The textile industry, ranked as the world’s second most polluting sector, faces an escalating waste crisis, persistently increasing across its supply chain. To foster sustainable growth, a pivotal shift from a linear take-make-dispose model to a circular economy is imperative. The circular economy paradigm focuses on maintaining products and materials in a continuous loop within the supply chain, coupled with waste design and the regeneration of natural systems. This research investigates waste sources in the apparel industry, crucial for the successful implementation of a circular economy. Through an evaluative literature review and expert opinions, the study identifies 15 Sources of Waste (SOW) relevant to circular economy implementation in the apparel and textile industry. Employing an integrated approach of Interpretive Structural Modeling (ISM) and Matrice d’Impacts Croisés Multiplication Appliquée à un Classement (MICMAC), the research uncovers inter-relationships among SOWs. ISM provides key managerial insights and an implementation plan based on these interconnections, while MICMAC categorizes SOWs into autonomous, independent, dependent, and linkage groups, assessing their relative impact on circular economy practices in the apparel industry. The hierarchical model places “plastic usage” and “manufacturing waste” at the top tier, highlighting their significance, while “lack of effective government and top management legislation” and “lack of awareness among stakeholders” form the foundational layers. This research is anticipated to equip the apparel and textile industry with insights for gaining a sustainable competitive advantage through effective circular economy implementation. © The Author(s), under exclusive licence to Springer Nature Switzerland AG 2024.