Retail business sustainability

At the Green Business Bureau we know retail business sustainability requires a complete redesign of the current business model, to one that:

  1. Seeks energy-efficiency;
  2. Embraces circularity;
  3. Prioritizes quality over quantity of goods sold;
  4. Reduces plastic waste,
  5. Uses digitization to reduce the environmental impact of business operations;
  6. Transparently and accurately showcases sustainability achievements;
  7. Helps consumers overcome barriers to making sustainable choices.

These 7 sustainable developments are business opportunities that arise from key market trends we’re witnessing today. For this article we’ve analyzed the business landscape to identify such trends. Using these trends we then present retail sustainability initiatives that will help you kickstart your organization’s sustainability program.

What is retail sustainability?

Retail sustainability defines a self-containing business entity that sells goods to the public for use and consumption, at a rate or level that can be maintained indefinitely. To operate indefinitely, a retail brand must meet environmental, social, and economic demands.

Thinking about this definition, we ask: Is it possible for the retail industry to be sustainable?

The retail industry is built from supply and demand, meaning traditionally, financial success is thought to hinge on economies of scale. This has created a system that promotes excessive consumption, demanding the extraction of raw materials for product design and development. Costs are cut by manufacturers along the supply chain, building goods in developing countries where organizations can “get away” with inadequate – and sometimes dangerous – working conditions and poor pay. Products are then transported, unrestricted and on a global scale to reach the retailer. This process spews gross amounts of greenhouse gas emissions (GHGs) into the atmosphere. For the retailer, the aim is to keep up with an any-time, anywhere consumer demand, which is aggravated by the retailer’s marketing campaigns. And when these products reach the consumer, cheap design makes them destined for the trash.

This traditional model maximizes profit at the expense of environmental and social systems. The candle is burnt at both ends meaning such a model is not sustainable. Finite fossil fuel prices continue to rise; raw materials become scarce and more expensive to extract; climate change threatens supply chains and the communities business depends on, and consumer preferences change to favor a sustainable brand. Hence, any retailer operating via the traditional model just described stands exhausted and exposed.

Can the retail industry be sustainable?

To be sustainable, it’s clear retail needs a complete redesign. And we’re starting to see this shift happen in response to today’s market. As such, retail sustainability is a goal that’s looking more attainable.

A Sustainability Program Checklist for Retail Stores

Sustainability Guide for Retail

The Sustainability Guide and Checklist for Retail Stores serves as a manual on how to launch and manage a sustainability program across all your stores. It is ideal for sustainability leaders and store managers.

Trends in the retial industry: Retail sustainability initiatives to help your business adapt to the market

To produce this Green Business Bureau article we’ve analyzed the business landscape to identify new business opportunity that comes from a changing business landscape. We’re talking about opportunities that also supports the needs of the environment and social systems.

Retail business sustainability trend #1: Rising fossil fuel prices call for energy-efficient retail

The average price of fossil fuel energy – oil, natural gas, and coal – has increased since 1976, with a very recent surge in gasoline prices hitting record highs in 2022.

We did not anticipate that transportation and freight costs would soar the way they have as fuel prices have risen to all-time highs.” – Target CEO Brian Cornell

This is contributing to today’s cost of living crisis, which impacts the retail business. Rapid inflation puts a dent in the customer’s ability to spend (a shift we explore in more detail later), and the price and scarcity of fuel has driven up the cost of doing business.

To survive, business has had to adapt. Part of that adaptation has been to minimize waste and champion efficiency. Such an evolution not only saves businesses money but also lowers the environmental impact of operations, as we explain.

Key sustainability initiatives to come from this trend:

Reducing demand for diesel and petrol-based fuels lowers business expenses while also slashing GHG emissions from business-related transport. This is an initiative retail giant Amazon has targeted by expanding the number of local fulfillment centers to lessen the delivery distance traveled to the consumer in hotspot areas. Hence transportation efficiency is improved as the number and distance of journeys to be made is reduced.

