Sustainability has become an important competitive factor for retail since the adoption of the Sustainable Development Goals in 2015. Businesses seek to differentiate themselves from their competitors by improving brand loyalty and attracting young consumers through sustainable practices and sourcing.
In its Sustainability Report 2020, Internet Retailing reported that 75% of UK and Irish consumers want retailers to use recycled and recyclable packing, particularly as e-commerce has spiked during the pandemic, requiring more packaging.
While sustainable practices put retailers in good stead with their downstream markets, it also prevents them from running afoul of heightening government regulations. The United Kingdom is ramping up its efforts to meet its carbon emissions target of net zero by 2050.
Retailers play a key role in the relationship between consumer and supply chain. By recycling resources back into production, natural habitats can be allowed to regenerate for future generations. How have different retail industries faired in their sustainable practices during the COVID-19 pandemic?
Food retailers
The Supermarkets industry has been embroiled in strong competition for the majority of the past decade. Prices have continuously been slashed in a bid to attract customer loyalty. The complex supply chains that feed into these retail giants result in high volumes of food and packaging waste.
In June 2019, the largest supermarkets signed a government pledge to halve food and drink waste by 2030, which was estimated at 10.2 million tonnes, worth around £20 billion a year.
Government policy will play a large role in influencing retailers to work within the circular economy, by preventing waste and encouraging recycling. The 5p charge for single-use plastic bags has driven a 90% reduction in UK supermarkets since its introduction in 2015, from approximately 7.6 billion bags to 226 million in 2019-20. However, the purchase of stronger ‘bags for life’ remains high, with 1.6 billion sold in 2019, 4.5% higher than in 2018, according to Greenpeace.
In April 2021, the 5p charge will be increased to 10p and extended to all smaller retailers in England, despite the largest retailers now relying on the sale of bags that use a higher volume of plastic than before. Furthermore, Scotland’s 20p deposit return scheme for drink containers has been given a go-live date of 1 July 2022. Placing this financial burden on retailers is expected to encourage them to establish easier methods of recycling packaging for their customers.
Food retailers across the sector are finding ways to reduce their impact on the environment. For example, Tesco, the largest supermarket in the industry, reported the elimination of 10,000 tonnes of hard-to-recycle plastic packaging in its own-brand range over the 12 months through February 2020. However, the difficulty lies in how these retail giants will persuade their suppliers to following suit, as independent producers rely on packaging for branding.
As sustainable practices gain more traction in the post-pandemic world, less packaging is expected to be used. Supermarkets’ own-brands are anticipated to become increasingly dominant following significant investment in both upstream and downstream supply chains, giving supermarkets greater control of their waste production.
Fashion retailers
Sales volumes in clothing stores contracted by 25.1% in the 12 months through December 2020, according to the Office for National Statistics (ONS), the worst year on record.
Fast fashion has had its grip around western consumer demand since 2000, offering low prices through low-cost production in developing countries. According to the UNECE, between 2000 and 2014, global clothing production doubled and the average consumer bought 60% more pieces of clothing than 15 years ago.
The production of fast fashion is dependent on cheap labour and high volumes of natural resources that use extensive global supply chains, making it both socially and environmentally damaging. In July 2018, the Intergovernmental Panel on Climate Change claimed that the fashion industry produces 10% of global CO2 emissions every year, using 1.5 trillion litres of water annually.
Consumers are increasingly demanding greater transparency and social responsibility from fashion retailers. Primark, which is a major player in the Clothing Retailing industry, joined the UN Fashion Industry Charter in October 2020, committing to a 30% reduction in greenhouse gas emissions by 2030. The company also promised to double the number of products made using recycled materials to 40 million and has launched an in-store recycling scheme for customers.
As the UK retail sector re-opens after a year of severe disruption, opportunities are anticipated to arise in the second-hand economy. Vintage clothing is expected to scale up in the coming years, leading to higher competition, as well as creating opportunities for retailers to participate in the circular economy.
Household goods and homeware retailers
The ONS reported 46.6% of the UK workforce working from home to some degree in April 2020, following the coronavirus outbreak. Demand for office equipment from furniture stores spiked by as much as 200% in the case of some ergonomic IKEA chairs, while household goods stores grew by a record 73.4% in 2020, according to the ONS.
A significant volume of resources is required to produce furniture and homeware in order to meet consumer requirements, so record growth in the current year also means record waste.
The UK’s largest furniture retailer, IKEA, has pledged a €600 million (£534 million) investment into sustainability projects across 31 different countries over the 12 months through September 2021. After delaying its launch due to the coronavirus pandemic, the company plans to introduce a buy-back scheme in the current year, offering up to 50% of the original price for unwanted IKEA products. Such initiatives are part of the company’s goal of becoming a fully circular and climate-positive business by 2030.
The market for second-hand products and sharing is expected to offer consumers an alternative to buying brand new furniture. The upcoming introduction of the new ‘Right to Repair’ law in summer this year will support this trend, legally obliging manufacturers to make spare parts for products available to consumers. These new rules are expected to reduce the 1.5 million tonnes of electrical waste generated in the United Kingdom each year and allow owners to fix and resell products more often.
Following significant growth during the pandemic, companies in the Furniture, Lighting and Homeware Retailers industry will need to think more extensively on reducing the unsustainable production of goods which ultimately end up in the skip.
Conclusion
Sustainable business practices are now an important feature of commercial activity. A combination of consumer sentiment and government regulations have pushed transparency and ethical practice in business.
While encouraging responsible trading, sustainability efforts have also created difficulties for new businesses and reduced profit margins, by affecting companies’ price competitiveness. While competition is vital for consumers to receive high-quality products and services at a reasonable price, it is important that sustainable retail is achievable by all types and size of business to maintain a diverse competitive environment.
Government regulations are instrumental in setting a level playing field. However, retailers will be wise to remember their responsibility doesn’t end after customers receive their product. The circular economy will allow for valuable relationship management between consumer and retailer.
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