MILAN, Italy — Several innovative business models are nowadays reshaping the fashion & luxury industry. This reading is meant to instil some ideas on how to update traditional business models to achieve a sustainable, competitive advantage and create a shared value for a wide range of stakeholders: including the environment, society, workers, consumers, art, culture, territory, media and institutions.
The Responsibility Manifesto with a decalogue of activities could be considered an initial guide for new entrepreneurs that are willing to create a new venture or experienced entrepreneurs that have decided to change the direction of their businesses.
Business Model Evolution
The fashion & luxury industry is changing at a fast pace. Some facts may underlie this big shift:
- A large number of fashion companies are making continuous efforts to be more sustainable towards the environment and the society ;
- LOHAS (Lifestyle of Health and Sustainability) consumers are increasing at a global level ;
- omni-channel distribution is the new mantra ;
- technological improvements are helping companies to optimise their processes .
This business model evolution is being driven by three important factors: sustainability, digitalisation and technology.
Business Model Definition: Setting the Stage
Simply, a business model represents how a business is organised and captures value.
In “Seizing the White Space” Johnson defines the business model as the basic architecture composed of four interdependent elements, described in the following “four boxes model”:
- Customer value proposition, “an offering that helps customers more effectively, reliably, conveniently, or affordably to solve an important problem (or satisfy a job-to-be-done) at a given price”;
- Profit formula, “the economic blueprint that defines how the company will create value for itself and its shareholders. It specifies the assets and fixed cost structure, as well as the margins and velocity required to cover them.”
- Key resources, “the unique people, technology, products, facilities, equipment, funding, and brand required to deliver the value proposition to the customer.”
- Key processes: the means by which a company delivers on the customer value proposition in a sustainable, repeatable, scalable and manageable way” .
In order to define a business model in the fashion industry, we need to answer the following basic questions:
What is the value proposition of what is offered to the market?
Which are the segments of clients that are targeted by the value proposition?
Which are the distribution and communication channels to reach clients and offer them the value proposition?
How is the value chain organised (the degree of vertical integration)? 
Innovative Fashion Business Models
Innovative fashion business models are based on:
- value proposition that is integrating ethics with aesthetics;
- omnichannel distribution and transmedia storytelling;
- the careful use of technology in order to optimize the processes along the value chain.
Here are some of the keywords that will lead the way in fashion innovation: recycling, upcycling, crowdsourcing, prosumer-creation, open-source, wearable-technologies, distributed-manufacturing, e-commerce, omni-channel, seamless-experience, transmedia-storytelling, content-management, social-media, authenticity, sustainability, B-corporation, open-innovation and cradle-to-cradle, among others.
Innovative Fashion Business Models Are Producing Shared Value
Creating shared value in fashion means being able to answer the needs of many stakeholders: the environment, society, institutions, art, culture, territory and the consumers. A responsible fashion company is a company that has already started the long and complex journey of integrating ethics and aesthetics into the value chain .
Porter and Kramer, in their popular article Creating Shared Value , stated:
“The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is […] a new way to achieve economic success.”
The innovation is realised thanks to business models based on responsibility and creating a shared value: the increase in value for shareholders will then be a direct consequence of the increase in value for all stakeholders. If this is an ideal world, then in reality many companies think about sustainability and Corporate Social Responsibility (CSR) as a mere public relations tool aimed at strengthening their reputation (cost logic).
It is still the case for many companies: “CSR is seen as a public relations tool, rather than a value creating process in its own right, whose goal is to assist manufacturing companies in achieving sustainability […] some companies have claimed to pursue CSR, but in fact have only used contributions to social objectives as a mechanism for carrying on profit maximising operations. Profit is an integral part and a tangible way of evaluating a company’s growth; however, it is not the only objective. Sustainability’s journey from cost logic to business logic is obligatory for creating shared value and provides at least two fundamental elements: dialogue with a multiplicity of stakeholders and CSR initiatives connected to the core business” .
In order to get long-term results, we expect a company should have a responsibility strategy that is coherent with its business model and should integrate the responsibility in its value proposition.
Why Invest in Responsibility: From PR Tool to Source of Competitive Advantage
Responsibility is still used by many companies as a mere PR tool, but it could represent much more: it could be considered as a driver of change, increasing the chances of survival for firms in the medium to long term, and could represent a source of competitive advantage .