Amazon’s expansion of fulfillment centers has come at a crucial time. Today, we’re witnessing a boom in online orders – a trend discussed later in this article. As a result, the World Economic Forum estimates that in the top 100 cities worldwide, the number of delivery vehicles on the road will increase by 36% in 2030. Consequently, emissions from delivery traffic will rise by 32%. These statistics showcase the impact delivery of goods has on our climate. Yet, it has been noted that online demand for fast delivery doesn’t have to lead to higher GHG emissions (and fuel costs). Like Amazon, brands can institute more distributed fulfillment centers that are closer to the customer to shorten the final leg routes. In doing, brands can flaunt a lower C02 footprint.

There are a plethora of initiatives your retail business can introduce to improve the energy efficiency of operations. To discuss every initiative will go beyond the scope of this article. It must be said, however, that one of the easiet ways a retail business can improve operational efficiency is by switching to LED light bulbs. Such bulbs are ~80% more efficient than traditional, incandescent lights and have the potential to save businesses ~20% on their energy bill.

Jumping on the LED bandwagon, the supermarket giant Walmart upgraded their lighting to use LED fixtures for their freezer units and car parks, while they also rolled out LED lighting into their stores, distribution centers, and corporate offices.

Analogous to this topic, you must also be smart about switching lights off when leaving a room. Businesses can replace manual light switches with automatic sensors that turn the lights off in rooms that aren’t in use to conserve energy.

Another vital initiative that will help your business become more energy efficient is the switching to US Energy Star rated equipment, which covers a wide range of appliances such as heat and cooling systems and computers. Seek technologies that are assessed by the US Energy Star rating system, with an energy performance score of 75 or more. Make a list of appliances and systems within your retail store and create a checklist of their usage, cleaning, and maintenance requirements. Upgrade old and inefficient equipment using a planned and cost-effective replacement and upgrade program.

Retail business sustainability trend #2: Dwindling raw materials and disrupted supply chains need circularity

We’re not only witnessing a rise in fossil fuel prices, but we’re also seeing dwindling raw material reserves and disrupted supply chains (the latter being exasperated by the Russian-Ukraine conflict). This is making materials harder and more costly to obtain, driving up the cost of doing business. In one study, 89% of respondents reported limited availability of raw materials for business, with 92% specifying raw material pricing has the most significant influence on business performance.

Key sustainability initiatives to come from this trend:

In the same study mentioned above, ~69% of businesses turned to their supply chain to adopt inventory optimization strategies.

A focus on real-time inventory is highlighted by IDC as the biggest challenge facing retailers in today’s market. By real-time inventory management, we’re referring to an automated process of recording sales and purchases via software. This gives retailers a complete picture of what’s happening with inventory, allowing brands to react quickly to changing demand and supply chain needs. Effective real-time inventory management demands the seamless exchange of data across the supply chain and between different business divisions to break down data silos. This means retailers must seek new uses for AI, SaaS, and Internet Of Things (IoT) logistic solutions, and integrate these solutions to pass data from one tool to another. The aim is to match business supply with demand to prevent resource and stock waste.

The issue of resource availability can also be sustainably alleviated by adopting a circular economic model, which works to keep materials cycling within the market for as long as possible. For instance, the shoe retailer Rothy’s manufactures footwear from ocean plastic waste. And this circularity is a model consumers are embracing. For instance, a Deloitte 2021 report indicated that 53% of surveyed consumers have repaired/fixed an item instead of replacing it. As such, circularity has a fantastic growth trajectory. For example, the second-hand clothing sector is expected to grow faster than fast fashion. As such, brands need to consider circularity and define how it can drive greater customer engagement and expand the business offering. This is an initiative the outdoor clothing retailer Patagonia has championed with their Worn to Wear service that repairs damaged goods, and resells pre-loved items.

Retail business sustainability trend #3: Minimalistic attitudes demand quality over quantity

The traditional retail model relies on economies of scale. That is, products are pushed for sale to drive down costs and maximize revenue. Such a model is detrimental to the environment, as the consumption of resources becomes excessive, and a build-buy-bin system runs at a rate our planet cannot support.

