The circular economy in branded clothing

The world market for second-hand clothing is currently valued at $100 billion, a 100 per cent increase over the last five years. The US-based consultancy Mckinsey says the second-hand clothing market is growing 15 times faster than the new clothing market.

Vestaire Collective is a luxury second-hand clothing brand that offers an online platform for buying and selling pre-owned luxury and designer fashion. The brand has a  sustainable business model called ‘Think First, Buy Second.’ The online platform matches buyers and sellers of second-hand luxury and designer items. The authenticity of the brands being sold is verified digitally using Artificial Intelligence. Other e-commerce businesses that specialise in second-hand clothing include London-based Depop and the Lithuanian company Vinted.

So why is the market for second-hand clothing growing so rapidly? Cost is an important factor. A Prada shirt that might retail at a price of $600 can be bought for $200 on Vestaire. Fashion buyers are becoming increasingly concerned with using clothing that reduces waste and minimizes the environmental impact of fast fashion. The second-hand market is an example of the circular economy that is more sustainable. Buying second-hand can offer consumers something more interesting and original than buying new. Platforms such as Vestaire and Vinted can offer buyers rare and discontinued items that are less likely to be available when buying new. Consumers of resale clothing like the idea of purchasing goods from individual sellers who are not part of multinational clothing retailers.

One of the implications of the second-hand clothing market is competition for selling new clothes. Manufacturers of luxury brands have to face low-priced second-hand substitutes, adversely affecting their revenues and profits. The second-hand market is also challenging for ‘high-street’ retailers that sell exclusive brands. Within the resale clothing market, there is competition for sites like Vinted and Vestaire from charity shops, which offer buyers and sellers a more ethical alternative to an online profit-making platform. Some brands, such as The North Face and Lululemon, have also entered the resale market to make it even more competitive. Social media platforms like TikTok and Facebook marketplace add further competition to the resale clothing sector.  

The growth of the second-hand clothing market raises an interesting questions for governments who tend, on the whole, not to tax the resale of clothing in the same way as new clothing. If second hand sales replace new clothing sales this will mean a fall in government tax revenues from the clothing sector. 

Some possible points for discussion

1. Is second hand clothing an inferior good?
2. Are there elements of the second hand clothing that take sellers away from the assumption of profit maximisation?
3. Are there elements of the second hand clothing that take buyers away from the assumption of utility maximisation?
4. Discuss the consequences of the growth of the second-hand clothing market for different stakeholders in the economy.