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Eco-Friendly Fashion Production and DistributionEMERGE2016

May 31, 2016

John Harmon, Senior Analyst

Fung Global Retail & Technology

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Agenda

• About Fung Global Retail & Technology• Addressing the Issues• Potential Solutions: The 3 Rs• What Li & Fung Is Doing…• Steps Forward

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About Fung Global Retail & Technology

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About the Fung Group

TRADING

LOGISTICS

DISTRIBUTION

RETAILING

Li & Fung LimitedListed on SEHK

Global Brands Group

Listed on SEHK

Fung Retailing Limited

Privately Held Entity

Convenience Retail

Asia LimitedListed on SEHKTrinity LimitedListed on SEHK

Branded Lifestyle Holdings Limited

LiFung Kids (Holdings) LimitedToys “R” Us (Asia)Suhyang Networks

UCCAL Fashion GroupPrivately Held Entities

Fung Holdings (1937) Ltd. A privately held entity and major shareholder of the Fung Group

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About Fung Global Retail & Technology

• The knowledge bank for the Fung Group• Focuses on emerging retail and tech trends,

specializing in retail and technology intersections, and building collaborative communities.

• Based in New York, London and Hong Kong• Publishes thematic and global market research

on topics such as the Internet of Things, digital payments, omni-channel retail, luxury and fashion trends and disruptive technologies.

FUNGTHINKTANK

RETAILTECH

MICRO MACRO

RETAIL REAL

ESTATE

THEMATIC RESEARCHVR

AI

IOT

DIGITALDIGITALDIGITALDIGITAL

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Our Expertise: A Unique Combination of Retail, Fashion and Tech• Fung Global Retail & Technology advises retailers, real estate developers and tech companies on

projects situated at the intersection of retail, tech and/or fashion.

• Our team offers a robust knowledge bank and significant experience in the retail, fashion and tech fields. We are involved in many areas of the business and believe this allows us to offer a unique perspective by focusing on the future and where the sector is heading.

FASHION TECHRETAIL

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Our Partnerships With Accelerators

ENTREPRENEURS

ROUNDTABLEACCELERATOR

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Addressing the Issues

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Environmental and Social Challenges from Apparel

• 80 billion pieces of clothing purchased worldwide each year

• Up 400% from 2 decades ago• ¾ garments end up in landfills or

are incinerated after short lifespan

• 1/6 of people worldwide work in garment industry

• Bangladesh is #2 country for fast fashion– Garment workers average $3/day

Source: The True Cost (2015)

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Current Climate

• Americans throw out average of 82 pounds of textiles per year

• Only 10% of clothing donated to thrift stores get sold– Rest ends up in landfills or flood

foreign markets

• Used garments account for over 50% of clothing sector by volume in many sub-Saharan African countries

• Average pair of jeans takes 7,000 liters to produce

• Average t-shirt takes 2,700 liters

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Fast Fashion• Produces products in a cost-efficient manner in

order to respond to fast-changing consumer tastes

• Uses concepts from electronics manufacturing to control production and inventory

• Clothing stays on the shelves a couple of weeks

• A model for the broader apparel industry?– Responds to changes in consumer preferences

– Better aligns production with demand

– Less discounting

• But… higher social cost and waste

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Potential Solutions: The 3 Rs

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Back to the 1970s—The 3 Rs

Reduce

• Reduce the amount of garments on the market, and the materials used to make them

Reuse

• Give already used goods a second lifeRecycle

• Find a new purpose for the raw materials of used goods

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1. Reduce

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Ways to Reduce…• New manufacturing technologies have been

developed that enable more on-demand creation of apparel

• Some also reduce the amount of water or other raw material used in the manufacturing

• When goods are made on-demand, there is no need for excess inventory to go unsold

• New manufacturing technologies and techniques include:– DPOL

– Electroloom

– Robotic Knitting

– 3D Printing

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Direct Panel on Loom (DPOL)• Loom attached to computer

• Weaving, cutting, patterning in one step

• Reduce lead times by 50 %

• Save 70-80% of water

• No fabric waste

• Every piece made to fit

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Electroloom• Mold designed using CAD

• Internal electric field

• Fibers guided in 3D shape around mold

• Fibers bind together

• Seamless fabric items on demand

• Only one step after design

• Raw material converted directly to finished garment

• Still in early development

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Robotic Knitting• Replaces human seamstresses

• Lower production costs

• Transform raw yarn directly into a final product or near-final product

• Shima Seiki

– Maximum knitting speed of 1.6 meters per second

– Partnered with Drexel University: Advanced Functional Fabrics of America

• Thursday Finest

– Manufactures colored and fitted knitted ties using a Shima Seiki flat knitting machine

– A dress takes 60 minutes to make, a tie takes only 30 minutes

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3D Printing—Examples in Consumer Goods

Orbitrec• world’s first 3D-printed

bike unveiled at CES

Normal• Custom-fit 3D-printed

earphones• Partnered with Rebecca

Minkoff on limited-edition products

• More sustainable

Mink Makeup Printer • Sub-$200 desktop printer

can print makeup

Shoes of Prey• Design your own

perfect shoes• Design studios in 6

Nordstrom stores

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2. Reuse

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Ways to Reuse…Used goods can be given second lives or repurposed with new marketplaces that are available

• Consignment economy

• Rental economy

• Sharing economy

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ConsignmentOnline Fashion Resale Marketplaces Show Explosive Growth

