Recover’s Recycled Cotton Fiber Unlocks Sustainability

Speaker 1:
Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
A critical solution for the growing circular economy, material science and cotton innovator, it's called Recover. What is Recover? Recover is a leading material science company and global producer of low impact, high quality recycled cotton fiber and fiber blends. This is a visionary podcast series about visionary ideas and people. My name is Oliver Chen. I'm Cowen's new platforms, retail and luxury analysts. And this episode of our retail and luxury visionary podcast series, we're excited to spend time with Samir Shah, a board member of Recover and Helene Smits, chief sustainability officer of Recover. Helene Smiths is the chief sustainability officer of Recover and Helene was previously the founder of Stating the Obvious, an independent consulting firm focused on advising the fashion and textile industries on the circular economy. Helene also established the circle textiles program at the Circle Economy company in 2014 and served as a sustainability expert consultant for Squarewise. Samir Shah a board member of Recover and managing director on the investment team of STORY3 Capital Partners, which is an investor of Recover. Thanks for joining us.
Samir Shah:
Thank you for having us.
Oliver Chen:
So what's the mission of Recover and what are your core competencies?
Samir Shah:
Sure. So Recover is a leader in disruptive circularity. Recovers a material sciences company that's reimagining the apparel and textile industry by producing innovative low impact high quality recycled cotton fiber. Recover has really cracked the code to produce recycle cotton fiber at scale in an economically feasible way. And in a way that permissions use at scale in products such as fine knit apparel. It's unique. We play in the white space and it's the leader in the white space providing scale solution.
Oliver Chen:
Samir, the Recover brand also has really great brand equity in the marketplace. How is this brand defined and what have you done in terms of thinking about Recover's brand at large?
Samir Shah:
Sure. So Recover is developing a brand, a brand that's a modern leader in sustainability. Recovers a brand that emotionally resonates with consumers across the world. And again, being sort of having a modern ethos and being a leader within the sustainable world. So what we will do is we'll work with our retailer and brand partners to help them amplify their messages to their consumer base by doing sort of co-marketing with the Recover brand. So what that means is we'll produce as examples, hang tags that are co-branded with our retailer and brand partners. These hang tags will contain amongst other things messages around the impact of that particular item of clothing or recycle cotton fiber in general, in terms of water savings and other sort of interesting environmental impact metrics. We'll also will allow interesting content on social media of our retailer and brand partners. And we'll do a whole host of other things to help them sort of best emotionally resonate their message to their consumer base around sustainability by sort of holding their hand with us and co-marketing with us around the topic.
Oliver Chen:
You also have many well known global customers, which are both very cool and large. Who are some of them?
Samir Shah:
Sure. So Recover works with many of the largest brands and retailers across the world. Examples are Primark, Inditex, CNA, Revolve, Ikea, really the demand for the product is unprecedented. In boardrooms, and when we go into these boardrooms, everybody's searching for a solution to this problem around sustainability. So the demand in our view is unprecedented. And again, we deal with most of the largest brands and retailers in the world. In addition to the premier vendors across the world, with whom we have strategic partnerships and make our product really plug and play from the retailer and brand perspective in a cost competitive manner in relation to non recycled cotton fiber.
Oliver Chen:
How do you think about your total addressable market as you're disrupting the traditional cotton fiber market?
Samir Shah:
So, I can step in there quickly and Helene please feel free to chime in. So, very simplistically, we think of the addressable market as the 26 million metric tons of cotton fiber that is consumed each year within the apparel and textiles industry. In our view, that's a conservative way of looking at the addressable market because that assumes no growth over X number of years. And it also assumes there's no conversion of sort of other types of fibers into using recycled cotton fibers [inaudible 00:05:19] we've assumed does not grow from those things. So 26 million metric tons. And just to simplistically say kind of the scope of the opportunity, Recover even at a billion dollars of revenue a few years down the road, they're just going to be a little bit over 1% of that total addressable market. So there's a lot to do. It's a white space and Recover's a leader there.
Oliver Chen:
What about your products? How do you ensure that they're differentiated and what's the nature of your competition?
Samir Shah:
So I mentioned just a minute ago, Recover plays within a very large white space. Recover is the first mover in the space. There's no scale player aside from Recover that provides recycle cotton fiber at scale. Historically, there's been, and there continue to be smaller firms that produce recycle cotton fiber, but typically they do it for course applications such as socks and towels and things of that nature. Recover over sort of four generations of families, 70 plus years from a product perspective, it's really cracked the code to kind of permission the use of recycled cotton fiber for fine knit apparel and similar type applications that requires extreme level of quality and clarity of the fiber, as well as the right length to make it strong enough to use in these applications. That may seem easy on the surface, but it's actually quite difficult and quite nuanced. And Recover has spent many, many, many years, generations of family kind of perfecting that product.
