This week: how COVID-19 reveals how the fashion industry predicts trends, and why the success of solar becomes a problem.
Sandra Peter (Sydney Business Insights) and Kai Riemer (Digital Disruption Research Group) meet once a week to put their own spin on news that is impacting the future of business in The Future, This Week.
The stories this week
18:20 – The dark side of solar power
Other stories we bring up
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Kai Sandra, what are we talking about?
Sandra We always mention space news, so I think we should mention that three Chinese astronauts have flown to China's space station.
Kai Which is only half finished, so not sure how they got council approval to move in there yet.
Sandra Not even half-finished actually. So, this mission was the third out of 11 missions that they need to finish the space station, which is at this point scheduled to be finished at the end of 2022. And these guys will be on board for the next three months, the longest stay in low Earth orbit by any Chinese national. And the news is quite interesting because China's space station will be the only alternative to the ISS, to the International Space Station, backed by the US, Russia, Japan, Europe and Canada. And that's likely to be decommissioned in 2024. So at that point it is likely that this will be the only active space station.
Kai And China has spent the last decade developing its own technology to build that space station. But in other tech news from China ByteDance, which owns TikTok has more than doubled its revenue in the past financial year.
Sandra And this was a huge boom. So, usage of the app has soared during the lockdowns as well and in the wake of the pandemic, but the revenue is really quite staggering. 34.3 billion US dollars. And that's more than double what it was the year before. They've also reported a 93% increase in profit.
Kai And that is from a significant base because that nets out at $19 billion. That's an over 50% gross margin, which is quite significant even for a tech company.
Sandra And speaking of big tech, there was very interesting news out of the US, Lina Khan was sworn in as the chair of the Federal Trade Commission in the US, and she has been cleared by the Senate. And this is a very significant appointment as Lina Khan was a very harsh critic of tech monopolies in the US. And it's also someone that we covered very early on on this podcast. Back at the beginning of 2018 we discussed Lina Khan's Amazon's antitrust paradox in the Yale Law Journal.
Kai So, Lina Khan at the time stood out having finished a master's thesis which then became the basis of this article, basically arguing for a different approach to antitrust. Antitrust for decades, has always been discussed in terms of consumer prices. So, as long as mergers or a company, as large as it might be, does not raise consumer prices, might lead to low prices, it was considered non-monopolistic because raising prices was always seen as the main characteristic of a monopoly. But Lina Khan argued that raising prices is not the only way that power can show itself.
Sandra So antitrust legislation that's been around since the late 1800s always argued for companies not having an unhealthy level of power in an economy and that always translated into setting higher prices in that economy. But now, even though Amazon gets about 44 cents of every dollar Americans spend online, even though it employs about half a million people it has Amazon Web Services, most small retailers sell through Amazon, it's powering much of the Internet, the prices for consumers have still stayed really, really low. Hence, Amazon has always claimed that it can't be accused of misusing its power.
Kai So what she points out in the end is that the platform power that Amazon wields has an unhealthy effect, not on the consumer side. But on the supply side, where Amazon largely controls access to the platform. They compete with smaller companies that sell through their platform. And they very much control access to the consumer. So they are able to control and squash, smaller retailers and basically priced them out of the market. So the appointment of Lina Khan as chair of the Federal Trade Commission is significant because it signals that there is now a shift in thinking to take that broader view of antitrust.
Sandra And it's also fantastic to see how quickly this is moved. So we picked it up when there was an article in a Law Journal written by a 29-year-old junior scholar whom we even at the time thought made a significant shift in how we think about what monopoly power is. To see her now as head of the FTC is really interesting.
Kai You know who else changed her thinking? Seagulls. Apparently, seagulls have ventured far from the ocean, and they can now be found in many inland places. In Australia, as far inland as Canberra.
Sandra This was a really weird story that both of us saw around seagulls making their homes in our cities. And first I thought, surely, yes, they make their home even on my balcony, but then I'm close to...
Kai To the ocean, which Canberra arguably by any measure is not.
Sandra But we looked into this and quite an interesting story, apparently, as far as Minsk in Belarus, and St. Paul in Minnesota, and which is, you know, hundreds of miles from the Great Lakes, all these places that are now home to seagulls. And it turns out, seagulls are becoming an urban species, much like pigeons and foxes...
