How Should Retail CEOs Tackle Sustainability?

Daniel Saunders

Chief Executive Officer

How should retailers tackle sustainability?

Photo by Erik Mclean on Unsplash

Sustainability is a big, intricate problem, especially for retailers with complex supply chains, changing consumer demands and end-of-life products to contend with. No matter the complexity, it’s on all of us to tackle the causes of climate change and halt the detrimental effects on people and planet.

So how are retailers confronting this monumental challenge? The 2022 United Nations Global Compact CEO Study found that for retail CEOs, the top sustainability priorities were;

1. Constructing a responsible supply chain (59%)
2. Investing in skills development (58%)
3. Introducing new sustainable business models (50%)

The study also revealed that retailers consider the following areas to have the highest potential impact towards sustainable goals and practices;

1. Sustainable and refillable packing practices (45%)
2. End-to-end carbon calculators to help manage and report Scope 3 emissions with suppliers (45%)
3. AI and predictive analytics to efficiently drive merchandising (44%)
4. Bio-based materials derived from waste products (44%)
5. Product-level ESG data to allow for end-to-end supply chain traceability (39%)
6. Digital product IDs to enable circular business models (33%)

We spoke with eight retailers and sustainability leaders to see if the above findings remain true in 2023 and delved into how and where retailers are focusing their innovation efforts in the year ahead.

How should retail CEOs approach innovations that drive sustainability?

Innovations must be commercially viable

“My view is that fundamentally green innovations need to be commercially viable. Our phrase is, ‘if Carlsberg did…’ how would they do it? So what does perfect look like using all your imagination? Then work back from that.
Nothing should give you a structural disadvantage because consumers won’t pay for green, whatever they say.”

John Roberts, Founder & CEO of AO.com 

As John astutely points out, sustainability-related initiatives must be commercially viable. An innovation programme can help with this aspect as ideas undergo an experimentation, refinement and commercialisation process, so only feasible options are taken forward.

Anne provides another route to gaining commercially viable innovations that drive sustainability through investment in emerging digital technologies. While technology can be purchased off the shelf, customised proprietary technology can help retailers get the upper hand over their competition. Innovation labs offer such opportunities by providing a shortcut from in-house development through embedded innovative technology businesses within retail companies.

“Retailers don’t have to focus solely on sustainability. Making smart investments in foundational technology such as RFID, computer vision, electronic shelf labels, and the like can help retailers get a better handle on what products they have, where they are, what can be promised to customers, and as a result, eliminate sending over-ordered products to landfills, reduce carbon by cutting down on same day deliveries, reduce the thousands of paper price and promo tags. The list goes on.
It’s important that the investments retailers are making will also help the bottom line, and getting smart about the tech you invest in will ensure that retailers see a return, both financially and in the positive impact on the environment.”

Anne Mezzenga, Co-CEO at Omni Talk

A Future – Back mentality

The structure and placement of any innovation team within your organisation can vastly alter its approach, priorities, and outputs. Horacio focuses his advice on how to structure any teams working on innovation to enable the right mindset.

“I believe CEOs should foster an “out of the box” growth mindset across their teams and create dedicated Innovation squads at the edge of their core business. Why at the edge? to be far enough from the day-to-day in order to think forward and be less constrained; while being close enough to innovate with a Future – Back mentality”

Horacio Barbeito , President & CEO at Old Navy 

A structured approach using systems thinking

“Sustainability retail innovations all have to start with a great, clear design brief. Research shows that 80% of the environmental impact is determined at the early design stage, so getting it right at the beginning is crucial.
There needs to be a structured approach using key sustainability steps from the major lifecycle stages, design, materials, suppliers, production, installation, and finally, de-installation, including end-of-life thinking around recycling & circularity.
This is where most retailers get it wrong, as the wrong stakeholders are driving the wrong unsustainable practices. There is a balance between cost, quality and sustainability, and it can’t always be driven by costs.”

Steve Lister, Sustainability Director for Global Brands & Retailers 

As Steve points out, goals and a structured approach are needed right from the start when developing sustainability-related innovations, but more crucially, a systems thinking approach should be used. There’s no point in making products out of reused materials if they still end up in landfills.

Set clear objectives and consider the impact on teams and customers

Joe raises an interesting point which isn’t seen the UN study—any innovation which drives sustainability should consider the impact it might have on the brand/customer experience. Joe explains why;

“The first thought retailers should have when developing sustainable innovations is, how this will impact the retail team working in physical stores and their ability to provide an exceptional client experience.
Retail teams are asked to produce higher results year-over-year. The most successful results come from loyal client engagement. In order for sustainable innovations to be beneficial in the long term, they must first consider the type of experience brands want clients to have, then tailor those innovations to fit. Retailers should innovate with this, and their objectives in mind to ensure optimal results are achieved.”