And they've really cracked the code to do that at scale and to do that in an economically efficient way. So within sort of the mechanical recycling space, it really has no competitors. It's a white space again. There are others who are scaling up and there's lots of capital behind things like chemical recycling of cotton fiber, but that's a totally different process. It's less sustainable in terms of environmental impact. And also in most cases, it's kind of in the phase of, we think it's going to work, but we're not quite sure. So let's give it a few years and we'll see where we are. Whereas something like our product, mechanical cotton recycling, the way that Recover does it is proven today, can happen an immediate impact today on the environment.
Helene Smits:
Exactly. And just chiming in on that, because indeed we can achieve that impact right now today. And the chemical recyclers, even though some might say this is your competition, I would really consider them more complimentary than in competition because there's really a potential for synergy of the two technologies actually. Our technology, mechanical recycling can keep cotton properties also in the system for a longer time. We have a very low ISG impact as Samir also said, and lower costs. And chemical recycling is much more resource intensive. But the great thing about it is that it could potentially regenerate the fiber, but it turns cotton fiber into a manmade cellulosic fiber. They're quite complimentary actually. And even can make a great hybrid product in the future where mechanically recycled fibers can bring the cotton properties. And these regenerated fibers can bring some of the strength to create 100% recycled product. So I'm seeing actually a lot of opportunity in kind of being complimentary with these technologies.
Oliver Chen:
Helene on that topic, how are your products at Recover superior to competition? Furthermore, how does Recover think about innovation and the opportunities ahead?
Helene Smits:
Our products really have the lowest possible impact. We are, let's say the lowest impact cotton fiber that is available in the market, looking at different indicators, not only climate impact, but also chemicals, water impact of course, we use a fraction of the water that is used normally for cultivating virgin cotton. So that's really something to consider. We also outperform organic cotton and other sustainable fibers that are out there in the market today, like recycled polyester or TENCEL. These are considered to be now kind of the premium sustainable fibers. So on the topic of sustainability, really recycled cotton, Recover recycled cotton is yeah, the premium that is available.
Oliver Chen:
Demand is so strong. What's your order book look like?
Samir Shah:
Sure. So we really see endless demand from our perspective, as I mentioned. So we have an order book that's half a billion dollars plus, and it's growing every day. It's really unprecedented demand that we're seeing.
Oliver Chen:
Stepping back, what is circularity? You're a leader in circularity. And how does Recover fit into this concept? And very important topic at Cowen as well.
Helene Smits:
Yeah, very good question. So, I mean, in a linear system, we kind of take, make, and throw away. Right. So this is wasteful. In a circular system, we keep reusing, repairing, recycling materials and products in the system, which means that we can reduce our dependency in virgin materials and they are becoming actually increasingly scarce. Also, if you look at what's going to be the demand for cotton in the future, there's not going to be enough land and enough water to produce all of that. So we really need to look at how do we keep the materials that we produce in the system longer and decouple the growth that we need to have as an economy. We all need to still have clothes. We all still need to wear clothes. How can we decouple that from the use of resources and the impact that that generates?
So that's really what kind of this circular system is about. And Recover fits into that conversation in a very essential way, because this is what we do, we turn waste into a new product. We do also do that in a very low carbon way because circularity is important. But then, we also need to think about the climate targets. So with our solutions, we really support brands to hit their targets on sustainable materials, ESG targets and circularity targets kind of at the same time.
Oliver Chen:
Very impressive. At Cowen, we believe the future of the customer is something we call STAR, sustainability, transparency, authenticity, and re-commerce. So it dovetails quite well. What about consumers in relation to what we're talking about? How has consumer sentiment evolved towards recycled cotton and what do you see happening with adoption?
Helene Smits:
So well in general, consumer sentiment definitely has changed already. I mean, younger generations are more and more environmentally conscious. They're checking the social and environmental credentials of products and brands before they purchase something. So this is really becoming more and more important. However, it always takes a little time for consumers to kind of recognize and embrace specific new materials. Looking at recycled polyester from bottles, 10 years ago that was new, consumers didn't know it, they had to learn about it. And now it's very, very common and almost everybody has a product that is made with recycled bottles. And so I really believe that with cotton, we will see the same. Organic cotton now is I guess the most widely known sustainable option under consumers. But now with more and more big retailers that we work with and brands bringing out products with recycled cotton, communicating about it, this acceptance and awareness will grow. The recognition will grow. And so I think also the appetite definitely will grow.
