Sustainability in the Fast Fashion Industry

Abstract

Problem definition: A fast fashion system allows firms to react quickly to changing consumer demand by replenishing inventory (via quick response) and introducing more fashion styles. In this paper, we study the environmental impact of the fast fashion business model by analyzing its implications for product quality, variety, and inventory decisions. Relevance: Our work establishes a much-needed understanding of the link between the fast fashion business model and its environmental consequences. Methodology: We consider a two-period model in which a firm sells to fashion-sensitive consumers whose preferences are influenced by a random fashion trend. We analyze the effect of fast fashion capabilities (quick response and design flexibility) on the firm’s quality decision, leftover inventory and total environmental impact. Results: We find that a key driver of low product quality in the fast fashion industry is the firm’s incentive to offer variety to hedge against uncertain fashion trends. When variety is endogenous, quality decreases as consumers become more sensitive to fashion or as the cost of introducing new styles decreases. We identify the conditions under which increasing fast fashion capabilities leads to higher environmental impact. Managerial implications: We assess the effectiveness of three environmental initiatives (waste disposal regulations, consumer education, and production tax schemes) in countering the environmental impact of fast fashion. We show that waste disposal policies and production taxes are effective in reducing the firm’s leftover inventory—but may have the unintended consequence of lowering product quality, which may worsen the firm’s environmental impact. We also find that education campaigns that increase consumers’ sensitivity to quality strictly benefit the environment in the long run.