Business

Ethical shoppers driving retail revolution

Ethics and sustainability are changing retail’s ecosystem has revealed that modern retail purchasing decisions are increasingly influenced by factors beyond a basic need or desire for the product
Adrian Doran

BUSINESSES will be aware of a shifting tide in favour of environmental, social and governance (ESG) considerations, but how important are these issues for today's retail consumers?

Research from Barclays Corporate Banking, Reshaping Retail: how ethics and sustainability are changing retail's ecosystem has revealed that modern retail purchasing decisions are increasingly influenced by factors beyond a basic need or desire for the product.

As we see a shift away from “fast fashion”, a drive towards fair trade, ethical wages, greater traceability and renewable materials, there is a rapidly growing movement, which is no longer simply satisfying a niche, but generating a groundswell of mainstream consumer behaviour.

Consumers in greater and greater numbers are using their purchasing power to vote in favour of sustainable suppliers and goods which have been ethically manufactured by responsible businesses and are environmentally harm-free.

If you're in the retail business, either as retailer or supplier, and you are thinking that the ESG movement is a passing trend of little financial consequence, it's time to think again. Our report suggests that a shift away from those suppliers whose credentials don't stand up to environmental and ethical scrutiny, has cost UK suppliers over £7.1 billion in cancelled contracts in the past 12 months.

The most common reasons for cancelling contracts were use of unsustainable materials (39 per cent); unfair working hours (37 per cent); and lack of membership to a trade body monitoring ethical and sustainable standards (32 per cent).

Over a fifth of retailers surveyed by Barclays in Northern Ireland have cut ties with suppliers in the last year because they're not meeting required standards. With an average of six contracts cancelled per retailer, the average value of each was £306,000 per contract. This is a rapidly growing and increasingly significant deal-breaker.

While this consumer trend is not a recent phenomenon, there has been a notable shift in thinking and the movement is gaining greater traction, particularly among younger consumers who aren't afraid to vote with their feet (and their cash).

The Barclays report suggests that retailers should be operating with an eye on the expectations of those who will dominate spending patterns for the next 20 years: Gen Z.

In a survey of 2000 members of the public, two thirds of 16-24-year-olds said they would stop shopping with their favourite retailer due to ethical concerns, and 68 per cent of 25-34-year-olds would cut ties and shop elsewhere if their favourite retailer was found not to meet sustainability standards.

With the pressure being felt, retailers have clearly identified the key issues: in Barclays' study of more than 300 retail decision-makers, the majority (51 per cent) said sustainability is more important now than it was just two years ago. Just under half (49 per cent) say the same about ethical standards.

Savvy retailers are already investing heavily to sharpen up their ESG credentials, with those business which employ more than 10 staff investing an average of half a million pounds per year to improve their environmental and ethical footprints.

As a further indicator of the power of these factors, in the wake of the supply chain issues linked to the pandemic, the report notes that almost four out of five (79 per cent) retailers in Northern Ireland think that a long-term strategy to improve their ethical and sustainable credentials is more important than overcoming short-term supply chain disruption.

This is reflected in the views of consumers who indicate that while quality (78 per cent) and price (76 per cent) are the most important purchasing factors, ethical and sustainable credentials (both 52 per cent) are not far behind.

With billions of pounds worth of business lost in cancelled contracts in just one year, this attitudinal switch will quickly take its toll on retail suppliers who don't prioritise sustainable and ethical standards in every part of their business operations.

As Generation Z consumers enter the workforce, bringing their own disposable income, retailers must continue to pay close attention to these important factors if they are to appeal strongly to their customers of the future.

There is, however, an upside for retailers, in that consumers are prepared to pay a premium for these higher standards. On average, shoppers will pay 4.55 per cent more for an ethically-sound product and 4.36 per cent more for sustainably-sourced goods.

This movement could herald in a whole new era in consumerism, away from mass manufacturing of disposable goods at catastrophic cost to the planet's natural resources, towards a more responsible, considered era of consumer goods produced with an eye on quality, ethics and sustainability. For those with their eye on the real prize, the rewards could be much richer than just the bottom line.

:: Adrian Doran is head of corporate banking at Barclays in Northern Ireland

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