Economic Context

The economic context in which the European second-hand clothing trade is embedded, is influenced by factors that determine demand and supply of second-hand clothes. Supply and demand is rapidly changing due to changes in the global economy and markets, related to factors such as fast fashion dynamics, purchasing power of local populations or trade barriers for second-hand clothing imports. What has to be noted however, is that supply is not driven by demand but by a vast surplus of discarded clothes, sparked off by fast fashion consumption patterns in the Global North (Paras et al. 2018a). While supply of second-hand clothes in European countries has been increasing within the last years, demand has been stagnating (Interview 13).

6.1.2.1Supply of Second-Hand Clothes

The supply of discarded goods is inelastic and not determined by demand. Rather by conditions of the global economy and markets, such as current fast fashion dynamics (Crang et al. 2013). Some of the interviewees highlighted the increase of inferior quality clothes with a shorter lifespan on the German market due to an increase of shops of low-cost providers, such as Primark (Interview 1, 17). Further, a representative of a sorting facility in Germany stressed that the quantity of waste in collection containers has been rising. “It even happens that there are 70 percent waste and only 30 percent re-use in the collection containers” (Interview 9). These developments increase resources needed for the sorting process and have a downward effect on prices, as there is currently not enough demand on the international recycling market for the continuously rising quantities of non-reusable textiles (Interview 5, 9, 13, 17).

An indicator for the quality of clothes and hence the percentage of waste in collection containers within a region or municipality, can be the local purchasing power. While purchasing power can be used as a classification of different countries in the GPN of second-hand clothes, which has been discussed in chapter 5.1, purchasing power is also an indicator to classify regions within a country based on the quality of clothes donated. One interviewee highlighted that the local market can be analysed on the basis of purchasing power, and this is an indicator when selecting a tender issued by a municipality for the collection of discarded clothes (Interview 15). The great differences between the quality of discarded clothes donated in the North and East or the South of Germany, has been highlighted by one of the representatives of a charitable actor based in Munich. The interviewee outlined their advantage with regards to prices that are paid from commercial actors for their collected goods, as the quality of discarded clothes in Munich is still high compared to other regions in Germany (Interview 4). Representatives of both charitable and commercial collectors highlighted that vast amounts of time and resources are spent on the selection and search of suitable container locations. This is done in order to reduce the amount of waste in the collected quantity, and increase profit margins (Interview 4, 6, 9).

Another factor that influences supply and impacts processes and activities within the GPN is the donation behaviour of the local population. Various interviewees highlighted that supply of second-hand clothes varies greatly within a year. The donation behaviour of people shows that in general, summer clothes are donated in autumn, while winter clothes are donated in spring (Interview 1, 2, 3). According to one of the interviewees collection rates are twice as high in January and August, which makes it difficult to adjust processes and capacities to fluctuations in supply (Interview 5). In order to cope with this, interviewees stressed the importance of storage facilities (Interview 1, 4, 5). Such facilities however imply extra costs and resources, which charitable actors often lack (Interview 4).

Further, technological advancements with regards to increased digitalization have an impact on supply of second-hand clothes. Within recent years, more and more online platforms have started offering high quality second-hand clothes, so called cream goods, through their websites. The leading online marketplace for second-hand clothes is the US-based company thredUP, which delivers to over 44 countries, among others Germany and Austria. The organization receives up to 100,000 pieces daily, and has automated sorting, processing and distribution using sophisticated algorithms that

assign a custom resale value to each newly arrived piece. Similar companies are active in the European market, such as the brand Ubup, Germany’s largest second-hand online shop, employing 1,300 employees and operating through five warehouse locations (CCK 2019b). According to some of the interviewees, people increasingly sell branded clothes to such online providers instead of donating them. Thus, the original consumer of clothes captures value. This has a crucial impact on actors in the GPN of second-hand clothes, as cream goods are the product group from which they can extract most profit. Hence, interviewees outlined that such online platforms constitute a crucial competition, which importance potentially even increases in the near future (Interview 5, 13, 22). One of the representatives of a sorting facility in Germany outlined that their organization responded to these developments by launching an online shop for high-grade luxury goods, in order to diversify the customer base and increase profit margins (Interview 9).

6.1.2.2Demand of Second-Hand Clothes

Contextual factors that affect demand of second-hand clothes are influenced by the availability of export and local markets. Increased trade barriers on the global market of second-hand clothes influence the European used clothing market (Interview 2, 3).

While exports of used clothes from countries in the Global South increase, especially South-East Asian countries (Figure 5), at the same time, some of these countries, such as China, have banned imports of different waste streams from Europe, including used textiles (Ljungkvist et al. 2018). These developments affect the European production network of second-hand clothes, as on the one hand, the quantity of second-hand clothes is increasing, on the other hand, export markets are diminishing due to a rise in trade barriers and import restrictions (Interview 13, 15).

Another factor influencing demand of second-hand clothes is the economic development of export markets. Due to an increase in purchasing power, the role of many export markets for second-hand clothes within Europe has been changing (Ljungkvist et al. 2018). Various interviewees have mentioned a rise in demand of higher quality by customers in established markets, such as Eastern European and African countries. This is due to a rise in purchasing power as well as the fact that actors are aware of the market situation with surplus supply of discarded goods and not enough demand. This leads to the fact that a rising share of still re-usable clothes is sold on the international recycling market, as there is simple no demand for low grade used clothes (Interview 3, 9; Ljungkvist et al. 2018).

Empirical investigation shows that demand on the market for used textiles strongly differs from demand on the second-hand clothing market. In general, there is a greater demand for sorted clothes than original goods, as the European market is flooded with unsorted goods (Interview 3). Further, there is a huge price difference between sorted clothes, and unsorted goods. The more precise the sorting process and the better the categories are matched to export markets, the greater the profit margins for actors.

Conversely, unsorted goods are sold based on world market prices, which makes them more exposed to market fluctuations (Interview 3, 5). Against this background, various interviewees highlighted that they had to increase the efficiency of their sorting processes in order to cope with current market developments (Interview 3, 4, 5, 9).

Summing up, it can be seen that various institutional factors influence the economic context with regards to supply and demand of second-hand clothes. They have an impact on the ultimate destination of used clothes and have a crucial effect on prices, and capture and distribution of value (Watson et al. 2016). It is clear however that there is no correspondence between supply and demand of second-hand clothes, as sourcing is dependent on an uncontrolled donation of clothes. This donation can be stimulated by actors, and charity discourses as well as the historic embeddedness of actors within society plays a key role. Hence, economic activities and the role and behaviour of actors within GPNs are greatly influenced by the social context in which they operate (Henderson et al. 2002).