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How Can Retailers Maximize Sustainability Without Sacrificing Profitability?
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Sustainability is becoming a big business, and retailers are paying attention. While shoppers aren’t necessarily ready to open up their wallets for the costs associated with more sustainable goods, retailers are experimenting with other ways to reduce their carbon footprints without shrinking the bottom line. Resale and the wider “circular economy” are the current biggest drivers, but retailers should be on the lookout for other options as well.
A November 2022 NielsenIQ study found that 78% of consumers say that a sustainable lifestyle is important and another 30% are more likely to purchase products with sustainable credentials. However, businesses switching to more sustainable options have found that customers are reluctant to purchase these products when they cost more or look inferior to other options, according to Reuters.
The circular economy aims to reduce the cost of producing and transporting new goods without raising the price of goods or sourcing materials that have a different look. A major driver in this area is resale, which has created a global market that is expected to grow to $350 billion in sales by 2027, up from $177 billion in 2022, according to thredUP. Brands ranging from REI to Coach have already launched resale programs, and the popularity of these programs is expected to continue growing.
Retailers are also experimenting with rental options, allowing consumers to use items multiple times and, in some cases, selling them to a permanent owner. Rent the Runway pioneered this practice in apparel, and Lowe’s and The Home Depot rent out power tools and other equipment to do-it-yourself enthusiasts.
However, resale and rental are only a small part of retail overall, and companies need to understand what separates a successful sustainability initiative from a failed effort. One important element is to not overestimate the importance of sustainability. A majority of consumers do take sustainability into account when making purchases, but only 3% to 6% actually view it as their top “driver of choice,” according to NRF.
This is where the disconnect between the importance of sustainability and actual purchasing decisions lives. Deloitte noted that considerations like quality, price, and availability remain top drivers even as interest in sustainability grows, which means sustainability alone doesn’t drive most purchases.
Companies looking to get ahead of the next sustainability trends without hurting sales should look for ways that shoppers can choose to minimize their own carbon footprint without increasing costs, especially for those who aren’t willing to pay a premium. Deloitte highlighted carbon offsetting as an important development in this space.
Walmart Canada has worked with EcoCart to calculate how much carbon a given e-commerce footprint produces and offers carbon-neutral delivery options to shoppers. Not every consumer chooses to take this extra step, but EcoCart estimates that 60% of customers among its retail partners have used its tools, according to TechCrunch.
Discussion Questions
Do you think resale will continue to be the most visible kind of sustainable retail initiative, or will other options gain momentum? Is there an opportunity for sustainability to grow in importance as a “top driver” for purchasing decisions?
Poll
Loading …BrainTrust
Keith Anderson
Founder, Decarbonizing Commerce
Rachelle King
Retail Industry Thought Leader
Resale continues to gain momentum as retailers and brands from across many categories are introducing or expanding their resale programs. Not only is this good for the environment, but resale goods are less expensive, which is more attractive to some consumers in high inflationary times. But I don’t believe that sustainability will ever be the “top driver” for purchasing decisions, and that’s why retailers and brands need to find other ways to reduce their environmental impact. The good news is that there are myriad ways to do this including reducing the use of plastics, reducing transportation emissions, and sustainable sourcing.
I heard recently that we have enough raw materials for clothing in the world today to never have to produce any more. The processes exist today to reclaim and reuse these raw materials forever. Many products are made using petroleum products, cotton, and other fabrics that end up polluting our environment despite this existing process capability. The idea that a circular economy doesn’t also burn more fuel and wear down more tires is also not always included in the equation, but it should be. Reducing returns will help, too. We have to realize at some point that we need to take care of Mother Earth before it’s too late.
The significance of sustainability coincides with the rise of conscious consumerism. With the emergence of the socially and environmentally conscious consumer, retailers and brands have had to pivot their strategies to be far more transparent with their sourcing, procurement, apparel manufacturing, supply chain, and overall carbon footprint. However, as we know, sustainably produced clothing comes with increased cost and premium pricing strategies.
Resale offers another outlet for retailers and brands to gain the momentum we need with the circular economy and help to reduce the environmental impact of clothing waste. While sustainably produced apparel will continue to gain interest over the next few years, we should expect the resale fashion sector to continue to scale, led by companies such as thredUP and Rent the Runway.
It’s key to consider that US fashion online resale platform sales will increase 15.8% this year, totaling $14.14 billion, according to our forecast. Sales will continue to grow at double-digit rates through 2026, when they are forecasted to reach $23.92 billion. According to thredUP, 3.5 times more brands operated resale programs in 2022 than the year before. Retailers can use resale programs to acquire new customers, keep current customers in the brand’s ecosystem, and create another revenue stream.
