Circular Business Model
The concept of circularity in economic systems predates fashion entirely. Industrial ecologist Walter Stahel outlined the principles of a closed-loop economy in the 1970s, and the term circular economy was formalised in academic literature through the 1990s. Its entry into mainstream business vocabulary accelerated significantly following the Ellen MacArthur Foundation’s 2013 report Towards the Circular Economy, which reframed resource retention as a commercial opportunity rather than an environmental obligation.
Fashion’s engagement with circular economy principles developed unevenly. Couture and bespoke tailoring had always operated with implicit longevity assumptions — high-value garments were repaired, altered, and passed on as a matter of course. Industrial fashion discarded this logic entirely in favour of volume throughput. The concept of a circular business model as a deliberate strategic choice re-entered fashion discourse in the early 2010s, initially through second-hand and rental platforms, then through brand-led take-back schemes.
By the mid-2010s, circular business model had become an established term in fashion sustainability, appearing in investor briefings, regulatory consultations, and brand strategy documents. The Ellen MacArthur Foundation’s A New Textiles Economy report in 2017 provided the most widely cited framework for what circular fashion business models could look like in practice, identifying resale, rental, repair, and remanufacturing as the four primary circular revenue streams.
Regulatory developments in the EU — particularly the Ecodesign for Sustainable Products Regulation and the proposed Green Claims Directive — have since formalised circularity as a compliance consideration, shifting circular business model from a voluntary strategic frame to an emerging regulatory expectation.
Circular business model occupies an unusual cultural position: it is simultaneously a technical business term and a values signal. For sustainability-aware consumers and investors, it communicates systemic intent — a company that uses it is understood to be engaging with fashion’s structural problems rather than addressing symptoms. This has made it attractive as a brand positioning tool, which has in turn generated significant scepticism about its integrity.
In media and communications, the term is frequently used interchangeably with second-hand, resale, or sustainable fashion — a conflation that strips it of its structural specificity. A circular business model is not synonymous with having a resale offering; it describes the architecture of the entire business. This distinction is rarely maintained in consumer-facing coverage.
Geographically, circular business model discourse is most developed in Northern Europe, where regulatory pressure and consumer expectation have advanced furthest. In major production markets — Bangladesh, Vietnam, Cambodia — the term has limited operational relevance because the structural conditions for circular infrastructure do not yet exist at scale. This geographic asymmetry is rarely acknowledged in brand circularity narratives, which tend to focus on the consumption end of the value chain.
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The circular economy concept was formally outlined by Walter Stahel in a 1976 report to the European Commission, nearly four decades before fashion adopted the language.
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As A Circular business model, rental fashion has existed as a commercial model since at least the 1960s in formalwear; its reframing as a sustainability innovation is largely a product of the 2010s.
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The vast majority of fashion take-back schemes do not close any material loop — collected garments are predominantly resold wholesale to secondhand markets or sent to downcycling, not returned to fibre for new production.
ADVERT BOX
The concept of circularity in economic systems predates fashion entirely. Industrial ecologist Walter Stahel outlined the principles of a closed-loop economy in the 1970s, and the term circular economy was formalised in academic literature through the 1990s. Its entry into mainstream business vocabulary accelerated significantly following the Ellen MacArthur Foundation’s 2013 report Towards the Circular Economy, which reframed resource retention as a commercial opportunity rather than an environmental obligation.
Fashion’s engagement with circular economy principles developed unevenly. Couture and bespoke tailoring had always operated with implicit longevity assumptions — high-value garments were repaired, altered, and passed on as a matter of course. Industrial fashion discarded this logic entirely in favour of volume throughput. The concept of a circular business model as a deliberate strategic choice re-entered fashion discourse in the early 2010s, initially through second-hand and rental platforms, then through brand-led take-back schemes.
