Retail Sustainability Transformation: Reinventing Business Strategy to Enable Mindful Retailing

There is a new mantra in the retail industry: Embracing Sustainability and Integrating it into the Fabric of Business Strategy. Retail business leaders realise that they can’t be bystanders and should take decisive and measurable actions to address their impact on the economy, environment, and society. Customers are more aware of greenwashing practices and increasingly adopting more sustainable behaviours, including looking at product impact and choosing brands that align with their values. As a result of growing customer interest in how products are sourced, manufactured, and delivered, brands are striving to become more transparent. Reports say 82% of shoppers want brands to embrace sustainable and people-first practices. The retail sustainability challenge is an opportunity for companies to reinvent their business strategies and improve operational efficiency.

Greenwashing or green marketing is when companies exaggerate or even lie about their claims to mislead and encourage consumers to purchase their products.

Why is Sustainability Important?

There are three reasons why retailers should integrate sustainability into their business strategy. The first reason for retailers to integrate sustainability into their business strategy is to maintain their brand reputation and align it with their core values. Customers are becoming more conscious about the impact of their purchasing decisions, and they want to buy from brands that share their values. By incorporating sustainability into their business strategy, retailers can demonstrate their commitment to social and environmental responsibility, enhancing their reputation and building brand loyalty.

The second reason is to meet consumers' expectations and attract Gen Z and digital native consumers. This demographic cohort is more likely to support companies prioritising sustainability and social responsibility. A 2020 study by McKinsey found that 70% of Gen Z consumers are willing to pay more for sustainable products. Therefore, retailers that integrate sustainability into their business strategy can gain a competitive advantage by appealing to this growing customer base.

The third reason is to respond to regulatory requirements and meet new industry standards. Governments worldwide are introducing laws and regulations to address sustainability issues, such as reducing carbon emissions and promoting circular economy practices. Retailers that fail to comply with these regulations may face legal and financial penalties. Additionally, sustainability standards and certifications such as Worldly Index and the Forest Stewardship Council (FSC) enable retailers to show their commitment to sustainable sourcing. By integrating sustainability into their business strategy, retailers can stay ahead of these regulatory and industry developments and demonstrate their commitment to sustainable practices.

Sustainability is a Marathon

Retailers who adopt sustainable practices find that it can lead to long-term business benefits. These include reduced operational costs, improved brand reputation, increased customer loyalty, and access to new markets. By embracing sustainability, companies can also attract and retain top talents seeking purpose-driven organisations.

One-way retailers are addressing the sustainability challenge is by adopting circular economy models. This involves designing products for longevity and recyclability and minimising waste throughout the supply chain. For example, brands use recycled materials, reduce packaging, and implement take-back programs to reduce their environmental impact.

Another approach is to adopt sustainable sourcing practices that consider raw materials' social and environmental impact. As much as 98% of a retailer’s sustainability impacts are outside its direct control. The impacts are driven by the decisions of their suppliers and their suppliers’ suppliers. Retailers increasingly partner with suppliers with ethical and sustainable practices and use certification schemes to verify their claims.

Technology as a Driver

Measuring sustainability impacts across the organisation and supplier network requires tools and resources to collect, validate, and analyse the data. Retailers are leveraging technology to improve their sustainability efforts. For example, they use data analytics to track and reduce their carbon footprint, implement renewable energy solutions, and use digital platforms to communicate their sustainability initiatives to customers. HCLTech has been working with organizations to help them in their sustainability journey by offering a series of solutions and services such as a sustainable IT framework. Here are some examples of how technology is driving sustainability in retail:

Inventory Management: One of the biggest sustainability challenges for retailers is managing inventory efficiently. Overstocking leads to waste, while understocking can result in lost sales and increased shipping emissions. However, technology can help retailers to optimise inventory levels through real-time data analytics, predictive modelling, and artificial intelligence. This can reduce waste and improve efficiency, ultimately reducing the environmental impact of the retail industry.

Supply Chain Transparency: Consumers increasingly demand transparency about the origins of the products they buy, particularly regarding ethical and environmental considerations. Technology can help retailers to provide this transparency by enabling traceability throughout the supply chain. For example, blockchain technology can be used to create a tamper-proof record of every stage of a product's journey, from raw materials to finished products, allowing retailers to verify their suppliers' ethical and environmental standards.

Circular Economy: Retail generates a lot of waste. The circular economy is an emerging model in which waste is minimised, and resources are used for as long as possible. Technology can enable retailers to implement circular economy practices by enabling product reuse, repair, and recycling. For example, mobile apps can be used to facilitate product resale, while 3D printing technology can enable the creation of new products from recycled materials.

Energy Efficiency: Technology can also help retailers to reduce their energy consumption and carbon footprint. For example, smart building technology can optimise heating, cooling, and lighting systems, while sensors can be used to monitor energy usage and identify opportunities for improvement.

Resale Retail is Growing

Resale retail provides consumers with access to affordable, high-quality products that have been lightly worn, repaired, or refurbished. This particularly appeals to price-sensitive shoppers who want to save money but still have access to stylish and trendy clothing, furniture, and other products. Resale also appeals to those who are conscious of the environmental impact of their consumption habits and want to reduce their carbon footprint by buying second-hand.

Resale retail can help retailers to increase foot traffic in their physical stores and drive sales. By offering a resale program, retailers can attract new customers who may not have considered shopping with them before and encourage existing customers to return more frequently. This can help to build customer loyalty and increase brand recognition. Resale retail also reduces waste and improves retailers’ sustainability credentials. By extending the lifecycle of products, retailers can reduce the amount of waste that ends up in landfills and reduce the need for new production. This can help reduce the retail industry's environmental impact and appeal to sustainability-conscious customers.

宜家 ’s furniture resale program has increased foot traffic in its physical stores while also creating environmental and consumer benefits. Fast fashion retailer H&M launched its first branded resale platform, “H&M Pre-Loved”, to offer H&M customers an easy way to access second-hand pieces for their wardrobe and generate additional income from selling second-hand products. This can help to offset any declines in sales of new products and provide a more stable revenue stream over the long term.

By adopting sustainable practices, retailers can build a better future for the planet, society, and their bottom line. Technology plays a vital role in retail sustainability by enabling retailers to reduce waste, improve efficiency, and create new business models. By embracing technology, retailers can meet the growing demand for sustainable products and practices and drive innovation in the industry. In summary, integrating sustainability into a business strategy enable retailers to maintain their brand reputation, attract new customers, and comply with regulatory and industry standards.