of EU member states.
Smart reading
Following a series of alarming updates from scientists, the FT editorial board has issued a stern warning to fossil fuel companies and investors who are still not taking climate risks seriously.
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