(Photo by iStock/triocean)
The fashion industry is more than cute designs and flashy catwalks. The clothes we wear every day, stylish or not, were made by thousands of people worldwide for the $2.5 trillion apparel industry. And to keep store shelves piled high with new styles, this industry needs to make far more than it will ever sell—all in the name of never failing to meet demand. In recent years, the textile and apparel industry has shifted business practices from making quality goods in sustainable numbers to ultra-fast fashion typified by overproduction, high waste, environmental degradation, and low social standards.
Waste has become a paramount problem for the fashion industry, amounting to 92 million metric tons annually (earth.org). Whether coping with a flood of used clothing swamping landfills or unsold stock incinerated worldwide, the industry’s business model is no longer sustainable. Indeed, as society shifts to circularity with low carbon impact through fair labor standards, the industry is poised for a transformation from the inside out. New entrants into the industry, including collectors, sorters, recyclers, and fiber innovators breaking textiles down to the molecular level, are challenging the broken linear take-make-waste model.
There are two ways to reduce textile waste’s growing mounds: consumers buying less and/or recycling textiles. Enter Swedish clothing recycler Renewcell, which developed the technology to take cotton textile waste and extract the cellulose from the cotton to make a pulp for new textile fibers. But a year after opening its first scaled facility, Renewcell declared bankruptcy, sending shockwaves throughout the fashion world. As Renewcell’s former CCO and an industry consultant who both care deeply about building a more sustainable fashion industry, it’s important to examine what caused Renewcell to fail. What are the ramifications for the industry? Are there lessons to be learned?
To answer these and other questions, let’s examine Renewcell’s financial troubles and shortcomings with its business model, assess the broader implications for the sustainability movement in business, and offer lessons on managing risk in environmentally conscious enterprises.
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The Founding of Renewcell
Renewcell was founded in 2012. After several years of technical development, a demonstration plant in Kristinehamn, Sweden, began operating in 2019. Renewcell’s main product was Circulose, a dissolving pulp derived from shredding and chemically processing used cotton-rich clothing. This product creates a slurry, which is baked into sheets of compressed cellulose and then sent to fiber producers globally for processing into new man-made cellulosic fibers like viscose. The global man-made cellulosic fiber market is 7.27 million metric tons, or 6 percent of the total fiber market (textileexchange.org).
With headquarters in Stockholm, Renewcell was listed on the Nasdaq First North Exchange in November 2020, raising the needed capital to launch commercial-scale production at a former paper pulp mill in December 2022. Investments in the company start-up and production site totaled about $140 million. At its peak, Renewcell employed about 130 people across management, engineering, and production. From the outset, the global retailer H&M was a major investor, with production from the pilot line sold to Inditex, PVH, Bestseller, Levi’s, Ganni, and H&M.
Renewcell adopted a growth strategy predicated on a “push-pull” strategy, where Circulose was marketed toward fiber producers (push) and clothing brands (pull). Attractive pricing was promised as Circulose production scaled. Additionally, Renewcell focused on building a “Circulose Supplier Network” to help build fiber producer support and increase brand interest, making fabrics readily available and multiplying the marketing effect.
Although the former paper pulp mill in Sweden was the launch plant, plans called for new North America and Asia facilities after establishing proof of concept so that Renewcell would have greater access to local supplies of used clothing and easier access to regional textile supply chains. By opening plants globally, Renewcell aimed to have better access to regional fiber production in Asia. However, securing additional capital for such expansion plans first required a successful and rapid ramp-up to profitability at the Swedish facility.
In hindsight, the quick global expansion strategy proved wishful thinking without sufficient financial security to start the commercial engine. The typical apparel development cycle is 12-18 months, while Renewcell projected a breakeven within one year of beginning production. Brands expressed high interest, leading to false optimism characterized by Renewcell’s original go-to-market strategy, which was predicated on the belief that rapid uptake of Circulose would occur due to limited recycling options available in the market and fiber producers’ signed commitments. Indeed, brand hype about recycled materials helped to fuel Renewcell’s overly optimistic outlook. As we will see, this optimism proved misguided when brands failed to live up to their hype.
Challenges and Missteps
Environmentalists and many leading fashion industry brands initially supported Renewcell’s efforts. The hype surrounding the company and its technology heralded a breakthrough in industrial-scale recycling. Although mechanical clothing recycling has existed for decades, such processing was small-scale and failed to offer the quality and color removal techniques of newer means.
Despite the initial excitement, practical problems with Renewcell’s business model, ramp-up speed, and strategy soon emerged. The company faced significant challenges that ultimately hamstrung the enterprise operationally and financially, limiting its success in translating hopeful optimism into concrete sales.
