Update on Sustainability in Retail

I have to admit I didn’t have big expectations for the Retail Industry Leaders Association's (RILA) second sustainability report. I knew their first report was interesting, but I didn’t think I'd find much in their second one to differentiate this report from the many other reports released every week. Well, there I was wrong.

Retail Sustainability Report is not just a summary of the retail industry’s progress towards the industry’s evolving sustainability objectives. It is also a great guide for CSR professionals. Its main value derives from identifying a class of top-performing retailers and comparing their characteristics with those of all of the retailers. By doing so, it shows readers what actually works and what doesn’t work when it comes to practicing CSR.

Who are these top-performers? The report doesn’t identify them by name, but we do know that these eight retailers (out of 35 respondents to RILA’s survey) “focus on a wide breadth of sustainability issues… and prioritize over three-quarters of the issues related to their facilities, products and supply chains, employees, and community in their sustainability strategies.”

As you can see, top performance is based in this report on the broadness of the sustainability efforts rather than on results. It’s not ideal as broadness is not necessarily synonymous with success in business, but it’s still good enough to provide us with meaningful findings.

So what can we learn from the report? Hereis what I found most interesting:

Top-performers allow for longer sustainability investment payback periods

According to the report, the average minimum payback period for a sustainability project among retailers is two to three years. Top performers, however, plan with a longer time horizon, and many of them (38 percent) often look for paybacks as far out as three to five years. In other words, top performers show more flexibility with their payback requirements, probably taking more into account “intangible and longer-term benefits that are missed in normal IRR calculations.”

Brand reputation is important for all retailers, but what about profits?

When asked about the ways their sustainability activities have proven to be beneficial, the top replies among retailers (including top-performers) were reduced costs, brand enhancement and risk management. Interestingly, if you compare these three to the top three benefits found by the latest MIT/BCG study you see that only brand reputation is on the top of both lists.

One more thing that got my attention was the fact that only about 40 percent of all retailers mention "increased profits" as a benefit, compared to 88 percent of the top-performing retailers. This difference is even more surprising given that nearly 90 percent of all respondents mentioned that their sustainability efforts are lowering costs (it’s 100 percent among top-performers). So why it is that about 50 percent of the retailers can’t translate reduced costs to increased profits?

Top performers lag behind on sustainability reporting

Retailers were asked how often they produce or update their sustainability report now and what their plans are for two years from now. While about two-thirds of all the retailers currently produce reports, only 50 percent of the top-performers do so now. In other words, top performers might do more, but they report less than the average, which gets you wondering about the branding value of disclosure – why do all top-performers believe that sustainability enhances brand reputation, but only half of them report on their efforts?

By 2015, according to the report nearly, 95 percent of the retailers are expected to be reporting on sustainability issues. It’s not clear though what the top-performers’ plans are and if they will catch up by then with all the others or keep lagging behind.

Life cycle measurement becomes crucial in supply chain management

Looking to increase supply chain efficiencies, retailers today mostly focus on issues like transportation, reviewing materials of concern in products like chemicals, packaging design, product take-back, and manufacturing’s environmental impacts. However, when they look two years ahead, the number jumps considerably – from 23 percent using LCAs today to 60 percent planning to use them in 2015. In 2018 it is expected to reach 77 percent.

The reason is probably that retailers understand that using LCAs can help them uncover supply chain inefficiencies, helping them manage all kinds of issues from design and manufacturing techniques to potential supply risks.  This is, I guess, the reason why 50 percent of the top-performers already utilize life cycle measurements.

Dialogue with customers through private-label green brands and green displays

The report claims that “there is nothing more important to a retailer than to satisfy its customers’ needs.” At the same time, it continues, “most retailers have not developed a comprehensive strategy for engaging consumers in sustainability.”

When asked in what ways they are engaging or educating consumers on their sustainability efforts a clear difference emerges between all retailers and the top-performers. While the top choice for all retailers was to put sustainability messaging on product labels and develop private-label green brands (42 percent of retailers), all top performers choose to develop private label green brands and 75 percent develop green product displays.

Does it mean that green private labels and displays generate better engagement with customers? It’s not clear. Maybe in next year’s report we’ll get the answer.

[Image credit: Retail Industry Leaders Associations]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.