By the mid-2010s, circular business model had become an established term in fashion sustainability, appearing in investor briefings, regulatory consultations, and brand strategy documents. The Ellen MacArthur Foundation’s A New Textiles Economy report in 2017 provided the most widely cited framework for what circular fashion business models could look like in practice, identifying resale, rental, repair, and remanufacturing as the four primary circular revenue streams.
Regulatory developments in the EU — particularly the Ecodesign for Sustainable Products Regulation and the proposed Green Claims Directive — have since formalised circularity as a compliance consideration, shifting circular business model from a voluntary strategic frame to an emerging regulatory expectation.
Circular business model occupies an unusual cultural position: it is simultaneously a technical business term and a values signal. For sustainability-aware consumers and investors, it communicates systemic intent — a company that uses it is understood to be engaging with fashion’s structural problems rather than addressing symptoms. This has made it attractive as a brand positioning tool, which has in turn generated significant scepticism about its integrity.
In media and communications, the term is frequently used interchangeably with second-hand, resale, or sustainable fashion — a conflation that strips it of its structural specificity. A circular business model is not synonymous with having a resale offering; it describes the architecture of the entire business. This distinction is rarely maintained in consumer-facing coverage.
Geographically, circular business model discourse is most developed in Northern Europe, where regulatory pressure and consumer expectation have advanced furthest. In major production markets — Bangladesh, Vietnam, Cambodia — the term has limited operational relevance because the structural conditions for circular infrastructure do not yet exist at scale. This geographic asymmetry is rarely acknowledged in brand circularity narratives, which tend to focus on the consumption end of the value chain.
-
The circular economy concept was formally outlined by Walter Stahel in a 1976 report to the European Commission, nearly four decades before fashion adopted the language.
-
As A Circular business model, rental fashion has existed as a commercial model since at least the 1960s in formalwear; its reframing as a sustainability innovation is largely a product of the 2010s.
-
The vast majority of fashion take-back schemes do not close any material loop — collected garments are predominantly resold wholesale to secondhand markets or sent to downcycling, not returned to fibre for new production.
2013–2015: The Ellen MacArthur Foundation’s Towards the Circular Economy report catalysed business adoption of circular economy language. Fashion was identified as a priority sector. Early adopters were predominantly rental and peer-to-peer resale platforms rather than production brands.
2017–2019: A New Textiles Economy provided a fashion-specific circular framework. Brand-led take-back schemes proliferated. Investor interest in circular business models increased as second-hand market growth became commercially visible. The term entered mainstream sustainability reporting.
2020–2022: COVID-19 disrupted linear supply chains at scale, accelerating interest in more responsive, demand-led models. Resale platforms reached significant commercial scale. The circular business model gained traction as a risk management concept as well as a sustainability frame.
2023–present: EU regulatory development — particularly ESPR and the Green Claims Directive — has shifted circular business model from voluntary positioning to compliance-adjacent territory. Scrutiny of take-back schemes and circularity claims has intensified, with increasing pressure on brands to evidence material recovery rather than simply operate return infrastructure.
THE BASIC IDEA
The core concept is that materials retain economic value after first use. A circular business model is designed to capture that value rather than discard it. This requires rethinking not just what a company sells, but how ownership, returns, repair, and end-of-life are built into the commercial model from the outset.
WHY THIS TERM EXISTS
The term emerged in response to the structural wastefulness of fashion’s dominant linear model, in which raw material extraction, production, single or short-term use, and disposal operate as a one-way sequence with no recovery mechanism. As resource costs, regulatory pressure, and consumer scrutiny increased — particularly following the mainstreaming of circular economy thinking from the Ellen MacArthur Foundation’s 2013 report — fashion businesses began restructuring commercial models to address end-of-life and resource retention explicitly. The term codified that structural shift.
SUSTAINABILITY STACK
Primary pillar: Waste & Circularity
Secondary pillars: Materials & Biology / Production & Supply Logic / Climate & Energy
The term sits most directly within waste and circularity frameworks, as its defining purpose is to interrupt the disposal endpoint of the linear model. It intersects with materials where design-for-disassembly or mono-material construction is required to make circularity operationally viable, and with production logic where reverse logistics and take-back infrastructure must be integrated into supply chain architecture.