Sandra Raccoons, possums, so inland gull colonies are on the increase.
Kai And so the question is, how is this a business story? But it is because it is a signal of, on the one hand, changing fishing practices, there's not enough fish food waste for them in the oceans closer to the shore. And on the other hand, our landfills and the wastes that we and businesses produce have created new food sources for birds like seagulls to now venture into and create colonies in inland cities.
Sandra Well it's a regulation story as well, right? Because in in the late 50s, we stopped burning our rubbish, hence we covered landfill with a little bit of dirt. And these birds kept coming in and found a stable source of food and a place to raise their chicks. So they started moving more and more inland.
Kai Do you know who else has a waste issue? The solar industry.
Sandra Well, a waste and a regulation problem. And we definitely need to talk about this one. An interesting story from the Harvard Business Review, called "The Dark Side of Solar Power".
Kai So the article points out that it is a known fact that at some point, at their end of life, solar panels will have to be dismantled or recycled, but that this turnover is likely to happen faster as these panels become more efficient at an increasing rate, setting new incentives for both consumers and businesses to discard old panels much earlier than previously thought, and upgrade to newer, more efficient panels.
Sandra So I think we both found this a very interesting story. Because surely solar energy market being on the rise, being a rapid growth market, consumers and businesses adopting solar panels must be good news. But turns out there's a very interesting and unacknowledged dark side to this. So this has to be one of our stories for today. And as tempting as the other Harvard Business Review story around how to be creative, when you're feeling stressed was...
Kai The advice given, go for a walk, take a nap or have a snack.
Sandra I think we should do fashion instead. We came across an interesting article in The New York Times asking us "What Are We Going to Wear?". And it revolves around the role that prediction and predicting trends plays in fashion and in the retail industry, and how trend forecasters have been somewhat stumped by the pandemic and our changing habits of where we live, and where we work. And prediction in fashion. and retail is something that we've looked at quite a bit over the past few years.
Kai So COVID brings in a new angle here, but it is worthwhile taking another look at the very unique nature of predicting things in fashion, beard clothing, vs design paints and other fashionable items. So let's do this.
Sandra Let's do this.
Intro From The University of Sydney Business School, this is Sydney Business Insights, an initiative that explores the future of business. And you're listening to The Future, This Week where Sandra Peter and Kai Riemer sit down every week to rethink and unlearn trends and technology and business. They discuss the news of the week, question the obvious explore the weird and the wonderful.
Kai So the article in The New York Times, "What Are We Going to Wear?" pretty much talks about not only how the fashion industry goes about predicting the next trend or the next fashion, but how COVID-19 in the pandemic, the fact that many people have been working from home, and that this pandemic has fundamentally disrupted not only the way we live, but also what we wear, how this has derailed how the fashion industry goes about figuring out what clothes to produce.
Sandra The article makes the point that, you know, the world has rearranged itself after the pandemic in ways that no one could have predicted. And that trend spotters and people who forecast fashions, rather than going to concerts or impersonal events now are looking at TikTok, Zoom habits, not runways and fashion shows.
Kai And where previously the industry would have been obsessed with the type of clothing, you know, would it be skirts at a certain length? Would it be colours? Would it be long sleeves, short sleeves, what kind of collar a dress or shirt should have? They have much more fundamental problems now to figure out what are people actually doing? How are they living their lives when stuck at home or when they have their activities fundamentally changed even if they can get out? So the gaze has lifted somewhat from a more product-centric way of predicting, to basically trying to understand...
Sandra Instagram and TikTok.
Kai Exactly. Social media, and how we live our lives online and what we would be wearing while doing it.
Sandra And arguably, this has been easier to do. In the wake of the pandemic, we just discussed the fact that TikTok’s revenue has more than doubled in the last year, people are spending more and more time online and showcasing more and more of their life habits and what they wear online.
Kai And the point has been made that you know, in a Zoom world, we only have to dress from the waist up, meaning that consumers drastically changed what they buy, what they want during the pandemic.
Sandra And we've done an episode on Corona Business Insights looking at the many bankruptcies that have occurred in the industry, because apparel and footwear sales were down for the past year, which led to some very big names going bankrupt.