Yet, the retail market, and attitudes within this market are changing. A minimalist doctrine is on trend, meaning we’re seeing an increase in the number of consumers that don’t want to consume. 1 in 5 Americans today describe themselves as minimalists, with 23% stating they would like to adopt a minimalist lifestyle.

And minimalism breeds quality over quantity – rather than owning 5 pairs of trousers, an individual will make the financial investment to own one pair, designed to last a lifetime. For instance, 65% of German and UK consumers state they will buy higher-quality items that are designed to last longer. And on this note, in recent years we’ve seen movements such as Green Friday, Small Business Saturday, and Giving Tuesday coming in as alternatives to the compulsive spending of Black Friday.

Key sustainability initiatives to come from this trend:

Retail brands are responding to this rise in minimalist attitudes. The outdoor clothing provider Patagonia is the gold standard demonstrating this shift. For instance, minimalism is reflected in the brand’s core values, which are:

Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

Patagonia’s business model rejects fast fashion by creating high-quality, long-lasting products, and offers an extensive repair and reuse program. The brand even goes as far as to discourage consumers from purchasing too many of its products, opposing consumerism.

As a global enterprise, Patagonia demonstrates how sustainability can add value, offering a unique selling point consumers are happy to pay for – the business flaunts 10% year-on-year revenue growth. Consumers buy less, but what they do buy is high quality.

The message here is simple. Build robust products that make the most out of Earth’s resources, ones that are built to last a lifetime. Plus, expand your business offering to provide repair services that fix damaged goods.

Retail business sustainability trend #4: The war on single-use plastic demands retailers adopt sustainable alternatives

According to a 2020 survey by Deloitte, 64% of consumers limited their consumption of single-use plastic. On top of this, 54% of consumers want schemes to remove plastic and packaging from the products they buy. Consumers also want more clarity on how to correctly dispose of and recycle the items they purchase and packaging waste.

Key sustainability initiatives to come from this trend:

Today we see a flurry of green tech solutions designed to help businesses move away from plastic waste. These developments include packaging made from seaweed, mushrooms, cornstarch, biodegradable packaging peanuts, edible films (for food items), and polyhydroxyalkanoates (PHA) bioplastics.

To find out more about the different plastic alternative packaging options available, read: 10 Eco-Friendly Packaging Alternatives for Your Business’s Shipping Needs.

If plastic is necessary within your supply chain, be sure it’s curbside recyclable. By this, we mean that the consumer can put the plastic straight in their at-home recycling bin without any extra steps that will otherwise increase recycling effort.

Note plastics #1-#7 are curbside recyclable.

In addition, work with your suppliers to ensure that both packaging and products detail how consumers should recycle these items. You want to inform consumers whether or not they can dispose of items using their curbside recycling bin. If materials are not curbside recyclable, then tell consumers where they can reprocess materials properly. If multiple materials are used, make sure it’s specified how each is recycled properly.

To remove single-use plastic from your value chain, you need to understand what plastic alternatives are available and work closely with your suppliers to ensure you’re instituting more sustainable material innovations. This not only includes moving away from plastic packaging, but it also means designing and developing products using more sustainable materials. For instance, reports indicate that 37% of fashion products described as sustainable contain some level of recycled polyester, with most coming from polyethylene terephthalate (PET) bottles. Yet PET cannot be recycled at scale, underscoring the need for new solutions with less reliance on plastic and strains on natural resources.

Retail business sustainability trend #5: Digitization has the potential to cut emissions if leveraged effectively

Digitization has disrupted the retail industry, a disruption that has only been accelerated by the COVID-19 pandemic. In response, retailers have had to adapt their business models to survive. This means extending business offerings with the introduction of an eCommerce subdivision to the business. As such, we’re witnessing an increase in digitally influenced revenues, which are estimated to account for 25% of all retail sales -which translates to $8 trillion. In China, for example, sales of digital influence, or ones that have a digital touchpoint at some point along the customer journey, have ~50% market penetration.

This is a digital transformation in action. Major and established retail businesses are embracing a digital model, offering both digital products and experiences.

Key sustainability initiatives to come from this trend:

The fashion provider Tommy Hilfiger – which features designer classic sportswear and accessories – has leveraged technology to embrace today’s digital transformation. For instance, the brand has eliminated the need for moving entire teams across the globe to attend fashion photoshoots and events.

