How to win the retail sustainability game in 2020Monday, March 30, 2020
Consumer attitudes to ethical consumerism are unrecognisable from a decade ago. In 2010, the public agenda was just beginning to shame the likes of the fur trade. But now, the far-reaching topic of ‘sustainability’ tops the CEO’s agenda. The conundrum keeping executives up late at night is how to give the public the sustainable solutions it wants, without compromising profitability.
On the brink of sustainable shopping
Sustainability is starting to drive a dramatic change in consumer shopping behaviour, but the wave is also hitting at the same time as consumers are proving to be more value-conscious than at any point in the last decade.
This is particularly the case for younger consumers. They publicly champion values that align with their own, demand socially conscious mission statements, check the political views of executives, and press companies to make both their products and businesses sustainable. You only have to look to China to see how this trend can build momentum, where a much younger shopping population has led 80% of consumers claiming to consider a company’s environmental issues.
A similar case can be observed in the UK, with around 55% of Generation Z stating that a retailer’s impact on the environment is important to them when shopping. This is important, as it is this group who will drive over 90% of spending growth in the UK over the coming five years – organisations need to change to account for this shift.
First to spot and respond to the shift towards sustainability were the health and beauty players. Retailers such as Lush and The Body Shop are capitalising on the sustainability agenda well. Not only have these companies won the approval of more sustainability conscious consumers, our data reveals they also convert a higher proportion of them to customers.
The profitability problem
Unfortunately, sustainability doesn’t always equal profitability, in the near term at least – it’s all about balance. Naturally, sustainable consumers want the responsibly sourced components, fair trade, reduced carbon footprint and minimum waste – but contrastingly also want the competitive prices, broad choice constantly in stock and products delivered to them rapidly.
This is a clear consumer tension that retailers need to navigate – and it’s a challenge. Retailers increasingly need to clearly communicate their rationale for using certain resources and systemising business operations in a way that minimises consumers ethical concerns. Only those who straddle both sides will maintain profitability.
How to win at sustainability in 2020
The winners in 2020 and beyond, will be the retailers that find profitable ways of delivering for their customers in the areas that matter to them most. This means having a clear and focused sustainability agenda; thinking carefully about future commitments and understanding where customers really place value and importance. They should also ensure that where this requires a change in operations or product, the full cost and complexity has been worked through. In many instances this will require rethinking and reinventing their entire way of doing business, from suppliers, to distribution networks, to in-store operations and team building.
What companies should ask themselves when it comes to profitability:
- How can I deliver great value to customers whilst protecting my margins?
- Do ‘low hanging’ savings opportunities exist which can support investment in price?
- What are the key value items (KVIs) where it is most acutely important to be price-competitive?
- Where in the range do my customers most value broad choice?
- Are there parts of the range where rapid, flexible delivery is most important to customers?
What companies should ask themselves when it comes to sustainability:
- What sustainability issues are my target customers most concerned about? How are they balancing their social, economic and environmental concerns?
- Which sustainability concerns are considered ‘hygiene factors’ by customers today?
- What are the most relevant levers I can pull to address these concerns?
- How can I address these sustainability issues without adding significant operating cost burden?
- Is there an opportunity to differentiate vs competitors in these areas?
- For which areas, is the perception of sustainability lowest for consumers?
Overall, sustainability is growing in importance for consumers of today and generations of tomorrow. It is up to retailers to respond to these new challenges, consider the above questions and make a calculated decision on how to tailor their systems, processes and supply chains to meet the public sustainability demand. We’re on the brink of a great change affecting more than just the high street and only those who strike the right balance will win the sustainability game in 2020.
Find out more about Matt Coode, Partner