Just over a year later, on Feb. 26, Renewcell filed for bankruptcy. The decision came four months after the public company issued a profit warning over slow sales of Circulose, the biodegradable pulp it makes from worn-out clothes and cotton waste, which can be turned into fresh textile fiber. While Renewcell had signed supply agreements with two major fiber manufacturers — and could produce up to 60,000 metric tons of Circulose per year — it only sold 18,000 tons of the material in 2023, less than half of what it needed to break even. Multiple fiber manufacturers told Renewcell the same thing: They would only buy more pulp if fashion brands put in more orders for materials made from it.

“We thought we had like two-thirds of the plant sold out, and for a variety of reasons, those off-take agreements with fiber producers didn’t come through,” says Renewcell Chief Commercial Officer Tricia Carey. “We were building the plane, flying it and then the runway was getting short.”

Renewcell’s demise has sent shockwaves through the nascent new-materials sector, leaving many wondering what will become of investors’ appetite for textile innovation. It’s also highlighting the magnitude of the challenge ahead for the world’s biggest fashion brands as they aim to replace millions of tons of traditional textiles with sustainable alternatives that are still in development. Multiple global retailers, including Hennes & Mauritz AB and Zara parent Inditex SA, have announced targets to reduce their carbon footprints that rely at least in part on the adoption of new textiles. But the downfall of such a high-profile recycling operation casts a long shadow over the realism of those goals.

Renewcell launched in 2012 on the strength of a surprise discovery. Two professors who were developing an alternative to fossil fuel-derived methanol by breaking down cellulose — an organic compound in plant-based materials — found that their method also decomposed the cellulose in textiles. Along with a small group of investors, they set out to build a chemical recycling venture. By the time Renewcell presented its first dress made from Circulose in 2014, the company had rallied around a plan to reduce the millions of tons of virgin material used to make apparel, which contribute to a glut of fashion waste all over the world. 

That plan aligned with targets set by apparel makers. H&M has pledged that 30% of the materials it uses will be recycled by 2025, while Zara says 25% of its fibers will be “next-generation materials that do not yet exist at an industrial scale” by 2030. Renewcell started by collaborating with fashion brands on one-off collections made with Circulose. It then landed agreements with fiber manufacturers Tangshan Sanyou (in 2021) and Lenzing (2022), who agreed to buy up to 275,000 tons of Circulose pulp over five years. 

But those purchases weren’t fulfilled on time, according to Renewcell, and letters of intent with several other fiber suppliers never translated into firm orders. “The question is how many of these agreements turned into actual transactions,” says Tiffany Hua, an analyst at Lux Research, a research and advisory firm that focuses on emerging technologies, including new materials. “[Renewcell] didn’t have enough of a reliable market.”

Lenzing declined to comment on its deal with Renewcell, and Tangshan Sanyou did not respond to a request for comment. But according to Hua, Renewcell also ran into quality issues and manufacturing snags, including not getting a high enough yield — meaning a portion of what was recycled was unsellable.

“It is typical in a manufacturing startup to have sub-prime quality,” says Carey at Renewcell. “From our production experience, we had continuous improvement each month with [a] higher percentage of pulp within specification.”

In October, after Renewcell issued its profit warning, Zara said its suppliers would buy 2,000 tons of material blend through Tangshan Sanyou, which had an existing agreement with Renewcell. In December, H&M committed to using 18,000 tons of Circulose through 2025. (The fast fashion giant is also Renewcell’s second-largest shareholder). But it still wasn’t enough. 

“Somewhere between the step of setting up the factory and the real world, things didn’t work in the way they pitched it to their financiers,” says Richard Wielechowski, a senior investment analyst who specializes in textiles at think tank Planet Tracker.

Price played a big role in the lackluster demand. According to Renewcell, fibers made with Circulose cost almost a third more than the closest alternative, viscose, which is made with wood pulp. The company also struggled to navigate the web of suppliers between Circulose and the global fashion brands it aimed to serve, a process that added costs and hampered Renewcell’s ability to attract retailers while bleeding cash.  

“If you can get the industry who actually does the making on board, that’s the key to really changing what’s being used in our clothing,” says Wielechowski, who also points to the difficulty of doing textile innovation in Sweden when Renewcell’s direct customers are part of a supply chain scattered across the Southern hemisphere. “It’s a bit of a wake-up call in terms of the business model design,” he says. “You have your big factory in the North, but your actual customers are on the other side of the world.”

