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Sucharita Kodali is the Vice President and Principal Analyst at Forrester Research, where she addresses e-commerce, omnichannel, and consumer behaviour topics. She is also an authority on technology developments that affect the online commerce industry and vendors that facilitate online marketing and merchandising and authored “The World’s Most Future-Proofed Brands” report, which reviews global consumer-facing brand manufacturers.

At IADS, we know that sustainability is increasingly a burning topic for retailers, and this is not expected to change in 2023. As we demonstrated in our latest White Paper on the topic, “Reinventing department stores through sustainability”, the pressure grows and comes from all stakeholders. Customers might not be the only ones asking for more action in this field. In addition, retailers who already started their journey also realized that with actions came more complexity, as there is for now no charted path. This is the reason why the IADS asked Sucharita Kodali, who boasts experience in the department store retail format, to talk to the IADS CEOs earlier in 2023. This IADS Exclusive is an excerpt from this talk.

The rise of the conscious customer

Like it or not, the rise of a new conscious customer over the past decades was inevitable. Starting in 2000, when China joined the WTO, the cost of manufacturing soft goods considerably decreased, allowing the category to literally explode: in the fashion category for instance, prices deflated, allowing customers to buy more products, and generating a never-ending hunger for new garments (with the United States losing their predominant position as a clothing manufacturer along the way).

The rise of e-commerce fueled this hunger even more, as it brought the convenience of being able to order products from the living room, and customers became avid.

It took some time for everyone to realize the environmental cost of shipping products from a given warehouse instead of purchasing them at the store, and, when becoming aware, customers started to ask brands and retailers to steer towards more sustainable practices.

Tackling sustainability: three sides to the story

However, the topic became complicated fast, as sustainability, at least in the US, quickly included a social dimension (employees’ health, fair wages…) as well as a backlash against the negative externalities of businesses (including, for instance,  privacy management or data confidentiality).

Kodali suggested considering the notion of sustainability according to three angles.

The first one is to acknowledge that customers have radically changed.

In a study conducted by Forrester, 4 segments reflecting customers’ shift towards more “consciousness” were identified.

The identified profiles are the following:

-    “Non-greens” (14% of the respondents), for whom environment comes second and who are not looking for green products,

-    “Dormant greens” (36%), who might be looking for green products and who are unsure if the environment comes second or first,

-    “Convenient greens” (26%), for whom the environment comes second but who are actively looking for green products,

-    “Active greens” (24%), for whom the environment comes first, and who are actively looking for green products.

All in all, this segmentation shows that at least half of the consumers (convenient greens and active greens) are now receptive to finding ways to make their consumption greener.

This implies new attitudes toward recycling (38% of positive answers), opting for higher quality (26%), and purchasing second-hand (21%), which in turn suggests that customers will, at some stage, reduce their overall consumption, which will require retailers to adapt.

The second angle to consider is regulation. 

Many countries are eyeing (and for some, voting or enforcing) new laws which can either encourage new behaviours, through tax incentives or, more frequently, be restraining. Kodali believes for instance that surcharges on packaged deliveries are coming, as well as extended producer responsibility (i.e. surcharges allowing to address the product afterlife and finance its recycling or destruction, as South Africa decided at a national level).

This raises new questions (How to finance it? as a levy on the final price point? a tax on the manufacturer? or on the retailer?) which will anyways impact retailers. This is a norm in electronics across the planet now, and highly probable that soft goods will follow suit soon.

The third angle is to understand that sustainability is not only for consumers.

Investors are now also fully utilizing CSR and ESG tools and KPIs in their decision-making process, even though there are still some disparities at the global level due to uneven regulation (42% of European investors are required to invest in socially responsible products, vs. 15% in North America). There still are some investors (especially in the Americas) that might think that such commitments are a waste of time and energy, however, Forrester thinks that this is a disappearing breed as investors are increasingly encouraged to measure the ROI of their actions also taking into account CSR KPIs.

In that context, how can retailers thrive?

Opportunities for retailers and brands

Kodali suggests looking at the current e-commerce practices and seeing how these practices could be twisted and mirrored in a way that makes retailers more sustainable than the industry leaders such as Amazon. In fact, in many cases, this is equivalent to coming back to the traditional usages in physical business:

-    No additional packaging coming on top of the product, just like when customers go to the store and bring back their purchases,

-    Encouraging customers to receive all their purchases together and not in a fragmented manner the same way that they do only one trip to the store and bundle their purchases,

-    Restrict returns in the same manner.

Whatever the case, the landscape has evolved and change is now required. But Kodali points out that some retailers might be in a more urgent situation than others, as the proportion of green customers might vary from one brand to another.

For instance, while Chanel or Adidas have more than 70% of green customers overall (i.e. sensitive to sustainability), this proportion falls to 37% for Home Depot, suggesting that, in the latter case, sustainability efforts might make less sense (unless new regulation or investors are coming in the game).

Brands also have to keep in mind that customers are, by default, suspicious that any of the actions might be only greenwashing, as many empty claims were made in the past.

To go further, Kodali cites a few opportunities for retailers to consider:

•    Repair Café in the Netherlands, where customers can bring back any product that needs a repair (adding new services and facilities to department stores),

•    SOEX in Germany, which recycles raw materials,

•    Initiatives going beyond extended producer responsibility laws, with some initiatives even charging the customers for taking back their old products and recycling them (based on the belief that convenience can always be charged).

She also encourages retailers to adopt stricter sustainable standards than the ones imposed by law (this was also a discussion during the last IADS General Assembly): once a law makes something standard, being compliant with it is not a competitive advantage anymore. Also, Forrester expects regulators (especially in the EU), investors and NGOs to be increasingly demanding, so anticipating their requests makes sense.

Finally, retailers should expect a revolution similar to what took place in tech. Kodali points out that Amazon, Apple, Google and Microsoft all radically shifted the nature and source of their income between 2000 and now, and for that reason, looking at new revenue streams in retail (third-party marketplaces and retail media) makes sense as the whole sector might go through a transformation in similar dimensions in the future.

Credits: IADS (Selvane Mohandas du Ménil)