• thredUP, Tradesy, The RealReal, Poshmark, and Vestiaire Collective, reKindness

• Reasons for success– Heavy venture capital investment in online

consignment industry (over $300 million)

– Retail brands’ resale programs encouraged consumers’ sustainable consumption habits

– Consumers are convinced by great quality of secondhand apparel bought via online platforms

– Societal shift toward less ownership—the art of decluttering

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Online Consignment and Rental Marketplaces• thredUP—Buy like new clothing, and send in

your old clothing to get paid for every item that is sold

• Tradesy—Snap a photo and sell clothing and accessories with free shipping

• The RealReal—Online luxury consignment marketplace

• Poshmark—Shop from other people’s closets and sell what’s in yours

• Rent the Runway—Rent rather than buy new clothing to wear something new for any occasion

• reKindness—Take an item to give an item in the community closet

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Sharing Economy• Millennials Like Sharing Plans, but Want to Own

a Car

• 20% of millennials take public transit once a week or more, compared with just 7% of Gen Xers and 10% of baby boomers

• 35% of millennials indicated that they plan to purchase a vehicle in the next 12 months, compared to 25% of all US adults surveyed

• Millennials lease cars more than any other generation, and are leasing 50% more often today than they were five years ago

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Sharing Economy—“Uberifying” Virtually Every Industry • Disruptors:

– Uber, Airbnb, Lending Club, WeWork

• Valuations of sharing-economy companies have skyrocketed

• Revenues are projected to catch up to aggressive valuations

• Sharing-economy market:

$15 Billion2013

$335 Billion2025

CAGR: 29.5%

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3. Recycle

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Ways to Recycle…Take waste material and turn it into something new and usable

• Adidas making recycled shoes

• H&M “closing the loop”

• New startups on the scene to assist with recycling

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Adidas: Recovering Plastics

Material source: fishing nets, easier-to-reach beach trash and marine plastic waste

"Knitting in general eliminates waste, because you don't have to cut out the patterns like on traditional footwear… We use what we need for the shoe and waste nothing.“- Eric Liedtke, Head of Global Brands and Member of Executive Board at Adidas

Sneaker Prototype made of recycling

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H&M: “Closing the Loop”

H&M encourages customers to recycle clothing, which is then reused or turned into new clothes

2013– Customers can to drop off garments from any brand, no

matter the condition, to any H&M location and receive a discount. 

2014– 38 million t-shirts worth of material was donated– H&M launched the “Close the Loop” clothing line, made using

recycled fibers2015

– “Recycling a t-shirt saves 2,100 liters of water.”— H&M’s 5 million-views “Close The Loop” Video

• “We have set the vision of becoming 100% circular.” --Anna Gedda, Head of Sustainability at H&M

2016• — H&M says it has recycled 25,000 tons of unwanted clothing since

2013

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Startups Engaged in Recycling

• Optoro works with retailers and manufacturers to manage and resell their returned /excess merchandise to achieve sustainable commerce

• Worn Again creates goods from recycled materials to solve challenges of textile waste

• RecycleBank rewards people for taking everyday green actions with discounts and deals from local and national businesses

• Bionic Yarn is making fabric from recycled ocean plastic

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What Li & Fung Is Doing…

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Sustainability Is Integral to our Business

“The Li & Fung approach is to work with customers, suppliers and industry partners to further the adoption of standards and best practices. We’ve met customer requests for sustainable sourcing across our different verticals.”

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Our Sustainability Strategy: Four Pillars

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Household• Household items, furniture and packaging

made from FSC or PEFC certified wooden/paper materials

• Household items made from natural materials:– Bamboo, roots, spent rubber trees

– Items made of recycled plastics

Household

Certified

PET

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Apparel• Sourcing organic cotton meeting GOTS

standards

• Using recycled yarn, polymers, leather and shearing

Apparel

Standards met

Partner

Campaign participator

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Beauty• Biodegradable items

• Silicone, sulphate, paraben and colorant free

• Items not tested on animals

• Toothpaste was first to be organic certified

Beauty

First toothpaste certified as organic in the world

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Steps Forward

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Steps Forward• Work on more sustainable packaging and

production

• Balance consumer desires for brand vs. sustainability

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Sustainable Packaging—Hot Trends

Coca-Cola introduced the world’s 1st 100% bio-based PlantBottle in June 2015

Edible Packaging

100 % Bio-Based PET Novel Bioplastics

LumiLid by Toray includes greater than 50 % renewable feedstock content

WikiCells has developed self-contained edible packaging with chocolate, dried fruit, nuts and seeds

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Brands vs. SustainabilitySources of Pressure

• Global consumers willing to make personal sacrifices to address environmental issues (Cone Communications and Ebiquity)

• Celebrities are more invested in environment campaign: Leonardo DiCaprio

• Millennials are environment-conscious: 88% of UK and US Millennials and Generation Xers believe brands need to do more good, not just ‘less bad.’” (Positive Luxury)

• “Clean Label” trend

• Answer to stockholders: in 2015, a Morgan Stanley analyst raised the price target on Nike based on its sustainability performance.

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Summary

• Consumerism and fast fashion pose challenges for society and the environment• There are new companies and new solutions to reduce, reuse and recycle, including

– New manufacturing technologies

– Consignment

– Sharing economy

• Several large companies are engaged in recycling• Li & Fung has a well-developed sustainability strategy• Brands are developing new packaging methods• Citizens are uniting to further environmental concerns

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Thank You!