Circular fashion: how to turn a compliance cost into value creation

As circularity becomes a regulatory requirement, strategy consulting firm Kearney identifies four levers for integrating it into brands' business models.

In its Circular Fashion Index 2026 report, the US firm analysed the circularity practices of 241 fashion brands across 21 countries.

The result: the most operationally demanding circular models, such as repair, second-hand fashion, and rental, are still underdeveloped. 63 percent of brands have limited repair activity, 66 percent in second-hand fashion, and 89 percent in rental.

Their growth remains conditional on consumer demand, economic viability, and the ability to operate these services at scale.

Simultaneously, regulation is turning circularity into a prerequisite for market access.

While this creates obligations, the question is whether the necessary investments will remain a compliance cost or contribute to value creation, becoming part of the business model.

The challenge, raised by Kearney, is to transform these constraints into a management tool and, potentially, an advantage. To this end, the firm proposes four levers for action.

Integrating circularity into ordinary business decisions

Circularity should not be an ancillary programme managed solely by sustainability teams. The commercial, sourcing, finance, and operations functions must integrate it into their decisions and trade-offs: which collections to produce; which materials to secure; which services to develop; and where to invest.

Transforming regulatory data into a management tool

Since brands must collect information about their products and suppliers, particularly for the Digital Passport, Kearney recommends creating a reusable file rather than producing data separately for each regulation.

The same data can then be used for design, sourcing, after-sales service, repair, resale, or end-of-life management.

Organising circularity with value chain partners

A brand cannot single-handedly manage recycling, sorting, reverse logistics, or certain materials. Kearney suggests clearly defining who does what, who measures the results, and, most importantly, who remains accountable to the consumer.

Extending the economic calculation to the product life cycle

According to Kearney, brands should no longer focus solely on the margin from the first sale. They must also integrate the risk of unsold stock, future material availability, regulatory costs, and the value the product can retain or recover after its first use.

This logic can lead to very concrete decisions: developing certain products; redesigning others; investing in certain circular models; or, conversely, abandoning them when their economic equation is poor or their environmental benefit is not credible.

In other words, a product's environmental impact should be considered before the decision to produce it is even made.