Here are some of the advantages of investing in responsibility:
- Improvement of risk management. By adopting a strategy that is sensitive to the socio-environmental dimension, it is possible to reduce the sources of risk: reviewing internal processes prevents and limits the possible risks deriving from conduct that is not very responsible. The benefits can be observed in numerous fields; for example: job safety, disposal of highly polluting waste and the risk of possible boycotts.
- Greater capacity to attract human capital, improvement of the business climate and of employee performance. The greater capacity to motivate, involve and retain talent within one’s company is a further positive contribution. With a corporate culture that increasingly encourages dialogue and transparency, comparison and co-operation become fundamental for the retention of current staff. These elements reflect positively on the ability to attract and retain clients as faithful customers.
- Increase in efficiency and optimisation of costs. Structured CSR policies, in forcing internal processes to be reconsidered, promote improvements in efficiency and productivity. It is precisely through the process of organisational improvement within various roles that significant inefficiencies can be made good. Consider, for example, plans to reduce production waste or to re-use packaging materials.
- Increase in capacity to attract financial resources. A company, which shows itself to be transparent and socially engaged, establishes a climate of trust in its relations with institutions and financial markets, facilitating the collection of resources and access to credit. Furthermore, recent years have shown that financial analysts are increasingly appreciative of those companies that perform well even in the socio-environmental arena.
- Reinforcing brand value. By incorporating socio-environmental policies and ethical conduct, the company can build a legacy of intangible assets comprising values such as trust, security and loyalty, which in turn help to strengthen its relationship with stakeholders.
The Responsibility Manifesto: Leading the Way in Contemporary Fashion
The following manifesto is a decalogue of activities and could be considered an initial guide for new entrepreneurs that are willing to create a new venture or experienced entrepreneurs that decide to change the direction of their businesses with the objective of creating shared value.
- Rethink traditional business models towards innovative ones: involve the consumer with take-back schemes and encourage recycling. When a customer buys a garment this is not the end.
- Evaluate how to reduce, recycle and reuse the resources: energy, raw materials and water are scarce.
- Create a balance with the people involved in the economic activity: suppliers, employees and consumers. Respecting the human rights, including work-life balance, issues are a must.
- Raise new standards instead of just respecting the standards defined by laws: we need more best practices that can inspire other companies.
- Give back to the territory, what from the territory they have taken in terms of inspiration. It is a matter of being fair.
- Rethink the business models also in communication towards a customer-centric approach. Brands are not kings anymore: consumers are! This may lead to ask the consumers to complete the story of the products, to be part of the conversation.
- Make a more transparent value chain, involve the customers and make them aware of the fact that their decisions count a lot.
- Say more often: “Don’t buy this jacket” or “Consumers should buy less, choose well and make it last”. There is a big elephant in the room: we know that the only solution is in the hands of consumers that could buy less and buy better!
- Use technology to increase transparency and drive the change.
- In short: integrate ethics and aesthetics in the value chain.
“If we could change ourselves, the tendencies in the world would also change. As a man changes his own nature, so does the attitude of the world change towards him…We need not wait to see what others do.”
Mahatma Gandhi was right. The future is now.
About the Author:
Phd, with over 10 years of experience Francesca Romana Rinaldi is a passionate executive consultant for companies in the Fashion and Luxury industries, having acquired a practical expertise especially on brand management, digital strategies, business model innovation and sustainability.
 Open sesame in Technology Quartely, Volume Q2 2008, The Economist, June 7 2008; AA.VV., The third industrial revolution, Special Report in “Economist”, April 21 2012.
 Mark W.Johnson, “Seizing the White Space: Business Model Innovation for Growth and Renewal”, 2010, Harvard Business Press.
 Erica Corbellini, Stefania Saviolo, “Managing Fashion and Luxury Companies”, 2009, ETAS.
 Francesca Romana Rinaldi, Salvo Testa, “ The Responsibile Fashion Company”, 2014, Greenleaf Publishing.
 Porter and Kramer, “Creating Shared Value”, 2011, Harvard Business Review.
 Porter and Kramer, “Strategy and society: the link between competitive advantage and corporate social responsibility”, 2006, Harvard Business Review.
 Francesca Romana Rinaldi, Salvo Testa, “ The Responsibile Fashion Company”, 2014, Greenleaf Publishing.