Renewcell

Renewcell is a Swedish company known for its technology that recycles cotton T-shirts and jeans destined for landfill into a new material, Circulose, which can be used by spinners and weavers to create lyocell or viscose which is normally obtained from the deforestation of millions of trees. Circulose has been used by H&M, Levi’s, Tommy Hilfiger, Calvin Klein and Zara to produce new clothing.

At the end of February, Michael Berg, chairman of the board of directors of Renewcell, announced the bankruptcy in a press release: “This is a sad day for the environment, our employees, our shareholders, and our other stakeholders, and it is a testament to the lack of leadership and necessary pace of change in the fashion industry”. Nicole Rycroft, founder of Canopy, described the news as a “sobering moment” for the global fashion industry (Just Style).

The bankruptcy came just over a year after Renewcell’s flagship factory opened. What exactly happened?

• Insufficient support along the value chain: Despite the commitment of more than 15 leading brands, including H&M, Levi Strauss & Co, Ganni and Inditex (Zara), demand for the product has been lower than expected, leading to a lack of sufficient long-term financing for the continuation of the business. For example, H&M had agreed to purchase 18,000 tonnes by 2025. Renewcell revealed that it had not received any orders in November 2023. While brands have made promises, they have often failed to deliver on them effectively. Using more sustainable materials just for a capsule collection does not make  the large-scale production of these alternatives viable.

• Obstacles in the supply chain: Renewcell’s business model has faced challenges due to the lack of vertical integration and connections along the supply chain. This may have made it difficult to control the entire process and scale the business efficiently (Nikolay Anguelov, public policy expert at the University of Massachusetts Dartmouth, to Drapers). Furthermore, the lack of national infrastructure for circular fashion processes has further hindered progress.

• Management: According to Scandinavian Mind, the company has shown signs of unstable leadership, highlighted by the resignations of spokespeople Harald Cavalli and Nora Eslander, who were replaced by a high-profile marketing executive based in New York. The sudden dismissal of CEO Patrik Lundström, followed by a share sale ahead of a negative earnings call, further undermined confidence in management.

• Pioneers’ challenges: As is often the case in emerging industries, early players like Renewcell face significant obstacles. Progress in these industries is frequently uneven, dependent on massive and critical adoption (Rycroft to Fast Companies) and support across the entire value chain. Furthermore, some established players may resist by seeing pioneers as a threat to their dominance in the industry.

• Weak collaboration and stakeholder engagement: Companies in the industry recognize the importance of collaborating and involving key players. No single company can transform the entire supply chain alone or bring an entirely new supply chain to market. Even if the conditions are there for a revolution in the sector, the fashion value chain is not quite ready to support the pioneers (Just Style). Collaboration between companies is necessary.

• Competitiveness: The challenge with the competitors lies in comparing the cost of cheaper virgin fibers to more sustainable options like Circulose, which tend to have a higher market price. According to Rycroft, Circulose’s relatively high cost reflects its status as a leading innovation on the market. Renewcell expected to be able to lower the cost in a few years (Green Biz). This comparison highlights the fashion industry’s short-term approach and its focus on profits. For many businesses, particularly those listed on the stock exchange, achieving optimal profit margins remains a priority, despite growing attention to the environment and ethics (The Interline). Renewcell’s business model, which requires brands to order Circulose recycled dissolved pulp, places an additional burden on them. This deviates significantly from usual fiber sourcing practices, as most brands are unfamiliar with the origin of the fibers used in their fabrics. A brand may be pressured to choose between a more expensive but sustainable material, investing in a future supply chain, or continue to use less expensive and less eco-friendly materials to maintain short-term profitability. The situation reflects a broader trend in the fashion industry, which shows a reluctance to support and adopt innovations necessary to ensure long-term sustainability. Growing demand coupled with limited supply has no history of reducing prices, making it clear that the industry must take significant steps to meet future challenges (Forbes).

• Sustainability and logistics: Despite sustainability efforts, Renewcell’s international shipping practices have raised questions about the true sustainability of the process. Sending Circulose textile fiber to China for further production raises questions about the overall sustainability of the production cycle. Furthermore, due to the characteristics of the chemical recycling process, the Renewcell solution is mainly applicable to textile production waste, rather than to post-consumer textile waste.

