Is time running out for fast fashion?

In a memorably provocative burst of defiant Boomerism in 2021, US talk show host Bill Maher took aim at a cohort of youth who “always claim to be more concerned about climate change than other generations, but they don’t act like it”.

While today’s youngsters are often romanticised as the green-hearted generation of Greta Thunberg, Maher argued, their purchasing habits seem more influenced by the conspicuous consumption of celebrities like Kylie Jenner, whose Instagram following dwarfs the Swedish climate activist’s.

Perhaps the starkest illustration of this tension is the rise of fast fashion, and in particular of Shein. The Chinese company has enjoyed staggering sales to young people of cheap clothes, which are promoted through social media and often barely worn before being dumped.

Bad news for the planet — but an exciting opportunity for profit-focused investors? Not necessarily, as I explain below.

Fast fashion looks a risky bet

As speculation rages about Chinese “fast fashion” giant Shein listing in London, would-be investors should pay attention to what lawmakers are up to on the other side of the English Channel.

In Brussels today, EU member state representatives are set to discuss a French, Danish and Swedish proposal to restrict exports of textile waste — which have been surging in recent years with the growing popularity of ultra-cheap, in effect disposable, garments from the likes of Shein. Much of the exported material has ended up being dumped in countries such as Ghana and Kenya, causing serious environmental problems. “Africa must no longer be the dustbin of fast fashion,” France’s environment ministry said this month.

This is just part of a larger French assault on the fast fashion business model. On March 14, members of the French parliament’s lower house unanimously approved a bill that would impose new restrictions on companies such as Shein.

The new law would require the French government to declare a definition of “very rapid renewal”, in terms of the volume and frequency of new product launches by clothing companies. Any company above the threshold would be banned from advertising. Such companies would also face penalties of up to €10 ($10.80) per item sold if they fail to take appropriate action on the environmental impacts created when consumers dispose of their products.

These measures might sound extreme. But so, in many respects, is fast fashion. The business model pioneered in the 1990s by Zara has been turbocharged in the era of TikTok, on which an army of influencers have built careers by promoting garments that are launched at an increasingly absurd pace. Shein lists about 7,200 new product models every day, according to the French legislative text. (This investigative report by Rest of World may help you to make sense of that head-spinning number.)

With consumers often wearing garments a handful of times or less before throwing them away, the volume of clothing sales in developed markets has surged. Over the past decade, according to an industry study cited in the new French legislation, the number of clothing items purchased annually in France has grown by almost half to 3.3bn (the national population has grown just 3 per cent in that period).

The environmental impact of all these garments, often richly laced with industrial chemicals, is severe for local ecosystems when they are dumped in their billions. Surging apparel production is bad news for global warming, too: the sector accounts for 10 per cent of global greenhouse gas emissions, according to the UN, more than aviation and shipping combined.

Clothing companies have made much of their sustainability credentials, including through collaborative industry initiatives such as Cascale. Even Shein proclaims the fashion industry’s need for “urgent transformation” on sustainability, and boasts that it limits production waste through a “fully integrated digital supply chain”. Other companies, such as H&M, have offered customers discounts on purchases if they bring in used clothes for safe disposal or recycling.

But a real shift towards a more sustainable clothing industry would mean people buying far fewer clothes and using them for far longer. Shein, and its European peers such as Zara, have been pushing consumers in precisely the opposite direction.

A recent report by analysts at S&P Global made clear how little incentive these companies have to change their ways.

While fast fashion companies had been reducing emissions from their direct operations, the emissions from their supply chains — which are far larger — had continued to grow, the report found.

For all the talk from bankers and investors about environmental considerations, the report noted, clothing companies’ “access to external financing has not been materially affected by environmental considerations”.

Indeed, the more hyperactively companies have pursued the fast fashion model, the more investors have ploughed into their shares. Zara, the Spanish fast fashion behemoth, has been accelerating ever faster (albeit not quite to Shein’s pace). It now does a major overhaul of its range roughly twice a month. The share price of its parent company Inditex has more than doubled in the past two years.

Investors will benefit as long as those sales numbers keep sailing higher. But like any other trend, this can’t last for ever — and an inversion could come sooner than some realise.

Restrictive new EU legislation now looks like a real risk for clothing companies that have been relying on a high-volume, low-price model.

Admittedly it’s no surprise that France — with its celebrated and economically significant traditional fashion houses — is taking the political lead in challenging fast fashion, and it’s far from clear that Paris can build an EU consensus around this agenda. At a time of pressure on household budgets, there will be concern about new rules that could increase the price of clothing.

But the goal of fast fashion companies is not to help people spend less money on clothes. It’s to induce them to spend more money on a greater quantity of clothes that they use for a shorter time. This is a good deal only for the clothing companies (along with TikTok and a small number of its influencers).

Given this dynamic — and as public debate heats up over the ecological impact of fast fashion — it seems quite possible that the sector’s appeal will in time fade significantly for the young women who are its primary customer base.

There’s nothing inherently cool about repeatedly rushing to spend money on newly released items of low-quality clothing at the instigation of a big corporation. For investors in companies like Shein and Inditex, perhaps the biggest risk of all is that fast fashion simply stops being fashionable.

This article has been amended to clarify details of the proposal to be discussed by representatives of EU member states.

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