From sketching to designing and showrooming, Hilfiger runs all of these processes using 3D design technology. Online avatars in the digital showroom are dressed in digital garments – accessible from the stacked digital library of raw fabric materials, patterns, and colors. The brand then takes things even further – they use artificial intelligence to train avatar models to the likeness of their physical inspiration.

For Hilfiger, this digital shift has cut corporate-related travel serving to lower the brand’s scope 3 emissions – emissions across the organization’s value chain. In this instance, the supply chain is simplified while global stakeholder relationships are supported in the cloud that has no geographical boundaries.

Like Tommy Hilfiger, you can assess your business model to find opportunities to go digital, to improve business sustainability and cut emissions. For instance, you can:

  1. Host corporate events online.
  2. Expand your business offering by adopting an eCommerce model.
  3. Institute remote working styles to reduce the business need for brick-and-mortar stores and offices (reducing the environmental impacts of these spaces, from heating to habitat loss, and travel emissions).

Yet, it must be noted that the sustainability credentials of going digital are still in debate. The boom in online orders has increased the number of delivery vehicles on the road by 36%, raising emissions by 32%. Yet, such negatives can be mitigated through the expansion of local fulfillment centers and consumer education on the importance of minimalism as previously discussed.

Going digital will also help you effectively manage your inventory and go paperless. In addition, employ technological solutions to measure and track the sustainability metrics of your products and your business as a whole. Tools such as online sustainability scorecards, process documentation software, digital lifecycle assessment tools, and carbon calculator applications give you the transparency you need to address unsustainable operations.

Retail business sustainability trend #6: Consumers seek accuracy and transparency as proof of sustainability

Younger generations, notably generation Z and millennials are more active than older generations in addressing climate change and environmental destruction. For instance, 67% of generation Z and 71% of millennials believe that climate change should be a top priority to ensure a sustainable planet for future generations.

And this younger generation has now joined the workforce, which means they not only have significant spending power, but they also have strong and distinctive wants and needs retailers must provide for.

The upcoming generation is extraordinarily focused on making sure that waste does not exist.” – Founder of fashion label, reported in McKinsey and Company, NEF Spotlight: The Path Forward For Retail’s Sustainable Future

Brands must meet the high expectations of this younger workforce and consumer base, which means demonstrating ethical behaviors.

Key sustainability initiatives to come from this trend:

As generation Z and millennials grasp a greater market share, retailers need to reimagine their business model to meet the high ethical demands this generation places on business. Brands need to then effectively and accurately communicate their sustainability achievements to stakeholders.

Consumers are willing to pay a premium for sustainable goods, however, a high percentage of brands seek to only capitalize on this trend rather than making the fundamental business transformation needed.

According to TerraChoice, 95% of green products are marketed using greenwashing tactics. In another, more recent 2021 study the European Commission (and other national authorities) ran an extensive cross-sector sweep of websites to identify instances of corporate greenwash. In 42% of cases, green claims were exaggerated, false, or deceptive. In 59% of cases, there was no easily accessible evidence to support the green claim. And in more than 50% of cases, the company could not provide sufficient information for consumers to assess the accuracy of the green claim made.

As such, it comes with little surprise to learn that businesses lack the trust of consumers when it comes to their climate change and sustainability commitments. To have an influence, organizations need transparent, accountable,socially and environmentally responsible supply chains.

Building trust with the ethical consumer means avoiding corporate greenwash at all costs, which can be done by following the BSR Understanding and Prevening Greenwash: A Business Guide.

Obtaining third-party green business certification will also accurately communicate your achievements on a sustainability level to validate your efforts. To illustrate this point, take the Green Business Bureau (GBB) as an example. With GBB, consumers – and other stakeholders – can click on your brand’s online Green Seal of approval, and they’re then taken to your EcoProfile. Here they can see exactly what environmental and social initiatives your retail business has introduced, and they can view what sustainability goals you have in place. Organizations are then awarded a green business score that ranges from Aware, Bronze, Silver, Gold, and Platinum. This gives your stakeholders a clear and distinct message regarding your progress on a sustainability front. Your commitment to sustainability is demonstrated, and a sustainable business model is embedded into the core of your business.