Samir Shah:
At the boardroom level you asked about consumers, but at the boardroom level, it's interesting to us to see the level of demand that's really unprecedented from our viewpoint. You go into these boardrooms, inevitably, sustainability is at the forefront of what they're talking about or the top of the list. And everybody is searching for a solution to this problem. It's a big problem as you know, in the apparel industry. There's no great solution. Everybody wants a silver bullet. They want something that's plug and play, that's cost competitive and that's a scale solution. So at least as it relates to recyclable cotton fiber, we found that our product resonates greatly with these same constituents, because again, we make it sort of plug and play, it's cost competitive. It's an easy solution for them. And we're kind of everywhere in the world that they need us to be whether it's Bangladesh, Pakistan, Vietnam, South America, or elsewhere. But the demand is just immense. It's never ending from our perspective. And it's really about how fast can we supply the product?
Oliver Chen:
Yeah. Samir, who are some of your prominent customers? And as you think about manufacturing, what's ahead in terms of what you're going to do in your own supply chain to help broaden the fiber across product lines and geographies?
Samir Shah:
Sure. So I think I mentioned before a few. So our customers are generally the largest, most well known global brands and retailers in the world, whether it's measured. So their impact is measured by size or a leader within a particular niche or what have you, but generally speaking, we have a broad group of customers, retailers and brands that are global in nature. Some examples are Primark, Inditex, CNA, Ikea, there's many, many more, but generally speaking, you name it, we're either working with them today or we're having a conversation with them today. Also in terms of our customer base, importantly, we serve the premier sort of vendors across the world. So these are the same vendors that serve these retailers and brands. And the reason that we do that is because we can make our solution plug and play from the retailer and brand perspective.
So we'll form strategic partnerships with these global vendors, work with them for a lengthy period of time develop, co-developed fabric libraries, run our products through all their systems, optimize the way that they spin the fiber for example, into yarn where the Ferre family who is the founding family of Recover has a lot of experience. And we'll make the solution quite easy from the retailer and brand perspective. So as an example, we can have an interaction with the CEO of brand X. They'll say, this is quite interesting. That person will call his or her supply chain head. That supply chain head will then call our strategic partner vendor who works with them generally speaking. Our vendor will tell them, Hey, we have a fabric library already developed. Come and just pick what you want. It's plug and play.
We can make this happen and it's economic and be cost competitive relative to non recycled cotton fiber. And that sort of goes hand in hand with your other question, which is what are we with production? So we're scaling our solution across the world. And we're co-locating our scale manufacturing facilities in countries that are sort of the hubs of global production for the apparel industry today. So why do we do that? We do that because most importantly that lessens the sustainability impact, the environmental impact of our production if we're close to both the raw material input and the output in terms of where we send the fiber to that reduces all the transportation costs and really significantly reduces the environmental impact of our product. We also find that being in these countries for those same reasons is economically more efficient in terms of logistics and other related costs. So for example, we're in Bangladesh, we're in Pakistan, we're opening up in Vietnam, we're looking at South America. So again, we're everywhere our vendor and retailer brand partners need us to be in the world to make this happen and have the least sustainability impact.
Helene Smits:
Well, I wanted to add, because I think that all of this is very true. At the same time, we have also the attractive feature that we can really model all of that impact production through our LCA tools that we have. We model the scope one, two, and three impacts of our products. We're going to do globally for every hub that we open. And so all this data is available to brands which they can then translate to their consumer and really have this transparency that the consumer nowadays is requiring from them. So this is also really something that is seen as a value add too to our customers.
Oliver Chen:
Yeah, the whole integrated solution and thinking holistically about what you can provide. Samir, what about unit economics? The payback period is very attractive at 11 months and generally there's so much opportunity. How are you balancing profitability relative to growth and the CapEx needs as well as investing and seizing the opportunity ahead?
