Sustainability in Retail

By Somak Roy July 16, 2019

The demographic for whom sustainability is a buying consideration is growing. Millennials, raised on environmental concerns, are entering their prime buying years. For everybody else as well, contemporary ill effects of climate change, namely a greater incidence and severity of extreme weather conditions, are becoming hard to ignore. Climate change is unlikely to be contained meaningfully by 2025 and is therefore likely to be remain very much part of the public discourse. Therefore, it is reasonable to infer consumers will take into account the sustainability efforts of retailers and their suppliers in their everyday buying decisions. 

One cautionary note must be stuck here, though. Consumers care about sustainability, but (with the exception of certain premium categories) are unlikely to prioritize sustainability over price or convenience or habit. Retailers therefore have been reluctant to take the consumer route to promoting sustainability and are instead working on more sustainable internal operations and on sourcing from suppliers who adhere to sustainability principles. Products tagged with a “sustainable” label could be perceived to be expensive (even if they are not), which is a problem for retailers whose massive businesses have been built on discounting or EDLP.

In addition, a retailer entirely committed to sustainability would still have to give consumers what they want – which are sometimes products that are distinctly, and by their very nature, wasteful, such as plastic water bottles. Closely watched retailers are critiqued relentlessly by environmental groups for this seeming dichotomy. Therefore, most retailers (again barring a limited group of premium categories) shy away from making a sustainability a key plank of their value proposition. 

Ecommerce has thrown open a set of specific challenges and unique opportunities. Ecommerce can be wasteful, especially the growing practice of expedited delivery and zero delivery charges – buying modalities that encourage single item purchases. Packaging too is more expensive and wasteful because goods change hands more often and need more protective material than is the case with in-store purchases. 

However, there are a clear set of opportunities with ecommerce. At the time of checkout, options can be presented that are eco-friendly. The consumer can be informed on how her buying and delivery choices impact the environment.

To illustrate, “free shipping if you add several more items” is straightforward and something ecommerce consumers have come to expect. Similarly, the following modalities in the checkout workflow will be commonplace in the future:

  • Add items X and Y (which is you usually buy anyway) to your basket to reduce the environmental impact of shipping. A larger basket is usually eco-friendlier.
  • If you can wait for X days and Y hours for all the items in your basket to ship together, you can avoid split shipping and the environmental impact of the checkout will lessen by some quantum.
  • Maybe a buy-online-pickup-in-store (BOPIS) option will be more environmentally friendly than home delivery. This is particularly true if the store is in a well-trafficked area.
  • Maybe if you can delay shipping to a particular time slot where the drop density in the neighbourhood is high, the environmental impact will be less. If several deliveries can be clubbed together the carbon footprint is obviously lower.
  • What package recycling will cost her, and what it would buy her in term of sustainability benefits.

Coming back to retail in general, the primary challenge is that consumers cannot always vote with their wallet, and buy products that have been manufactured and delivered conforming to sound sustainability principles. The critical gap in the market is the lack of a single, easily consumable, universally recognized sustainability index or score products can be labelled with. The closest the industry has come to creating a sustainability index or product badge is the 2015 Walmart announcement of the Sustainability Leaders shop – a section of the Walmart ecommerce store that would list products that have achieved the highest sustainability score in that particular category, based on analysis by the Sustainability Consortium (TSC). A quick backstory on the TSC will be appropriate. The consortium was launched in mid-2009 with the express purpose of building a sustainable product index. TSC was (and remains) an organization with impressive credentials and a broad remit. Current members span the range from retailers such as Marks and Spencer’s and Kroger’s, major brand conglomerates such as Procter & Gamble and Unilever, energy giants such as ExxonMobil, academic bodies such as NC State University and University of Arkansas, to civil society organizations such as the World Wildlife Fund. 

However, what happened to Sustainability Leaders Shop is unclear. Navigating through the Walmart site (at the time of going to press in late 2018), across sections on diapers or laptops does not yield any such product with a badge. There is also no option to search for or filter by the sustainable leader attribute. In fact, “the sustainability leaders” shop lives on as a corporate and not a shop-able site, and category pages such as “bicycles” do not lead to brands that are sustainability exemplars. These pages are accounts of sustainability best practices in that category. It is possible Walmart abandoned the holy grail of a single universally recognized sustainability badge for individual products and brands, perhaps deeming the approach too complex or too controversial or both. 

In the absence of such an index, consumers will increasingly incorporate into their buying decisions – deliberately or subliminally – to what extent retailers: 

Use energy efficiently and get their energy from sustainable sources. Targets aims to add solar panels to roofs of 500 stores by 2020.Clean and renewable energy powers 25% of Walmart’s needs currently, and the retailer plans to take the number to 50% by 2025. Between 2005 and 2010 Walmart improved its fleet efficiency by 60%. A few retailers are much further ahead on the clean energy front. Kohl’s is fully on renewable energy as is Whole Foods

Source from suppliers who practice sustainability. Walmart has asked its suppliers to remove one gigaton, or one billion of metric ton of carbon dioxide by 2020. The Arkansas giant has rated tens of thousands of its suppliers based on 15 questions that cover energy and climate, material efficiency, responsible raw material sourcing, and ethical and responsible sourcing.  

Leverage packaging as a sustainability measure. Walmart is leading the drive towards sustainability on the packaging front as well. The retailer has led out three broad principles for sustainable packaging that are hard to argue with – optimize design, source sustainably, and support recycling. The three principles will increasingly be relevant as ecommerce impacts established notions of packaging (items change hands more frequently and require more protective material). Amazon echoes Walmart’s principles. An Amazon executive recently said, “our commitment is to drive adoption of right sized, minimal packaging…and .. made from environmentally responsible material.”

Reduce waste and commit to recycling. The quantum of just one source of waste – food – is enormous. It is estimated that about 40% of food produce in America is wasted, or about 1,400 calories per person. Food waste is oftentimes a coordination problem, with farmers producing in excess of demand, lacking information that the supply chain has further downstream, or when display shelf needs fewer items that than the warehouse thinks it needs. Retailers are also assessing image processing technology to assess the freshness of grocery, and put produce of varying freshness to the right use. In addition to the above, retailers such as Tesco and Target are trying the conventional route of partnering with non-profits to distribute perfectly edible food that would otherwise end up in landfills. 

Regarding waste beyond food, By 2017 Walmart found way to recycle, or reuse, or sell 78% of its global waste from landfills. Walmart plans to take landfill waste from US operations of Walmart and Sam’s Club to zero by 2025. Part of reducing waste is improved recycling which gets tougher as one moves closer and closer to zero waste. Walmart is nudging its suppliers to utilize increases volumes of recycled material, imposing specific targets. 

It must also be said in this context that sustainability is an area where change would be evolutionary. A radical overhaul of the existing order spurred by a single technology or a combination of emerging technologies is unlikely. Rating products on sustainability is a multidisciplinary challenge, encompassing energy consumption, material consumption, nature of energy sources, carbon footprint, and impact on community. Blockchain keeps appearing in the popular media as a panacea for all ills. But deeming products sustainable or not is a scientific and analytical exercise. Whether the data resides in a cryptographically secure distributed ledger or a plain vanilla relational database is beside the point. 

It is also useful to keep in mind the retail has been investing considerable resources in making sustainability an integral part of industry operations for over a decade. The Walmart sustainability mandate was announced by Lee Scott, then president and CEO, in 2005. The giant from Bentonville, Arkansas announced the sustainable product index almost a decade ago in mid-2009. Much progress has happened since then, but change has been incremental, and a sustainability index is still elusive. Change – therefore – is likely to be incremental.