What are the challenges facing retailers in convincing consumers to make sustainable choices in the midst of a cost-of-living crisis?
Sustainability is a strategic imperative for retailers. The mantra that ‘you are only as strong as your weakest link’ applies here as the majority of a retailer’s environmental impact is linked to their supply chain. As consumers are increasingly more discerning, retails’ relationships with their suppliers is becoming ever more important.
Sustainability is strategic to retail
There is no argument about sustainability being a strategic issue now for the retailers, with strong public and governmental pressure being applied to single use plastics, for example, driving significant and rapid change. To quote the founder of one fashion label, who says, “the upcoming generation is extraordinarily focused on making sure that waste does not exist.”
Bain report that 75% of retailers have now incorporated sustainability as a formal part of their strategies and adoption of Science Based Targets (“SBTi”) for carbon reduction went up five-fold from 2019 to 2021. Sustainability is also driving mergers and acquisition activity in the sector, as niche players with strong ESG (“environmental, social, governance”) credentials are mopped up. In 2021, Bain report that there were 307 such deals, compared to only 14 back in 2010.
Supply Chains and collaboration are both key
Whether selling food, clothing, or household goods, retailers are dependent on complex and ever-changing supply chains, and these are the ultimate source of many of their carbon emissions. They sit in a critical role between consumers and suppliers in the overall value chain. Indeed, a recent survey by Boston Consulting (BCG) concluded that although 40% of organisations are on track to meet their own Scope 1 and 2 GHG emission reduction targets – because it is within their control – however, few have addressed their supply chain Scope 3 emissions. Typically, addressing Scope 3 means tackling over 90% of a retail organisation’s environmental impact – an extremely significant and challenging issue.
A good example how retailers are aligning their interests with suppliers to reduce waste and improve sustainability is rapidly by reducing plastics consumption in personal care products, allied to roll out of refillable or reusable bottles. Retailers need to play a role in enabling this reuse cycle. Walmart for example is working with over 4,000 suppliers to drive down emissions, providing tools to suppliers that enable emission avoidance initiatives to be tracked by suppliers. Elsewhere, Prada has partnered with Aquafil to deploy a nylon recycled from plastics and fishing nets, which lowered their clothing product impact by 90%, compared to virgin nylon sources.
Collaboration can however be difficult for consumers to navigate as McKinsey reports there are now over 460 individual sustainability logos and schemes in existence and there is a huge need to simplify signalling up and down the supply chains.
Retailers need to prioritise and embed change
One of the key challenges for retailers is the breadth and depth of sustainability issues facing the sector – McKinsey reports that the fashion industry alone accounts for more than 4% of Global Greenhouse Gas (GHG) emissions alone. They simply cannot address everything, so they need to make choices, prioritise certain initiatives and be prepared to explain and defend these resource allocations.
Bain report that retailers are focused on one or more of the six areas listed below.
- Greenhouse Gas emission reduction
- Waste and circular economy
- Sustainable sourcing
- Diversity, Inclusion and Equity in supply
- Human rights and meaningful work in supply
- Health and wellness initiatives (for food sector)
The answer to successfully translating strategy into action is to narrow down efforts to a targeted list of ambitions. It is important to put this into the context of the organisation’s overall positioning of sustainability. Do they want to be a market leader, a follower or simply to comply with regulatory requirements? This will in large part be determined by their market positioning and what their competitors are committing to. By being targeted on key ‘hotspots’, Bain argue that organisations can identify areas that are disproportionately responsible for sustainability issues or consumer concerns and therefore justify priority action.
This however implies moving the sustainability agenda down from the corporate sustainability team level into day-to-day operations. Having localised Key Performance Indicators (KPIs) that are linked to business planning and performance reporting is a critical step. However, there remains a significant challenge in capturing and analysing meaningful performance data in this area. Having clear focus will help to reduce the sheer volume of noise around sustainability and enable managers to take practical and targeted action (and manage trade-offs between different issues). Better harnessing digital data also offers some hope in terms of driving change.
Addressing the ‘say to do’ gap
Quoting a First Insight study, Forbes highlights the dilemma face by retailers of customers wanting to have their cake and eat it – 75% people across all demographic age groups want more sustainable products, but they do not expect to pay more. Set within the context of the current cost-of-living crisis in which two-thirds (66%) of UK adults are spending less on non-essentials in response, this is especially challenging for retailers.
Whether retailers seek to address this depends in large part on their sustainability strategy, and what position in the market they are seeking to secure, in terms of early adopter, versus follower.
For younger people, sustainable shopping is a mainstream preoccupation—half of EU spending on sustainable insurgent brands is by millennials. But there are barriers to enabling customers to make choices and these are about non-price related issues such as product information, labelling, quality and availability. Often what are needed are soft nudges to encourage and enable people to follow through on their intent. A simple example is how Costa Coffee’s loyalty scheme allows members to earn free coffees at twice the rate if they use reusable cups.
Retailers are positioned between consumers and a wide variety of product suppliers and are therefore able to inform, encourage and enable consumers to make more sustainable choices. Consumers are looking for more sustainable options but given the cost-of-living pressures they face, are not able or willing to pay more for these products. Retailers need to carefully prioritise the initiatives they take to be impactful.