• Lack of financial support: Lack of adequate funding and pressure to achieve rapid returns on investments have been key factors hindering the growth of Renewcell’s (Drapers) sustainability initiatives. Despite advanced negotiations with major shareholders and financiers, including H&M, BNP Paribas and the European Investment Bank, along with other potential investors, they have failed to secure the liquidity and capital needed to support business operations. The lack of long-term financial support has put business continuity at risk. Renewcell attributed this situation to the current capital market climate, highlighting the difficulty in raising funds for future strategic developments and the orientation towards rapid returns on investments (ROI). These factors led to the difficult decision to file for bankruptcy, despite confidence in the company’s long-term potential. Global interest in sustainability is constantly growing. However, obtaining funding at this crucial time has proven to be a difficult task. The role that sustainable materials play in combating climate change is relevant, but many people still view their long-term feasibility and scalability with skepticism. As a result, many investors are directing their funds towards sectors considered more profitable or less risky, for example artificial intelligence.

Mylo

Mylo is an innovative material developed by the US company Bolt Threads. It is a biomaterial derived from mycelium, the fibrous part of mushrooms. Mylo is designed to be a sustainable alternative to animal leather, offering an eco-friendly option for the fashion and design industry. The production of Mylo involves the controlled cultivation of mycelium, which is then processed and treated to obtain a leather-like material, but without the use of animals. Mylo has attracted the interest of several companies in the fashion and design sector who are looking for more sustainable materials for their products. Bolt Threads has collaborated with brands such as Stella McCartney, Adidas, Kering, Hermes, demonstrating the potential of this biomaterial in helping reduce the environmental impact of the fashion industry.

At the end of June 2023, Bolt Threads paused production of Mylo. “We’re not immune to the macroeconomic pressures that everyone else is facing, so we’ve put Mylo on hold to rethink what works and what will work in the future,” Dan Widmaier, CEO of Bolt Threads, tells Vogue Business.

In addition to the impact of inflation, financial support was found to be substantially insufficient, preventing the product from reaching significant commercial scale. Widmaier stressed that interest and adoption of alternative materials by luxury brands has not been enough to ensure Mylo’s success. Despite collaborations with prestigious brands and the commitment of figures such as Stella McCartney, Mylo has struggled to achieve the scalability necessary for an effective market introduction.

The future of sustainable fashion

Renewcell’s decline has sparked a wave of global concern, including over its supply chain. Factories and waste handlers in Bangladesh, Turkey and Kenya, previously partnered with Renewcell for disposal and reuse, are having to look for alternatives (Forbes).

The stories of Renewcell and Bolt Threads are a sign of the need for greater commitment and collaboration from companies and governments to adopt and support circular practices. The Canopy founder urged all stakeholders in the fashion industry to align their actions with sustainability promises and fully embrace available market solutions for real change.

It is not a constructive choice to create “sustainable” capsule collections: a broader, long-term commitment is needed.

In response to the failure, members of the Circulose Supplier Network are launching a campaign to “save” Renewcell, highlighting the importance of coordinated action by various stakeholders to promote sustainability solutions. Burak Orhan Arifioglu, a board member of yarn seller Karacasu Tekstil in Turkey, is circulating a petition on LinkedIn urging other suppliers to continue developing Circulose fibres (Green Biz).

However, there is still optimism for the future of sustainability in the fashion industry. As new directives and regulations come into force globally, it is crucial that the entire industry invests more and prioritizes long-term gains over short-term ones. The European Union has announced a series of new regulations that will push clothing companies towards more sustainable practices, thus providing a potential boost to future demand.

Established investors and industrial giants must understand the importance of supporting start-ups like Bolt Threads and Renewcell to ensure that the industry’s green revolution does not get stuck in its infancy.

With investor support, corporate commitment and a long-term regulatory environment, the industry can make great progress in the fight against climate change. It is only through collective commitment and a long-term vision that we can hope to transform the fashion industry into an example of sustainability and environmental responsibility for future generations.

Source: Drapers; Just Style; Fast Companies; Green Biz, The Interline; Forbes.