Low Economies Of Scale In The Fashion Industry

Introduction

Sustainability and environmentally friendly production are a growing trend amongst consumers, which is evident from current retail companies, including fashion businesses (Wiese, Kellner, Lietke, Toporowski & Zielke, 2012). The fashion industry is a large, fastly changing, international industry that ensures about 20 million people with employment. Unfortunately, the large size and the rapid development and disposal of products results in negative consequences, such as polluting production and poor labor conditions, which have gained a lot more negative media and consumer attention in recent years (Pedersen & Gwozdz, 2014). Thus the fashion industry experienced social and institutional pressure to change their ways from both

Especially as so far, not a lot of research is available on economies of scale in the fashion industry for sustainable production.

For this research, the focus will be on low price medium fashion brands engaging in sustainable fashion creation, such as Zara, H&M, Mango, Pull & Bear etc., and on how these companies are still able to achieve economies of scale in the production of these clothes. Especially considering that environmentally friendly produced clothes are generally more expensive than other clothing lines. Therefore the research question is as follows: How can low priced, medium fashion brands achieve economies of scale in the production of sustainable clothing?

Clarifying the research question, hereby, low priced, medium fashion brands refer to companies mentioned above. In addition, the conceptualization of economies of scale is explained in the following section of this paper. Lastly, sustainable clothing refers to clothing items that are produced using eco-friendly materials in an eco-friendly

The average cost of producing one product gets smaller as output increases. This thus means that there are decreasing marginal costs. (Besanko & Dranove & Shanley & Schaefer, 2017). Nevertheless, there is also the phenomenon called diseconomies of scale. When a firm has a larger output, the firm is also hard to manage and this brings extra costs. Eventually, when the firm has reached a certain size, these extra costs will outweigh the marginal benefits and thus there are no cost benefits anymore (The Economist, 2008). Economies of scale can be internal or external: internal economies of scale are cost advantages for the specific firm, regardless of the industry it operates in. External economies of scale are economies that are beneficial because of the industry a firm operates in (The Economist, 2008). In the fashion industry, brands like Zara, focus on economies of scale for internal production activities that are cost advantageous (Christopher, Lowson & Peck,