Retail business sustainability trend #7: Consumers need your support

From the COVID-19 pandemic to the Russian-Ukraine war, these unprecedented headwinds have combined to challenge the retail market as we find ourselves thrust into a cost-of-living crisis. Across the globe, inflation rates are high, and getting higher. According to the latest report from the Bureau of Labor Statistics, the annual inflation rate in May was 8.6%, which is the highest level since 1981 (as measured using the consumer price index).

This cost-of-living crisis is negatively impacting the amount of disposable income available in the consumer market. In reaction, consumers are reducing their spending and making product switches by trading down or trading elsewhere. Already, the primary barrier consumers face that prevents them from making sustainable choices is cost, with 57% wanting sustainable options to be more affordable. 46% of consumers state the cost-of-living crisis is causing them to look for alternative brands to purchase from, and 54% state they’re shopping around more in search of better deals and discounts. There are two main sustainability initiatives a retail brand can take from this trend, which we discuss below.

Key sustainability initiatives to come from this trend:

Retailers must optimize operations for both cost and sustainability. A study by 7Bridges ran three simulated models to demonstrate the effectiveness of such optimization. In model one, an organization’s supply chain was optimized for cost. In model two, the supply chain was optimized for sustainability. And in model 3, the supply chain was optimized for cost and sustainability equally. What did the model uncover?

  • Model 1: Costs were reduced by 23%, with no reduction in carbon emissions.
  • Model 2: Carbon emissions were reduced by 23% with a 4% cost increase.
  • Model 3: Carbon emissions were reduced by 19% with a 19% reduction in cost.

This study shows that organizations can optimize their business models for both cost and sustainability at the same time. In this particular case, it was found that the most powerful level in reducing business costs while simultaneously improving the sustainability of operations was fulfillment location. Storing the right products and services closer to the end-user was found to reduce emissions by 30%.

In addition, retailers need to think about how they can absorb some of the cost of sustainability for the consumer, with the view that ethical business practices pay off over the long-run. Forbes contributor, Greg Petro effectively explains this point below:

If Brand A decides to move forward on sustainability and absorbs a cost of 5% more to bring a more sustainable product to market and consumers simply continue to buy from them at the same rate, they have lost 5% gross margin. This assumes nothing changes in the competitive landscape. But let’s say their competitors follow. Likely the overall cost will come down and then everything falls back into the same equilibrium that previously existed assuming advancements in manufacturing, etc., that typically occur. The difference is consumers and society as a whole have benefitted. However, if their competitors don’t follow, they could potentially gain market share and the gross margin percentage may go down, the revenues and customer acquisitions grow (with a larger consumer base seeking sustainable products). Long term they win. If the company chooses not to follow the sustainability desires of the customer, while they may in the short term gain the 5% gross margin, they risk losing to competitors who do adopt a sustainable model, and they also risk losing long-term customer base and revenue.” – Greg Petro, Is Sustainability Sustainable Retail?

Retail business sustainability is a business opportunity

Today’s consumers are smart and conscientious about the businesses they buy from. It’s time retail business joins the consumer in pursuing sustainability and going green.

In this Green Business Bureau article, we’ve presented 7 key trends that are impacting the retail industry today. We’ve demonstrated how a sustainable business model can navigate these current market changes, leverage opportunities that arise and use sustainable design to support business prosperity.

If you need help kick-starting your sustainability program, or you’re seeking third-party validation for your green and socially responsible efforts, then sign up for the Green Business Bureau. The Green Business Bureau helps guide businesses on how to go green and where to start. Using the GBB EcoPlanner(™), businesses can pick and choose from low to high-cost initiatives that integrate sustainable design into the core of the organization. Businesses that want to go green, but may not have the capital to go fully sustainable can take small steps in the right direction by choosing which initiatives they’d like to accomplish first.

At GBB we know sustainability is a journey of continuous improvement. It’s not only the right thing to do, but it’s also good business.

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