Kai You don't need evening gowns or fancy shoes when you're stuck in the house, or you're just going, you know, to walk the dog,
Sandra Which also meant that the fashion industry had to do some soul searching, but also some very quick adaptation to the emerging consumer trends and emerging consumer preferences.
Kai Which is not what they would normally do. Which brings us to our main point here.
Sandra A point that the New York Times article really backgrounds which is that this is not how retail and fashion is normally organised. Whilst we might be talking about predictions and forecasting the trends. Normally the industry is organised quite differently, and creating the trends plays as big a role as spotting them.
Kai And at the heart of this is a little-known company called WGSM.
Sandra The World Global Style Network, formerly Worth Global Style Network. And this is a UK based company founded back in the 90s. And the company predicts fashion trends up to two years in advance and pretty much predicts everything about them.
Kai And we've talked about this company in a previous episode, we're going to put the link in the shownotes.
Sandra So what they do is really predict everything from the fabrics that will be used, to kind of the styles that will be used, is it gonna be miniskirts? Or is it gonna be athletileisure, what kind of colours will be on trend two years down the line? Down to 1000s of patterns, what they'd be providing is databases of, I believe it was something like 70,000 original design patterns for everything you can imagine, from clothing to wallpaper, and then they would sell this to all the companies on the high street, to paint companies, to interior design, architecture companies, anyone who needs to be on trend.
Kai So this company predicts all of this. Or do they? Because the net effect of these predictions are that they create this self-fulfilling prophecy. So what they predict to happen in two years’ time will largely come to pass because it's what organises the industry, a lot of the fashion and retail companies will follow these predictions, create fashion in that image, and then precisely make those predictions come true.
Sandra So you're right in that we know that WGSN employs a couple of 100 researchers who try to basically figure out how we live and work. They try to figure out lifestyle trends, whether we're going to be into healthy living or whether we're going to be working from home, they try to figure out what the latest environmental trends are or what the latest music trends are or art, culture scene, sports and so on. And then they pretty much decide what the next trend is. They might be the ultimate influencers in that way.
Kai And it actually helps the industry, because by following this advice, those trends that this company spots slash creates, companies make sure that they do not bet on the wrong horse, they do not create waste that no one will want to buy. And as companies now agree largely on, you know, the colours and the kind of shapes that will dominate in two years’ time, this is what consumers will ultimately buy, because this is what's going to be on offer. So it's really beneficial to the industry as a whole to reduce waste and wrong predictions.
Sandra And it kind of works as a baseline for the entire industry that then influencers who then pick things up on Instagram or on TikTok pick from. And of course, they're not always 100% right, and sometimes there are trends and fashions that come really out of nowhere because some celebrity endorsed them or enjoyed them, but pretty much for the entire industry it creates a base on which to work, up to two years in advance.
Kai And this is actually what is happening now as the industry is going back to its normal ways of predicting or shaping what the trends will be. And WGSM, for example has predicted that the colour of 2023 will be what they call Digital Lavender.
Sandra Exactly back in April of this year already WGSM named Digital Lavender the key colour for 2023 as a gender-inclusive colour that 'represents a heightened awareness of wellness and virtual escapism, bringing both the digital and physical worlds' into alignment. Digital Lavender as the key colour.
Kai And of course, it's not the only colour there's also...
Sandra We're not doing all the colours,
Kai But there's so many colours.
Sandra But going back to the point that the New York Times article makes, which was you know, the industry finding it so difficult to forecast the trends and figure out how people are living their lives and what to produce, and the shortages in the types of things that people needed now.
Kai It's quite clear now why the industry has such a hard time reacting. Because they work on a fairly long lead time, knowing two years in advance what the shapes the patterns the colours will be they're able to adjust their production, do their forward planning based on the way the industry is organised. But when an event like the pandemic hits and consumer preferences consumer lifestyles change in such drastic and unprecedented ways, the industry finds it very hard to adjust at short notice, you know, pivoting from miniskirts to sweatpants, for example.
Sandra It will be interesting to see whether the pandemic and what's been happening over the year and a half has a lasting impact as we've seen companies like WGSM are back in the game. And as things are going back to normal, we're going back to much longer lead times. But likely the shock that the pandemic gave is not the fundamental rearranging of how this industry functions and operate.