Hua at Lux Research says joint ventures between innovating companies and entrenched manufacturers — instead of typical purchase agreements — will be needed to introduce new materials more effectively and share the risks of scaling. Placing factories like Renewcell’s in Asia would also reduce startups’ reliance on shipping feedstock back and forth between continents. Some experts doubt fashion brands will be able to hit their climate targets unless the business model changes drastically. 

Until then, many more Renewcells — and many more commitments from suppliers and apparel makers — will be needed to move the needle. According to the nonprofit Textile Exchange, the fashion industry used the largest share of the 116 million tons of fiber that were produced in 2022, 92% of which was virgin fiber. Renewcell’s goal was to supply about 0.05% of the total. Infinited Fiber Company, a Finland-based rival, aims to produce 0.4% — 500,000 tons a year — by 2030. Circ, based in the US, plans to launch its first industrial plant next year with an annual capacity of 65,000 tons. 

Without more investment, demand for sustainable raw materials could exceed supply by 133 million tons by 2030, according to a report by consultancies BCG, Quantis and Textile Exchange. Separate research published by McKinsey last month found that two-thirds of fashion brands won’t be able to meet their sustainability targets unless they accelerate emissions reduction, and 40% have seen their emissions increase since making climate commitments. The study sampled 30 brands with combined revenues of more than $300 billion in 2022.

Wielechowski warns that if alternative fibers can’t scale successfully, synthetics will fill the gap. “You are up against cotton, but then you’re also up against synthetics, which are based on oil and are probably going to get cheaper because the big oil and gas players are busy swapping volumes into petrochemical products as gasoline demand goes down,” he says.

There are also questions about how much new materials will truly reduce fashion’s environmental footprint. One 2023 study by the IVL Swedish Environmental Research Institute concluded that textile recycling would make a “relatively small contribution” — reducing carbon dioxide emissions from textile products purchased in the European Union by just 1.3% — although it would have more impact on land and water use.

Renewcell’s future is still being decided: The company received purchase offers through March 28, and is expecting to announce a winning bidder for its business this month. Since the bankruptcy, fallout in the rest of the industry has also been mixed. 

In February, US-based Evrnu, a recycler backed by Danish apparel company Bestseller and partnered with Adidas and Zara, delayed the building of its pilot facility to 2025, Apparel Insider reported. But a month later, H&M announced a deal to buy recycled polyester yarn from Syre, a US-based venture it founded in 2023 alongside Vargas Holding AB and asset manager TPG Inc. The agreement, worth $600 million over seven years, intends to cover a significant share of H&M’s long-term need for recycled polyester, Syre Chief Executive Officer Dennis Nobelius said in March. But the company’s first plant, set to open in North Carolina this year, will start with an annual production capacity of just 10,000 tons.

Two days after the H&M announcement, Infinited Fiber said it had raised €40 million ($43 million) from a group of investors including Inditex and the CEO of Uniqlo parent Fast Retailing Co. Infinited Fiber’s first industrial plant, in Finland, is set to open in 2025.

“It seems that there is still a strong investor interest,” says Infinited CEO Petri Alava. “It’s about selecting the kind of brands that have the resources, the size and capability of binding their operations into the new future.” Infinited is focusing on signing binding purchase agreements and has filled about 70% of its projected capacity, Alava says.

A spokesperson for Inditex says the company is working to provide “decisive support for the scale-up of new fibers and ensure their availability in the future, not only for us but also for the wider sector.” An H&M spokesperson says the company has “supported Renewcell since 2017” and “believed in their vision and business idea,” but cited the challenges of scaling and commercializing new technologies. The spokesperson pointed to H&M’s Syre deal as an example of how it will “continue to collaborate with other industry players and invest in new innovations and infrastructure.”

Circ CEO Peter Majeranowski says his company is weighing where to set up its first plant; Asia or Central America would put it closer to the supply of waste that feeds its materials. “We’re in many conversations about having these factories all over the world, including most especially the Global South,” Majeranowski says. “It makes a lot of sense to have these types of recycling facilities close to production.”

Still, Wielechowski at Planet Tracker wonders who will foot the roughly $400 billion bill for building out this new industry. “Realistically, if you ask the brands how it’s going to happen, they’re expecting someone else to do all the work for them, and then just be able to pick it up,” he says. “And that’s what Renewcell shows: It’s just not happening in the market.”