Joe Lopardi, Director of Retail at Trina Turk

Where are retailers focusing their innovation efforts to create a greener future?

Innovation around shipping and returns

“The biggest challenge and opportunity continues to be in the returns process for ecommerce businesses. As online transactions grow, so do returns and transportation/warehousing costs.
The timing impacts the ability to resell the goods at regular price, and the handling costs at the warehouse level are an additional 20%-30% for the unpacking, sorting, stocking, and reshipping.
With that in mind, what innovations can be developed to dramatically reduce return rates across categories and therefore reduce the carbon footprint of all of the back-and-forth transportation as well as the warehouse management expenses? The cost savings on top of the environmental impact could be significant and have a long-lasting impact.”

Sandra Campos, Board Member at Big Lots Stores

Sandra offers some insightful ideas about where retailers with online operations can use innovation to reduce their environmental impact and operational costs. John suggests another aspect of shipping where innovative digital technology can help;

“Better routing of vehicles helps everyone, less fuel, more accurate time slots, less man hours, and a better customer experience.”

John Roberts, Founder & CEO of AO.com

Supply chain innovation

“Retailers should research the origins and sustainability of their products to ensure they are sourcing responsibly. This includes considering how the materials used were sourced or any potential environmental impacts of production processes. For example, as early as the e-bidding process, the retailer should ask suppliers to provide information, such as certifications and environmental impact assessments, that demonstrate sustainability efforts in their supply chains.”

Ryan Mckenzie, Co-Founder & CMO at Tru Earth

Retail supply chains are complex, and it’s often difficult to trace all steps in a chain. As inventory scales, so does the magnitude of the problem. Yet this challenging problem, once cracked, offers retailers and the planet much-needed data and transparency to hold those in the supply chain accountable to higher environmental and operational standards. Retailers should collaborate with suppliers to drive innovation in this area.

Product and packaging innovation

As the adage goes, prevention is better than cure. In this context, retailers can start making their business more sustainable in one of two ways;

1. Preventing single-use materials, removing pollutants and reducing materials.
2. Offering to recycle end-of-life products or using carbon offsetting.

While both aspects are important in the fight against climate change, option one will positively impact the planet and improve your business operations. It’s about moving from an opportunistic initiative to a strategic advantage. Innovation in product and packaging from a strategic perspective involves reconsidering everything from product design, materials, and manufacturing processes, to increasing the product’s life span and making it easier to reuse or recycle. Victor illustrates another facet of the above – reducing damaged goods through packaging innovation;

“E-commerce packaging plays a critical role in protecting products during transit, but it’s important that we explore sustainable alternatives to traditional shipping materials. We’re actively researching and testing new, more eco-friendly packaging options that won’t compromise product safety.
Innovation is key to addressing the challenge of unsustainable shipping packaging. We’re exploring new materials and technology to create packaging that’s not only eco-friendly but also more efficient and cost-effective.”

Victor Elmann, CMO at Circuit City

Business model innovation

Rather than putting the onus on customers to deal with end-of-life products, retailers need to take the lead, and one such way to do this is by creating new business models. Ryan explains what this can look like for retailers;

“A circular economy is an economic system based on principles of sustainability with a focus on minimizing environmental impact while maximizing resource efficiency. In this model, products are made to be reused or recycled instead of discarded after use. Retailers should look into adopting business models where they see opportunities to create more value with fewer resources. Examples of this include leasing, sharing models, and upcycling initiatives.”

Ryan Mckenzie, Co-Founder & CMO at Tru Earth

Summary

Our eight retail leaders’ thoughts on sustainability were similar to those highlighted in the United Nations Global Compact CEO Study.

Regarding what to consider when developing innovations that drive sustainability, three key themes emerged;

1. Innovations must be commercially viable.
2. A structured approach using systems thinking should be used.
3. Clear objectives are required and consideration of the impact on teams and customers.

When it came to where retailers are focusing their innovation efforts to create a greener future, four areas became apparent;

1. Innovation around shipping and returns
2. Supply chain innovation
3. Product and packaging innovation
4. Business model innovation

If your organisation wants to improve its impact on the environment through innovation, check out our innovation lab. Our innovation lab works with retailers like L Brands, Iceland Foods, AO.com, and John Lewis to provide a tried and tested method for discovering and commercialising impactful innovations.

21 March 2023