WHAT IT DOES NOT AUTOMATICALLY SOLVE
A circular business model does not automatically reduce overall production volume. A resale or rental model can coexist with, or even incentivise, continued overproduction if the primary line is not constrained. It does not address the carbon footprint of manufacturing new goods, the environmental cost of logistics-intensive return and redistribution systems, or the labour conditions in garment production. Circularity at the revenue model level is not equivalent to circularity at the materials level — a company can operate a take-back programme while continuing to use composite, non-recyclable materials that cannot re-enter any productive loop.
WHERE THIS SHOWS UP IN A FASHION BUSINESS
Product Creation / Design / Marketing / Sales / Supply Chain / Finance / Operations & Reporting
WHO THIS MATTERS TO
Designers / Sustainability Managers / Executives / Suppliers / Manufacturers / Regulators / Investors / NGOs / Journalists
WHAT SUCCESS WOULD LOOK LIKE
A measurable share of revenue derived from secondary transactions — resale, rental, repair, or remanufacturing — rather than exclusively from new product sales. Recovered material re-entering production at audited, documented volumes. Reverse logistics operating at scale without subsidy. Declining virgin material input relative to revenue growth, sustained over time.
HOW THIS TERM IS COMMONLY USED TODAY
Circular business model is used across brand communications, investor reporting, and regulatory submissions, with highly variable accuracy. It is frequently applied to single-channel initiatives — a take-back scheme, a resale partnership — that do not constitute a restructured business model. In investor contexts it functions as a growth narrative attached to the secondhand market. In regulatory contexts it is increasingly subject to evidential scrutiny.
COMMON MISUNDERSTANDINGS
- A recycling programme constitutes a circular business model. It does not. A take-back scheme that sends garments to downcycling or landfill is not circularity; it is managed disposal with a circular aesthetic.
- Resale platforms are inherently circular. Secondary market activity can extend product life, but if it operates independently of the original producer’s material strategy, no actual loop is closed.
- Circular business models are exclusively relevant to large brands. The structural logic applies at any scale; some of the most operationally coherent examples are small independent businesses built around repair or rental from inception.
- A circular business model is primarily a sustainability communications strategy. It is a revenue and operations architecture. Treating it as a brand narrative without structural underpinning is a form of greenwashing.
WHAT MAKES THIS HARD
The dominant retail model is optimised for volume throughput at low unit margins. Circular models typically require higher operational complexity — returns processing, quality assessment, repair capability, secondary pricing — without the margin structures that make those costs viable at scale. Consumer behaviour presents a further barrier: the resale and rental markets remain substantially smaller than new product markets, and demand for repair services has declined in proportion to the fall in garment prices over thirty years. Regulatory frameworks have historically rewarded production rather than retention. Supply chain infrastructure is not designed for reverse flows. And material composition across most fashion products — blended fibres, bonded components, mixed trims — makes closed-loop material recovery technically difficult or currently impossible at commercial scale.
QUESTIONS TO THINK ABOUT
What proportion of this company’s revenue currently derives from secondary transactions? Is material recovery audited, or is take-back infrastructure the extent of the circularity claim? Does the circular model constrain new production volume, or run alongside it? Are the materials used in new production compatible with the recovery systems being claimed? Who bears the cost of reverse logistics, and is that cost sustainable without subsidy?
WHERE THIS WORKS TODAY
Rental models for occasionwear and workwear, where high cost-per-wear justifies the logistics overhead. Peer-to-peer resale platforms operating at scale with low reverse logistics cost. Independent repair-centred brands with direct customer relationships and premium pricing that supports operational complexity. Take-back and remanufacturing programmes in workwear and uniform sectors, where consistent product specifications make material recovery technically viable.
