Cashmere Catastrophe

As climate change creates bigger swings in seasonal temperatures and water shortages, the impact on raw material sources for luxury apparel, like cashmere goats, is forcing fashion companies like Kering to re-evaluate their supply chain strategies.

Setting the Steppe

On the grasslands of Inner Mongolia, a herd of cashmere goats lazily graze, their pillowy coats shielding them from the elements. These fine fibers from the goats’ winter undercoats are the key raw material in cashmere products—a subset of luxury goods that have always commanded a high price point for their rarity. These products also play a large role in the current and future sales of luxury fashion companies like Kering [1]. However, as climate change wreaks havoc in regions where these goats are raised, Kering and its peers are having to react to new pressures and adapt their sourcing strategies to cope with both reduced quantity and quality [1].

Goats and Global Warming

The biggest factor contributing to the degradation of both the number of cashmere goats and the quality of their coats is increased volatility of seasonal temperatures and weather patterns. Between 1940 and 2007, the average temperature in Mongolia rose by 2.1°C, creating summers that are both hotter and drier [2]. These droughts subsequently cause severe winters called zud, which in 2010 killed over 9 million livestock animals, either by blanketing their grazing land with snow or from sheer cold [3]. The arid summers also prevent vegetation growth, which in turn prevents both the goats’ necessary weight gain to survive winter and the growth of the softer neck-hairs used in wool. Then, without sufficient food or warmth, the malnourished goats are killed off in huge numbers by the harsh winter.

To make up for this lost revenue, farmers increase the size of their herds the next year, which leads to overgrazing and further desertification—the goats’ sharp hooves tear up the soil and expose it to erosion, while their foraging tears plants out by the roots, thwarting regrowth [4]. The cyclical nature of the animal husbandry industry in conjunction with climate change threatens both the quantity and the quality of the goats’ wool [5].

Desertification Risk for Cashmere (Darker Green = Higher Risk)

Exhibit 1: Climate Change Risk for Cashmere (Darker Green = Higher Risk)

Commotion at Kering

As one of two major luxury conglomerates in the world, Kering owns a number of brands (e.g., Gucci, Saint Laurent, and Brioni), many of which are dependent on cashmere for their products [6]. However, without a consistent quantity or quality of raw cashmere wool, Kering will not be able to continue producing its goods to meet growing customer demand. Given this and the gravity of the current situation, Kering decided to partner with BSR (Business for Social Responsibility) to develop a report that encompasses the major threats to its raw material supply chain and the company’s approach to solving these issues [1].

In structuring its response, Kering identified three main steps in an iterative process to invest in targeted raw material resilience [1].

  1. Identify priorities: Kering recognizes the value of cashmere in its product mix, and they also understand how climate change is affecting the physical geography of the raw material production area and its subsequent impact on the farmers and goats that live there.
  2. Take action and set targets: Once critical inputs are identified, Kering then lists out steps they can take to build a stronger supply chain, including disaster-warning and risk-management systems for producers in the event of extreme weather events (like zud). To maximize impact, Kering is supporting the Wildlife Conservation Society in the South Gobi region to work with goat farmers on better grazing and animal husbandry practices to prevent desertification [6].
  3. Monitor impact: After targets have been set, Kering works with producers to improve the resilience of the supply chain, measure its goals on a periodic basis, and refine targets as necessary.

Fibers of the Future?

Kering has already developed a relatively robust plan, and it has committed to annual reporting of its sustainability goals [6]. Given the widely dispersed nature of the goat farming industry, especially in Mongolia, the company is approaching the problem in a sensible way by partnering with organizations like the Wildlife Conservation Society and the Sustainable Fibre Alliance [1]. Nevertheless, going forward, there are at least three other radical steps that the company can take to ensure not just the availability, but rather, the sustainability of a key raw material.

  1. Reduce SKUS or raise prices: By reducing its product offering and/or raising prices, Kering would be able to support more sustainable cashmere programs, sending a signal to the market about its position on such materials.
  2. Genetically-engineered goats: New innovations in breeding have created goats who yield higher production rates of the softer fibers needed for raw wool [7].
  3. Technical substitutes: Fabric development is an area where Kering can invest resources to find new textiles that either mimic cashmere’s qualities or replace demand for it in the markets.

 

Word Count: 777

Sources

[1] H. Crowley et al, “Climate Change: Implications and Strategies for the Luxury Fashion Sector,” BSR Working Paper in collaboration with Kering. BSR, San Francisco. https://www.bsr.org/reports/BSR_Kering_report_Climate_Change_implications_and_strategies_for_the_luxury_fashion_sector.pdf, accessed November 2016.

[2] D. Dagvadorj et al. “Mongolia Assessment Report on Climate Change 2009,” 2009, http://www.unep.org/pdf/MARCC2009_BOOK.pdf, accessed November 2016.