For retailers just getting started, a surprising number of strategies are low-hanging fruit that lower costs and emissions in tandem: eliminating wasteful packaging, improving truck utilization, reducing miles driven, recovering food waste.
It’s also well-understood that a subset of shoppers is willing to pay a premium for the “more sustainable” option — and that most shoppers won’t, and that the margins on these alternatives don’t make up for the lower volumes.
To really move the needle for the mainstream, retailers and brands will have to work together to introduce options that are sustainable, cost-competitive, and as good or better as their conventional alternatives in terms of taste, performance, and other quality metrics.
There is a stunning level of investment and innovation on this front, coming to market in the forms of new grocery and CPG brands and rapidly-expanding ecosystem of tech and service providers.
We’re also seeing more retailers (especially Walmart in the U.S. and Aldi in Germany, but Target and Amazon as well) using their own brands as cudgels to raise the bar for sustainability in a category while offering shoppers a lower-cost option than national brands.
Often the biggest driver for sustainability initiatives is cost. In the UK Tesco launched a huge sustainability focused initiative to examine packaging – this resulted in removal of extra and excess packaging. Examples included removing shrink wrap from 3-packs of tinned salmon thus pricing based on an ongoing promotion, removing inner paper from lidded butter based spreads and removal of onion nets.
The waste impact of this is significant – 4500 tonnes – the cost saving must also be significant – if every Kilogram of packaging eliminated saved 10 cents then this would equate to $450K in savings.
Sustainability is, and always has been, a secondary issue. In fact, it is secondary in the same way “Made in America” has always been secondary – nice to have but only after all the more important factors of the product make sense.
Companies seem to forget this, though, because it is easier for a company to make (or stock) a product which is sustainable than to make a product which customers want so badly that there is sufficient demand for the product. Retailers need to be wary of how seductive this attraction to sustainability can be. The home-run products they need to seek have substantial demand AND sustainability – a balance of both with preference for demand.
Resale is the most visible program for apparel and department stores but it isn’t as viable or visible in other types of retail. In apparel-related retail, the big opportunity is to create processes that capture recycled used clothing in a more comprehensive way as only 1% of clothing today is recycled.
Most retailers and brands have aligned on several UN SDGs, the most relevant one for this topic is SDG 12; Ensure Sustainable Consumption and Production Patterns. Related to this on the CPG/Grocery industry is the evolution to more sustainable packaging (lower weight, recyclable materials, reusable containers). This may be the biggest, most visible approach that is happening related to food/beverage retailing 2023. Resale only has limited subindustry applications.
Renting tools has been a hardware staple for decades, and resale programs, thrift stores, and the like continue to grow. I am continually amazed at the things friends find thrifting.
There is no specific definition of what sustainability means that retailers and manufacturers are required to follow. They make their own definitions and consumers are expected to believe what they say.
Many consumers are suspicious of words like sustainable and organic so why would they jump in with both feet? Certainly there is an opportunity for sustainability to become second nature but we have a long way to go to get there.
Each year, we do annual consumer research. An important finding is that 43% of consumers believe it’s important that a company has a social cause that is important to them. 41% would be willing to pay more – especially younger consumers. Sustainability is an important cause that captures the attention and hearts of many consumers.
“78% of consumers say that a sustainable lifestyle is important and another 30%”…so 108%…my, it is important!! Sarcasm aside, this post – and the poll responses – do a service in bringing us back to reality: is sustainability important? Yes; but it’s not all-important (just like lots of other factors).
While resale and rental can both be positioned as most visible sustainable efforts at retail, often the consumer decision behind these purchases is based on budget and price, not as much toward advancing sustainability efforts.
This just means that retailers have to lead these efforts while meeting consumers where they are. Resale, in particular, lowers the barrier to entry for some luxury items while also contributing to environmental sustainability.
Still, even as values-driven purchases continue to grow among consumers, in the end, most decisions will continue to be made based on price and quality for the foreseeable future; especially in this current economic environment.
Right now, I don’t see other sustainable retail initiatives gaining momentum. In this economic climate, consumers are price-sensitive and will choose the most affordable product options. Oftentimes brands that are more sustainable have higher costs. I think sustainability can gain importance to consumers if sustainable options are consistently of higher quality.
Conflating sustainability with resale and rental is a mistake.
Sustainability is a survey question that no one dares disagree with. The latter relate to price and need.
At best, sustainability is an intellectual alibi.