Samir Shah:
Sure. So we've developed, the company has developed over many years, again, a few generations of the Ferre family, a process which works, which is repeatable and which is quite differentiated in the marketplace in terms of embedding proprietary knowledge at each and every step. So because of that, we have quite an attractive payback period as you reference, 11 months. But fortunately the process of that machinery and the production process is quite repeatable. So our strategies kind of take that and we implant it in, again, Bangladesh, Pakistan, Vietnam, or elsewhere in the world. It's a very repeatable process. What we also do because we're smartest to know that we don't know everything. So what we need are local partners in those countries to help us sort of acclimatize to the local regulatory environment to find the right people, et cetera.
So in each of these countries, we'll generally team up with a premier vendor in that country to really help us in that respect. And that sort of helps us make this process even more repeatable. So to answer your question, we're prioritizing growth. We're scaling up very quickly. The demand as I mentioned before, it's immense, it's unstoppable. So from our perspective, there's very little risk to us as a financial backer to sort of prioritize growth because the demand is there and we see it. It's very strong. It's not going away. It's just getting bigger. Our process is repeatable as I mentioned, so we see the sort of production scaling to be low risk in many regards. So we're prioritizing growth and just getting out there. We just want to be able to have the biggest, sustainable impact we can have within our space and do it as quickly as possible. Because as I mentioned, there's very few solutions in apparel industry that have an impact today that's meaningful and we can do that and we can do that at scale. And we're just working on getting bigger and bigger every day.
Oliver Chen:
Final question for both of you Samir and Helene, what are the most difficult challenges ahead? And also what are the most fun parts of your jobs? And any concluding remarks you may have. Thank you.
Helene Smits:
Sure. It's a good question. And it's funny because a lot of times they are connected, right, the challenging parts are also the most fun parts at least for me. A big project that we're working on that's in the innovation space is really trying to kind of obtain the holy grail of circularity, which is being able to make high quality recycled cotton products from post-consumer textiles. And this is something that my team and the innovation team are working on because the potential here is also immense. I mean, the amount of post-consumer textile waste that is generated is huge. We are, I think sending one garbage truck full of waste to landfill incineration every second and less than 1% of that is being recycled into high value applications at the moment. So this is a really big opportunity that we want to seize. And we also want to take the leadership position here and that's kind of a big part of my work, a challenge, but also for sure, very fun.
Samir Shah:
And for myself, a few things, one, I think perhaps most importantly, I have young kids, so like many people in the world, I want a world for these kids and their kids down the road. So I feel proud to work with a company that's really changing the world in a better way. And then I think from sort of an investment perspective and sitting on the board and having invested in other disruptive companies in different industries, what I find to be really neat and interesting is the ecosystem that Recover is forming and leading. So Recover sits at the middle of an ecosystem, which is its kind of assembled. And everybody in the apparel and textile world is looking for somebody to hold their hand and provide them with a solution that's easy and that's impactful.
So as we think about brands and retailers, I talked about the production. What I didn't talk about yet is the brand that we're building. So Recover is a brand. It's a brand that emotionally resonates with consumers. It has a modern ethos. It's a modern leader in sustainability. So in addition to the product, we help our retailer and brand partners, emotionally connect and resonate with its consumer base. We'll do co-branded hang tags. We'll do lots of, kind of, sort of content on social media. We'll do all sorts of things to really help get the message out there that our retailer and brand partners are doing what they can to make a positive impact in the world alongside of us.
And with respect to our vendors and suppliers, I mentioned this before, but we spend a lot of time working with them to optimize the use of our product, to really permission a plug and play solution. They can go then turn around and work together with their retailer and brand partners who are desiring the solution. It provides differentiation to these vendors and suppliers. So we sit in the middle of that ecosystem. We're holding everybody's hands. And Helene knows this best, but we're also importantly working on innovation and leading that charge as well. So we expect every day that goes by, we focus on innovation and we'll sort of hold everybody's hands in this ecosystem to the next leg of the sustainability journey, which I find quite interesting as well.
Oliver Chen:
Helene and Samir, it was great to spend time with you and really learn more about material science and cotton innovation. Your technology, the ecosystem, and what you do for the whole industry is really important for the future of the world as well. Thank you for your time.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this recording was obtained from publicly available sources, has not been independently verified by TD Securities, may not be current, and TD Securities has no obligation to provide any updates or changes. All price references and market forecasts are as of the date of recording. The views and opinions expressed in this podcast are not necessarily those of TD Securities and may differ from the views and opinions of other departments or divisions of TD Securities and its affiliates. TD Securities is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this podcast. The information contained in this podcast does not constitute investment advice or an offer to buy or sell securities or any other product and should not be relied upon to evaluate any potential transaction. Neither TD Securities nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.