For instance, high textile waste inventory levels soared while the first factory was under construction during the pandemic, further compounded by construction delays and inflated shipping rates for used clothing. Consequently, some investors became wary of investing as expansive inventory levels and tepid offtake failed to demonstrate the efficacy of the Renewcell business model.
The sourcing of used clothing proved resource-intensive and required a disciplined organization to work with collectors and sorters scattered globally. Moreover, used clothing was shipped from as far away as Bangladesh. Regional European collection and sorting systems were immature, resulting in inefficient and costly global sourcing—made even more so when shipping rates rose during the pandemic. The systems for predicting raw material needs lacked vigorous sourcing controls.
The price offered for Circulose was above market realities for virgin wood products, worsened by supply and demand imbalances compounded by the pandemic and uncertainties posed by the war in Ukraine. Just as Circulose entered the market, virgin cellulosic fibers faced low cyclical pricing and higher inventories. Price fluctuations in the cotton markets only exacerbated the situation.
The company faced internal challenges, too. Intense deadlines, boardroom battles, and an inability to alter course when required brought about excessive executive turnover. The sprint to renovate a factory during the pandemic left much of the team exhausted, frustrated, and unable to physically commit the time and energy for the operation’s commercial development. Start-ups often suffer from executive churn, but with Renewcell, weak decision-making, faulty procedures, and misguided attempts to right a ship already taking on water compounded the problems.
With a lack of resources, the company focused on too few players in the fashion industry, particularly by working almost exclusively with fast-fashion European brands due to proximity and pending EPR (extended producer responsibility) legislation, even though waste levels of used clothing generated in North America are far higher than in Europe. Typically, fiber innovations start within a higher price point and with smaller brands that can explain the environmental benefits to consumers. Additionally, Renewcell relied on fiber producers that were geographically far removed from Europe to extrude Circulose pulp into the fiber. For example, Renewcell relied on selling its pulp to Chinese fiber company Sanyou, a half-a-world-away relationship with language barriers that proved challenging to manage.
Further complicating the situation was Renewcell’s inability to settle on a direct or licensing business model. Without orders from brands, fiber producer partners had no incentive to extrude Circulose, so Renewcell’s pulp sat in warehouses with fiber companies throughout Asia, unsure how best to market, price, and sell the product compared to cheaper virgin fiber alternatives they already offered. The fiber development, quality verification, marketing, and sales timeline was cut short without continuous immediate sales and a base load for the plant in Sweden. Simply put, Renewcell expected the fiber producers to drive the sales. In contrast, a licensing model, in which Renewcell technology is used by pulp or fiber producers for a fee, would have provided instant ongoing revenue.
The Responsibility of Brands
A casual look at any fashion website these days will bombard would-be customers with sustainability messages, promises to be carbon-neutral by some future date, give-back programs to underprivileged groups, efforts to promote worker safety, and so forth. All are well-meaning and worthwhile activities, but they are too often wrapped in a veil of corporate marketing, making it difficult for consumers to separate what’s real from fiction, meaningful from superfluous. Within the industry echo chamber, though, such messaging carries considerable weight to keep environmental critics at arm’s length and to protect brands from negative attention that could adversely affect sales.
Brand marketing is a smoke-filled world, but brands must stand up for what’s right and reject what’s not. When they fail to fulfill these responsibilities, the industry becomes mired in overproduction, ever-cheapening and abusive supply chains, and environmental degradation.
That’s where Renewcell came in. It promised to correct one of the fashion industry’s major ills: waste. Brands lined up in support; some invested directly in Renewcell. They believed in the promise of its technology and approach to vacuuming up much of the world’s used clothing to be made anew as recycled fiber. However, when Renewcell stumbled, what did most brands do? They ran for cover.
Brand support was skittish from the outset, even among brands that worked with pilot line quantities. For example, public commitments with mass retailers like H&M and PVH failed to result in substantial purchases. Despite the fact that such commitments were not binding, these agreements were public, so brands like these were required to use Circulose in their clothes. In the end, though, when fiber company partners explained to brand buyers that Circulose would cost more than virgin alternatives, most brands scurried away.
Many brands tout the “carbon neutrality” of their supply chains, but when it comes to business, “cost neutrality” rules the day. Industry reports suggest the cost of fiber is only 3-5 percent of the total retail price. This may be an indictment of the branded apparel industry, but it is also the reality of business today. Costs matter, profits matter—environmental initiatives matter, but less so.
So, many brands swam to shore when the Renewcell ship took on water. Renewcell’s stock tanked overnight, water flooded in, and lifeboats were scarce. Management struggled to patch the holes for a time, but soon, the Renewcell boat took on more water than could be bailed. Bankruptcy ensued. Even then, brands could have extended a lifeline but chose not to do so. In this sense, brands failed to follow through on their public support materially. Ultimately, it proved too easy to blame Renewcell’s management for its failure and distance themselves as a wise business decision.