Kai And it will also be interesting to see what the role of influencers on social media or TikTok will be? Will they be the ones that basically introduce and sell to consumers what was already predicted or shaped two years in advance? Or will they actually be the ones who set the trends, and will social media play a role in making the industry more agile and more reactive to what is actually happening out there?
Sandra Let's have a look at our second story. And for our second story, we found something really interesting in the Harvard Business Review.
Kai "The Dark Side of Solar Power."
Sandra The article makes the point that solar energy is a very rapidly growing market, that this is normally considered really good news for the environment. We want people to adopt solar tech.
Kai But the article also makes the point that progress in the industry might be too fast for its own good, in that the efficiency of new solar panels has improved so much in recent years.
Sandra And the cost has been going down rapidly as well at the same time.
Kai That it becomes now beneficial for owners of solar panels, who installed them say 10 years ago, to upgrade and replace their old solar panels way before their intended lifespan.
Sandra And that's the point that the article makes, that the replacement rate of solar panels turns out to be much faster than anyone would have expected. And that now there is the real danger that all of these used solar panels are going straight into landfill.
Kai So if we only look at solar from the point of view of efficiency, this is really good news. If we only look at it from the point of view of cost and adoption, this is really good news. But the phenomenon of premature replacement of solar panels somewhat undermines the ecological bottom line of solar as an energy source.
Sandra And the article makes the point that the large amounts of waste have always been anticipated for this industry, but that they've always been described as this billion-dollar opportunity to recapture the materials that have gone into making the solar panels in the first place, there's silicon in it, small amounts of silver, and other valuable materials that could be recycled. However, at this point, there is no real industry taking advantage of the panels that are being discarded.
Kai No, because the assumption was that there's a lead time of now between 20 to 30 years before the majority of panels would need recycling,
Sandra And the numbers that the article puts forward, and we'll include a link in the shownotes are quite alarming. And we should mention here that what they look at is only residential installations. So with commercial and industrial panels, which most organisations, most companies would have now, those numbers are likely much, much higher, hence, what they term as a dire threat rather than an opportunity to recapture valuable materials.
Kai And the reason is that because there is no real industry for recycling, it's very expensive, about $20 to $30 per panel to recapture the resources from a solar panel, whereas it only costs about $1 to $2 to put it in landfill. So a real waste problem that the industry faces should more and more consumers or indeed, economically minded businesses start replacing their solar panels that are only 10 to 12, 15 years old.
Sandra We've seen stories emerge over the last few years around just how little of solar panels are being recycled. But it's never been a real issue, because if you instal them for 30 years, obviously, there's not going to be a lot of waste, especially not in the near future. But the numbers circulated over the last few years have been something around the 10% mark, that 10% of all solar panels are being recycled. And now with very clear financial incentives for people to replace them much sooner than their expected lifetime, that number is likely to drop precipitously.
Kai So the question then is, how did we get here? Why is this happening now?
Sandra Because on reading this article, you can claim that everyone's done. Pretty much everything right? The industry is innovating very, very rapidly. efficiency of panels has improved by as much as .5% every year for like the past decade, the costs of making them and indeed the prices of solar panels has plummeted. We've had a lot of innovation in manufacturing driven by Chinese producers of solar panels, and that has driven the price down, it's made it really accessible for people to instal them. And governments have incentivised people to instal solar panels, which they have. So technically, everything has gone right for this industry. And yet, we've ended up in a situation where we're creating a lot of waste and the very innovation and the incentives that we put in place are having a net negative effect on the environment.
Kai Or indeed on the cost base of the industry. Since the economics have improved so much. And the success now starts threatening the ecological promise of the industry given the waste problem as businesses and consumers start replacing their not so old panels, regulators will be tempted to actually curb the waste problem by saddling either the consumers or indeed the industry, the manufacturers with the cost that this waste produce. So either requiring them to recycle them, build the capacity for this, or paying a penalty, or at least the cost for getting rid of the waste like we see in Europe, where manufacturers of electronics are now responsible for the recycling or the ecologically responsible disposal of their old devices.
Sandra But unlike with electronics, which people need to have, solar panels is not something that you need, so that if you burden consumers with it that might indeed curb the adoption or stop the adoption altogether. So the likelihood is that the industry will regulate producers of solar panels and will have them dispose of the waste. But currently, there are no good ways of recycling them. So the innovation still needs to happen around building the plants and the capacity to recycle solar panels.
