Fashion was designed for the first sale. Circularity is asking what happens after it fails.

For years, the fashion industry has treated the first sale as the centre of the business model. A fashion house designs a product, commissions production, moves inventory through a distribution network, markets it to a primary customer and measures success through the sale. The model is fundamentally linear: make → market → sell → replace.

The problem is that the physical product does not disappear when the commercial transaction fails. A garment can remain unsold. It can be returned. It can become obsolete. It can be discounted. It can move into an outlet. It can be donated. It can be exported. It can eventually become a used garment or a textile waste stream. The product has a life beyond the primary sale. The business model, however, has historically been much less prepared for it.

From 19 July 2026, large companies in the EU are prohibited from destroying unsold apparel, clothing accessories and footwear, subject to specified derogations. Medium-sized companies will come under the prohibition from 2030. The European Commission estimates that between 4% and 9% of textile products placed on the European market are destroyed before use, equivalent to 264,000–594,000 tonnes every year. The measure forms part of the Ecodesign for Sustainable Products Regulation (ESPR), intended to improve the durability, repairability, recyclability and resource efficiency of products placed on the EU market.

It is tempting to interpret this simply as another sustainability regulation. That misses the point. If a company produces 10,000 garments, the commercial objective has traditionally been to sell those garments to the primary market. But what happens when some of them do not sell? Historically, the answer has been some combination of markdowns, discounts, outlet sales, returns processing, liquidation, donation, storage or destruction. The EU is now effectively asking companies to stop treating destruction as the final answer. Under the new rules, businesses must prioritise selling products — including through discounts or alternative markets — donating them to charities or social enterprises, or preparing them for reuse through repair, refurbishment or remanufacturing. Destruction is permitted only in specified circumstances. That changes the question from “How do we sell this product?” to “What is the next-best use or market for this product if the primary market has failed?” That is a fundamentally different operational problem. It is also a circular economy problem. And, importantly, it is a financial problem.

The European Commission’s explanation of the ESPR makes the economic logic explicit: when usable goods are discarded, the raw materials, water, energy and labour invested in their production are lost. Disposal also creates avoidable emissions. The regulation is not simply saying “Don’t burn clothes.” It is saying: “You have already invested resources into making these products. Why is your business model not designed to recover value from them?”

Circularity is often presented as another investment that fashion businesses must make: invest in resale, rental, repair, take-back, recycling, reverse logistics, new technology. These things can absolutely create value. But they can also create another layer of operating costs. Fashion rental is a useful example. Rental increases the number of customers who can use a garment, but it also creates an operating system around every additional use: transportation, returns, cleaning, quality control, repair, inventory management and eventual retirement. Research on fashion-rental businesses identifies two-way distribution logistics, cleaning, repair, inventory management and customer returns as significant operational challenges. This is not an argument against rental. It is an argument against treating rental as an automatically circular solution without examining the infrastructure required to operate it. Global Fashion Agenda’s research on reverse logistics reaches a similar conclusion: a circular system requires network design, clear financial ownership models and sufficient collection volumes to make reverse flows commercially viable. It also argues that reverse logistics should expand beyond consumer returns to include post-industrial waste and unsold goods.

The question should not be “Which circular business model should fashion invest in?” It should be “What happens to the product at every stage at which the original commercial model stops working?” Imagine a simplified fashion business: 10,000 units enter the commercial system. The old model is designed around the primary customer: 10,000 units → primary market → sales. But reality is more complicated. Some inventory sells immediately. Some is discounted. Some is returned. Some becomes aged stock. Some moves to another market. Some can be resold. Some can be reused. Some can be repaired. Some can be remanufactured. Some eventually become material for recycling. The mistake is to think of these as failures of the circular economy. They are actually different stages of product throughput. A realistic fashion business therefore needs to ask: how efficiently can we move a product through its possible markets and uses before its economic and material value is exhausted? It is not simply how quickly can I sell this garment — it is how much value can I recover from this garment across its useful economic life.