Hard Knocks and Lessons Learned
There’s plenty of blame to go around. Renewcell’s management had its failures, but so did the clothing brands and fiber companies. As the first to market, there were lots of risks. In the case of Renewcell, a product existed, and the marketing was effective, but execution stumbled. The connect-the-dots of any business rollout unraveled into a series of errors, poor market conditions, and lost opportunities.
Renewcell’s pulp production reached an effective scale while fiber producers provided quality feedback and built-up fiber or pulp inventories. Spinners primed laydowns for yarn blends, but the engine could not get started to increase production experience and efficiencies as brands fumbled to figure out how to integrate innovation from capsule to main line. Prices of viscose made with Circulose were compared to generic viscose, which had been produced for over a century. Brands would not pay a premium to support an environmental initiative if it came at the risk of lower margins. In time, Renewcell said, prices would come down as volumes increased. Brands weren’t willing to wait.
Renewcell did not have the time to wait, either. As it was publicly traded on NASDAQ, impatient traders dumped Renewcell’s stock when the business missed its target goals for sales and factory rollout. Overnight, Renewcell went from an industry darling to just another environmental pariah. Management never had the time to expand capacity fast enough to create the economies of scale necessary for their partners and customers to find and purchase Cellulose in the market easily. As we have seen, Renewcell’s public offering raised cash quickly but came with very short strings attached.
Renewcell raised nearly $200 million on the NASDAQ, but it was essentially a pulp maker. Its uniqueness was in its processing of used clothing instead of wood as its feedstock.
Where Does the Fashion Industry Go From Here?
The fashion industry remains one of the major polluters in the industrial world. Used clothing and textiles choke landfills. Indeed, the industry is wasteful. It is prone to overproduction and fast-fashion hyper-trends that encourage consumers to discard clothes to buy the next season’s new styles. Waste takes priority over function.
The definition of insanity is doing the same thing repeatedly, expecting different results each time. Further, transformation cannot happen with the same set of inputs. New players, real innovators, are required for systemic change that impacts circularity, carbon impact, traceability, and transparency. New entrants will need support from the ecosystem of larger enterprises. Brands need to have clear goals for next-generation and recycled fibers to signal suppliers to develop internal milestones. Developing the technology is only 10 percent of the business when there is an entire ecosystem to consider.
As an industry with few legislative guidelines, EPR policy is pending globally with the EU Green Deal, NY Fashion Act, and California SB707, which will alter the take-make-waste model. Policymakers need to understand the fundamental issues to set adequate legislation for environmental changes and social justice. It is not only passing legislation but also enforcing it and imposing fines with both a carrot and a stick. To begin, transition funds for first movers need to offset price premiums.
With an understanding of the textile and apparel industry’s environmental and social impact, there is a continued need for investment in scalable innovations. The cost of inaction will be far greater in terms of financial, social, and economic impacts.
The fashion industry has struggled with waste while balancing overproduction with the realities of the clothing business. Just-in-time delivery works well within the confines of the industry’s well-defined supply chains. Yet just-in-time production remains elusive, as meeting consumer demand often requires a hit-or-miss approach to anticipating which products will sell or not.
With thousands of different products offered online or on store shelves, reigning in production remains problematic for an industry that thrives on new trends and consumer demand. And with all of that comes overproduction and waste. Perhaps it is possible to impose industry guardrails on production—not an easy proposition to imagine. But regulation could encourage the reuse and repurpose of industrial waste to augment virgin raw material supply chains.
After three months of bankruptcy, Renewcell found a new owner to purchase the remaining assets: Altor Equity Partners. Under the new ownership, the company name was changed to Circulose, representing a new chapter in scaling textile-to-textile circularity. Before reopening the production facility, the current inventory needs to start moving through the market at fiber producers, spinners, weavers, and garment producers with brand orders.
After decades of working in the textile industry, it was thrilling for us to be at the cutting edge of new technology. Witnessing the domestic textile and apparel industry shift in the 20th century to the Far East, with brands chasing the lowest-cost-producing country, has only increased industrial waste, pollution of waterways, and the burning of unsold inventories. In turn, industry practices have ignored the true cost to the planet and people—all in the name of padding margins and enhancing stock values.
In the case of Renewcell, the company understood the objective of tapping a virtually bottomless supply of raw materials from used clothing. It also laid a path forward to address the industry’s waste problem. More so, the Renewcell experience provides guidance for the industry to avoid government regulation that could adversely affect it in unforeseen ways.
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Read more stories by Tricia Carey & Robert Antoshak.