PROPOSED SOLUTIONS OR APPLICATIONS
Extended producer responsibility frameworks that create financial obligation around end-of-life, making circular infrastructure economically necessary rather than voluntary. Design-for-disassembly standards that ensure new products are compatible with recovery systems at point of creation. Reverse logistics infrastructure shared across brands to reduce the per-unit cost of returns processing. Transparent material recovery reporting as a condition of circularity claims in marketing and investor communications.
BY THE NUMBERS
- Less than 1% of clothing is currently recycled into new clothing fibres — Ellen MacArthur Foundation, A New Textiles Economy, 2017
- The equivalent of one rubbish truck of textiles is landfilled or incinerated every second — Ellen MacArthur Foundation, A New Textiles Economy, 2017
- EUR 500 billion is lost annually due to clothing being thrown away or not fully utilised — European Parliament, Environmental Impact of the Textile and Clothing Industry, 2019
- The global secondhand apparel market was valued at USD 227 billion in 2023 and projected to reach USD 350 billion by 2028 — ThredUp, 2024 Resale Report
- Extending the active life of clothing by nine months reduces its carbon, water, and waste footprint by 20–30% — WRAP, Valuing Our Clothes, 2012
BUSINESS MODEL IMPLICATIONS
Adopting a circular business model requires structural changes to how a fashion company generates, captures, and retains value. Revenue diversification is necessary — a company cannot operate a genuinely circular model while relying exclusively on new product sales, as this creates a commercial incentive to undermine product longevity. Operational infrastructure must be built or contracted for reverse logistics, returns sorting, condition grading, repair, and secondary sales channels. Pricing architecture must account for residual value at point of original sale, which affects margin calculation across the entire product range. Inventory management becomes significantly more complex when secondary stock must be integrated alongside new product. Legal and contractual frameworks may need revision where product-as-a-service or ownership retention models are adopted. Brand positioning must be coherent: a circular model sits in structural tension with seasonal trend cycles and volume-driven marketing.
SCALABILITY ASSESSMENT
Independent | Viable | Highest structural coherence at this scale when built in from inception; retrofit is costly and operationally disruptive.
Mid-Market | Hard | Volume expectations resist the slower throughput of circular models, and margin structures rarely support the operational complexity required.
Large Brands | Relevant | Infrastructure capacity exists but circular initiatives typically remain siloed from core business, limiting systemic impact.
Conglomerate | Not Yet Viable | Portfolio management logic, licensing structures, and shareholder return expectations are not currently compatible with the throughput reduction genuine circularity requires.
THE HONEST TENSION
A circular business model requires investing in product longevity — which directly undermines the case for repeat purchase. Most brands operating circular programmes continue to run volume-based production alongside them. That is not circularity; it is linear production with a secondary market attached. Until circular revenue offsets reduced new production, the incentive structure contradicts the model.
RELATED TERMS
Reverse Logistics / Extended Producer Responsibility / Product-as-a-Service
Books
- The Circular Economy: A User’s Guide — Walter R. Stahel
- A New Textiles Economy: Redesigning Fashion’s Future — Ellen MacArthur Foundation
- Cradle to Cradle: Remaking the Way We Make Things — William McDonough & Michael Braungart
References
- Ellen MacArthur Foundation. (2017). A new textiles economy: Redesigning fashion’s future. Ellen MacArthur Foundation.
- European Parliament. (2019). Environmental impact of the textile and clothing industry. European Parliament Research Service.
- WRAP. (2012). Valuing our clothes: The cost of UK fashion. WRAP.
- ThredUp. (2024). 2024 resale report. ThredUp.
- Global Fashion Agenda. (2019). Pulse of the fashion industry. Global Fashion Agenda & Boston Consulting Group.
- Stahel, W. R. (2019). The circular economy: A user’s guide. Routledge.
- McDonough, W., & Braungart, M. (2002). Cradle to cradle: Remaking the way we make things. North Point Press.
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