A report by Barclays Corporate Banking has revealed that British Retailers have terminated around £7.1bn in contracts over the last 12 months with suppliers who don’t meet strict ethical and sustainable standards.
The report - Reshaping Retail: How ethics and sustainability are changing retail’s ecosystem - found that the Covid-19 pandemic, combined with an increasing focus on environment, sustainability and governance (ESG) targets has altered business priorities.
Research by Barclays into consumer concerns found that, when asked to rank factors in purchasing decisions, 78% placed quality as their main consideration, followed by price at 76%. Interestingly, a high percentage of consumers placed sustainability (52%) and ethical credentials (52%) as top considerations, indicative of changing attitudinal shifts. This may also be a generational phenomenon, as Generation Z and young Millennials represent an increasingly influential customer base.
Barclays found that retailers are acutely aware of changing consumer demands and views with regards to sustainability matters and are keen to ‘demonstrate authenticity’ in this area. In the survey of over 300 retail decision makers, a majority (51%) now say that sustainability is more important than it was two years ago, with 49% making the same remark about ethical standards.
79% of retailers also stated that a longer term strategy to increase their ethicality and sustainability is more salient than focussing on overcoming the short-term supply chain disruption. To this end, many retailers have started focussing on creating a more resilient and sustainable supply chain.
21% of retailers have made efforts to improve their reputation through substantial investment (around £504,000 on average in the last year) in improving supply chain ethics and sustainability. 21% have also ended contracts with certain suppliers. When questioned as to the reasoning behind the termination of these contracts, retailers cited the use of unsustainable materials (39%), unfair working hours (37%) and lack of accreditation to an ethical or sustainable membership organisation.
Firms are willing to listen to consumer demands in a bid to improve reputation and build a strong consumer base. A focus on sustainability creates brand loyalty, creating inelastic demand, meaning that consumers are less likely to respond to price changes - if price were to increase, demand would fall by a less than proportionate amount, leading to higher revenue for the firm and higher profit margins.
The upside for retailers of paying a premium price to meet costly higher standards is that shoppers will pay around 4.55% more for an ethically sourced product.
If a firm fails to respond to consumer priorities, they risk losing their consumer base. A group of 16-24 year-olds were given a scenario in which their favourite retailer fell short of ethical/sustainable standards - 66% said they would stop shopping there and 68% of 25-34 year olds (who were presented with the same scenario) would stop shopping there due to concerns over ethics.
Clearly, younger generations are driving sentiments over ethics and sustainability. As Millennials and Generation Z build up their disposable incomes over time, retailers must respond to changing attitudes if they wish to remain competitive.
Written by Deandra Peiris
Research compiled by Kristina Njeru