[3] Pearly Jacob, “Mongolia: Herders Caught Between Cashmere and Climate Change,” EurasiaNet, June 6, 2016, http://www.eurasianet.org/node/65506, accessed November 2016.

[4] National Resources Defense Council, “Soft Cashmere is Hard on the Environment,” August 2011, https://www.nrdc.org/sites/default/files/CBD_FiberFacts_Cashmere.pdf, accessed November 2016.

[5] Kate Abnett, “Solving the Cashmere Crisis,” Business of Fashion, November 26, 2015, https://www.businessoffashion.com/articles/intelligence/solving-the-cashmere-crisis, accessed November 2016.

[6] Kering Sustainability Communications, “Beyond Our Limits: 2012 – 2016 Sustainability Targets Final Report,” May 3, 2016, http://www.kering.com/sites/default/files/Kering_Sustainability_Targets_Report/index.html, accessed November 2016.

[7] Sarah Zhang, “Would You Buy a Genetically-Engineered Cashmere Sweater,” The Atlantic, October 26, 2016, http://www.theatlantic.com/health/archive/2016/10/cashmere-goat-crispr/505163/, accessed November 2016.

Cover Image

Source: http://www.theatlantic.com/health/archive/2016/10/cashmere-goat-crispr/505163/

Exhibit 1

Source: https://www.bsr.org/reports/BSR_Kering_report_Climate_Change_implications_and_strategies_for_the_luxury_fashion_sector.pdf, page 46-47

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4 thoughts on “Cashmere Catastrophe

  1. The actions laid out are interesting to think about, especially given how materials providers have adapted in the past. It seems like #1 is the traditional method – raise prices, however I am concerned that at the high price point Kering is selling its products at, that demand for these cashmere goods is inelastic. #2 is a great option for the company to fight the rising cost, but I wonder if it would have a positive impact on the climate change since it only provides more wool supply.

    Number 3 seems highly compelling and also represents an opportunity for Kering to have a positive impact on climate change from a supply chain standpoint and material development standpoint. From a supply chain standpoint, cashmere comes from areas far away from where it is ultimately sold, as a result, I would imagine that a lot of energy is used to get the fabric from the goat to the store. If there was an opportunity to use a substitute product that was produced closer to retail locations, that could be an exciting way for Kering to minimize its supply chain costs and environmental footprint. I do not have much information on the energy costs of producing cashmere versus other comparable materials but it would be interesting for Kering to examine the environmental impact of their fabrics and adjust production in a sustainable manner.

  2. Really interesting post. Also reminds me of some cashmere sweaters I recently bought for 90% off…I guess JCrew is not really thinking about option 1!

    Until I read your post, I wasn’t completely aware of the complexities involved with raising cashmere goats and why exactly their wool is so special and rare (other than it is soft and warm). Options 2 and 3 are definitely interesting from scientific and business points of view, but cashmere is a luxury good and I can’t help but think that traditional cashmere customers will not be happy about new products from these options. Producers might be able to get away with option 2: it’s still a cashmere goat at the end of the day, and consumers likely won’t perceive any differences. How would implementation of this option work? Do you think Kering would be the one to partner with labs and research organizations and invest in their genetics programs? Reading The Atlantic article you referenced, I feel they could also run into some troublesome regulatory issues with the Chinese government. Meanwhile, Option 3 feels like the cubic zirconia vs. diamond issue. Cashmere is cashmere at the end of the way, and while Kering and others may be able to develop new product lines with other fabrics, I don’t really see this as a viable option.

    Interesting read!

  3. Thank you so much for sharing, this was really interesting, considering I hadn’t really even begun to think about how climate change might be impacting the luxury goods industry! I’m curious though- how is Kering, along with the Wildlife Conservation Society, incentivising these goat farmers in the South Gobi Region to work towards outcomes that they only derive a very minimal, trickled-down benefit from?

  4. Great post, A.Pi!

    The options you lay out for Kering to pursue are very thoughtful and raise several additional questions and thoughts in my mind. Option #1 seems to be the most logical and easiest to implement, but I would want to see Kering reinvesting in making cashmere sustainable because ultimately even with higher prices consumers would continue to demand cashmere. Option #2 could raise other environmental concerns potentially around disrupting natural breeding. I think Kering could be better off trying to support natural goat breeding and potentially introducing cashmere goats in new climates that are more suitable for them given climate change. Option #3 is also interesting but I’m not sure it totally solves the problem; as long as cashmere is on the market, many luxury consumers will demand the ‘real thing’ instead of a synthetic material. I believe Kering would be better off investing in goats and other sustainability initiatives rather than waste the R&D on an alternative product.

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