Kai So it's a real trade-off now that on the one hand incentives work towards a very rapid adoption. But on the other hand, you don't want adoption so rapidly that you have this replacement problem. So it's a balancing act to rein in the economics to the extent that new adoption will still increase, whereas the replacement doesn't get out of control.
Sandra Yet, once you do that the incentive isn't there to innovate at this space and to drive costs down at...
Sandra At any pace. So I think this highlights something that we rarely get to see in an industry of this sort, which is that A) you have a problem of aligning its short term versus long term incentives. And these industries are being asked to think long term, 30 years, 50 years into the future. And yet the incentives work quite differently once the timeframes collapse, and people look at replacing the solar panels or innovation develops rapidly. And the second is that most often the incentives for the various parties in such an industry are misaligned. So once you incentivize people to drive innovation quite quickly, then consumers are incentivized to ditch the old products and adopt the new ones. And it's very difficult to find a way to align the incentives and the timeframes on which innovation and adoption needs to happen in something like renewable energies.
Kai So what we really need is an incentive structure that takes care of the circular nature of these industries from the start, not pushing out the problem as far in advance. But incentivizing the setup of recycling infrastructure at the present point in time so that it can kick in over the next five to 10 years as more consumers and businesses start replacing their solar panels.
Sandra One of the other reasons we found this story quite insightful was that the dynamics that are being revealed around solar technology will play out in other parts of the renewable industries as well. And we're seeing it already with wind turbine blades that tend to end up in landfill. And these are huge things made largely out of steel and fibreglass, which you would want recycled. But then we're also seeing the same thing with electric vehicle batteries. And the same dynamics asking people to innovate rapidly in battery technology drives the same kind of consumer adoption, and then waste. And according to current estimates, only 5% of electric vehicle batteries are currently being recycled, which shows you the same kind of lag and misaligned incentives in that industry as we're seeing with solar panels.
Kai And it's not only recycling that we might want to think about, it's also reuse. There are some concepts on the market where reclaimed batteries from cars are being put together to then make up batteries that can be installed in homes. Equally, we might think of ways in which solar panels might be put to use in areas where real estate isn't as constricted, you know, your roof only has a certain size. But if you put those panels that still have 20 years to go, somewhere in the outback desert where you have more space, they could still do a job there. So maybe it's a combination of incentives for recycling, reclaiming materials and reuse of batteries and solar panels that still have some lifespan in them.
Sandra But something that is critical to look at now. So as we've seen with solar panels, timeframes have really collapsed in that industry. For electric cars sales are expected to rise at about 40% a year from now on. And we've talked on this podcast previously about incentives to buy electric vehicles.
Kai And people might replace their cars because they want a newer model before the lifespan of the battery is up. And also innovation in batteries might make quantum leaps, leading consumers again wanting to replace old cars with new ones. So something that regulators and industry bodies as a whole will have to take care of.
Sandra So a very timely story. But that's all we have time for today.
Kai Thanks for listening.
Sandra Thanks for listening.
Outro This was The Future, This Week, an initiative of The University of Sydney Business School. Sandra Peter is the Director of Sydney Business Insights and Kai Riemer is Professor of Information Technology and Organisation. Connect with us on LinkedIn, Twitter and Flipboard, and subscribe, like or leave us a rating wherever you get your podcasts. If you have any weird and wonderful topics for us to discuss, send them to email@example.com.
Kai And of course, it's not the only colour. There's also...
Sandra We're not doing all the colours.
Kai And there will of course be additional colours. The company says that Luscious Red is “hyper real,” “immersive,” and “sensorial"...
We're not doing additional colours.
Kai There are additional colours. Sundial is “authentic,” “humble,” and “organic.”
Sandra We are not doing additional colours.
Kai Tranquil Blue "evokes a sense of clear and calm stillness".
Sandra We're not doing additional colours.
Kai Yeah. Verdigris is invigorating and straddles retro and digital aesthetics.
Sandra So Digital Lavender is the colour for 2023.
Kai Absolutely, but so is Luscious Red, Sundial, Tronq, trank, Tranquil Blue and Verdigris. You should check them out. They're all online. We put a link in the shownotes.