Fashion already understands liquidation. When inventory becomes commercially difficult to sell, businesses use markdowns, outlets, wholesalers, discount channels and other mechanisms to recover some value. But liquidation is generally treated as a final commercial clean-up operation. Circularity gives us an opportunity to rethink it. Instead of asking “How do we get rid of the stock?” we can ask “What is the highest-value viable destination for this stock?” A garment that cannot sell at full price may still have value in a secondary market. A returned garment may be suitable for resale. A discontinued product may have demand in another geography. A damaged garment may be suitable for repair. A garment that is no longer wearable may have material value. The objective is therefore not to force every garment into resale, rental or recycling. It is to establish a hierarchy of recovery: primary sale → secondary sale → redistribution → reuse → repair/remanufacture → material recovery → recycling. The appropriate route depends on the product. That is why circularity should not necessarily be understood as a single business model. It is an infrastructure problem.

The Global Fashion Agenda and BCG’s Fashion CFO Agenda 2026 estimates that textile extended producer responsibility could reduce net profits for large mass-market fashion companies by roughly 4% by 2030. At the same time, the report estimates that around 70% of fashion-sector emissions could be reduced at low cost or with cost savings. That tension is important. If circularity is simply presented as another cost imposed on fashion companies, it will be treated as a margin problem. But what if part of the answer is to recognise that fashion already has a margin problem caused by inefficient treatment of its physical inventory? A garment that is produced but cannot be sold is not merely an environmental liability — it is a depreciating asset. A returned garment is not merely waste — it is an asset whose original sales channel has failed. An end-of-use garment is not necessarily worthless — it may still contain economic or material value. The circular economy therefore has the potential to become less about adding costs to fashion and more about improving the industry’s ability to recover value from the products it has already paid to produce.

This is what could be called circular liquidation. Not another rental platform. Not another resale marketplace. Not simply another recycling company. Instead, infrastructure that asks: What do you have? What condition is it in? Where is it located? What markets could absorb it? What is it worth? What is the highest-value viable recovery route? What evidence can demonstrate what happened to it? This could cover unsold stock, returned stock, aged inventory, customer returns, post-consumer products, damaged goods, end-of-use textiles. The objective is to keep products and materials moving through the economy for as long as economically and materially possible. Global Fashion Agenda’s reverse-logistics framework recognises that this requires more than collecting customer returns — it calls for systems that capture and valorise post-industrial waste and unsold goods, clarify financial responsibilities and build the infrastructure needed to process materials at scale. The future circular fashion system is not simply about creating a new consumer experience. It is about redesigning the infrastructure around the physical flow of products.

The traditional fashion model effectively draws a box around the primary transaction: FACTORY → BRAND → RETAILER → CUSTOMER. The customer is treated as the end of the commercial system. A circular fashion system needs to draw the box much further: FACTORY → BRAND → PRIMARY MARKET → SECONDARY MARKET → REUSE → REPAIR → REMANUFACTURE → MATERIAL RECOVERY → RECYCLING. The important question is not whether every product follows every route. It is whether the business has a planned route for the products that do not follow the first one. That is the real shift.

Perhaps the more uncomfortable conclusion is that the fashion industry may have been eating some of its own profits by failing to design for the reality of its throughput. The environmental cost is obvious: resources are embedded in products that may never be used. But there is an economic cost too: capital is tied up in inventory, warehouse space is consumed, markdowns reduce realised value, returns create reverse-logistics costs, unsold goods depreciate, disposal destroys residual value. The industry then has to produce and sell more products to generate the next round of revenue. A more mature fashion business would therefore not ask only “How much did we sell?” It would also ask “What happened to everything we produced?” and “How efficiently did we recover its value?” ESPR, EPR and other circularity policies are not simply asking fashion companies to become more environmentally responsible. They are increasingly forcing the industry to account for the full economic life of the product. The future fashion company may therefore not be the one that finds the most ingenious way to sell another garment. It may be the one that becomes exceptionally good at deciding what happens next when that garment stops selling. That is where circular recovery begins.