When discussing climate change, scientists often allude to a moment in time when further action cannot prevent foreseen damage to our planet and resulting negative consequences are irreversible. And this tipping point from stability to instability is making sustainability a critical priority, as expressed by the 2021 United Nations Climate Change Conference (COP26) and the European Union Green Deal.
Retailers are also quickly approaching their own tipping point for sustainable action. In response to customer, stakeholder, and government expectations for “green” brands, they must take immediate sustainable action to not only improve their bottom line and respond to disruption with resilience, but also help ensure their future survival. Even retail brands with long-initiated sustainability programs to become eco-friendly and socially accountable need continuous reviews and adjustments of their activities.
Time is running short for achieving meaningful environmental, social, and governance (ESG) outcomes. Retailers ultimately have a choice: rethink their sustainability strategy completely or face the risk of ceasing to exist. By integrating sustainability into their corporate DNA, retailers can better navigate their own fast-approaching tipping points while performing three times better than those that do not.
Kick Off a New Era for Green Retailing
Retail companies focusing on sustainability and circular business models can tap into a US$4.5 trillion global market. By leaving behind the “take, make, and dispose” attitude to embrace “take, make, and reuse” business models, they can enter the circular economy as a promising alternative to refine current strategies.
In the fashion segment alone, McKinsey & Company research revealed that 67% of consumers consider the use of sustainable materials as an important purchasing factor and 63% view a brand’s promotion of sustainability the same way. German and UK consumers also buy more high-quality items that last longer and consciously eat less meat and more sustainable food choices. And overall, 63% of consumers prefer to purchase from companies that are transparent in their sourcing practices and employee equity and fairness.
Even if emissions and water consumption within stores and distribution channels are low compared to industries such as oil and gas and mining, retailers have a more profound impact on the entire value chain. McKinsey reported that fashion brands contribute approximately 4% of all greenhouse gases worldwide while recycling less than 1% of discarded garments and sending 87% of materials to a landfill or to be burned. Other retail segments, including grocery, furniture, drugstores, and DIY, are also relying on natural resources and accelerating, for instance, the deforestation of the rainforest and the overexploitation of scarce raw materials.
Additionally, retailers worldwide must take further steps to demonstrate social responsibility within their workforce and the workers involved in their value chain. Based on SAP’s experience, the average number of employees involved in the early stages of a supply chain – for example, farming and production – are significantly higher than that in warehouses, transportation services, sales departments, or central headquarters.
The importance of social responsibility and associated regulatory requirements are only growing. The European Commission has even drafted a proposal for a Directive on Corporate Sustainability Due Diligence, introducing new business obligations regarding human rights and existing and potential adverse environmental impacts.
Break Down a Massive Challenge with Key Goals
Sustainability is unquestionably a challenge that encompasses all areas of the retail business and requires the entire industry’s attention. However, the topic can be easier to approach with a strategy that breaks down all related activities into four critical goals:
1. Zero Emissions with Climate Action
With strategies that seek to decrease the environmental footprint of products offered and limit emissions along the value chain and core processes, retailers can take on initiatives that control their impact on the planet.
Retailers can control the CO2 output of a specific product, finance rainforest reforestation, and prioritize the selection of green suppliers based on predefined ratings. The carbon footprint at the store and distribution level can be further reduced with initiatives that optimize production, transportation, and logistics operations.
2. Zero Waste with the Circular Economy
By setting up a circular economy model for all, or at least most, products sold, resources should, ideally, be conserved, recycled, and fed back into production and consumption cycles. These activities include designing reusable products, reducing packaging, avoiding waste during consumption, and opening production lines for recycled materials. And steadily, the resell and rental markets are gaining more interest as a major part of a sustainable business model, especially in the fashion industry.
Working toward zero waste provides considerable growth potential. This opportunity is particularly advantageous for grocery retailers, where between one-third and one-half of all goods produced is lost worldwide along the complete food chain. Suppliers, stores, and consumers waste 45% of fruits and vegetables, 35% of fish and seafood, 30% of cereals, and 20% of meat and dairy products annually.
3. Zero Inequality with Social Responsibility
Retail companies that take their social responsibility seriously initiate projects that promote gender equality and eliminate societal injustices in all aspects of their business. Such efforts may establish an equivalent share of female and male managers, close existing payment gaps, support the inclusion of disabled workers, and foster equal treatment of all employees regardless of origin and religious views.
On the operational level, zero inequality also means protecting the workforce in warehousing, transportation, and sales. Increasingly, retailers welcome the idea of extending their responsibility along the entire value chain ‒ encouraging upstream and downstream suppliers and subcontractors to comply with globally and legally accepted social standards.
4. Holistic Steering and Reporting
Retailers can devise an aligned and executable sustainability strategy by understanding these dimensions. However, they must also measure their efforts effectively to steer and achieve expected outcomes.
A state-of-the-art holistic steering and reporting system can help businesses evaluate whether long-term projects are heading in the right direction and when predetermined goals are reached. The system provides the transparency necessary to grasp how sustainability initiatives are connected across operational, financial, social, and environmental implications. Even if environmental goals are honorable and meet societal and regulatory pressures, they must be financially viable in the end, too.
Infuse Sustainability along the Complete Value Chain
Using this strategy to observe, question, and act purposefully on the many dimensions of sustainability, leading retail companies are working closely together with SAP to develop effective environmental approaches and practice them. They are aligning and executing their efforts in ways that positively change how they do business, remain competitive, and expand their impact transparently.
SAP customers have helped develop new solutions ‒ such as the SAP Intelligent Returns Management solution ‒ and upgrade existing ones with new functionalities. And in some cases, they contributed their own ideas and help deliver co-innovations – for example, the GreenToken by SAP solution. And such investments of time and ingenuity have proven to pay off: 91% of the greenest retailers in the world run SAP solutions, according to Newsweek.
Whether developing products or selling offerings from other vendors in physical or e-commerce stores, retailers have a wide variety of business areas that play a critical role in their journey to become sustainable enterprises, including:
- Merchandising and marketing: Introduce reselling and rental platforms that allow customers to take advantage of subscription, pay-for-use, or sharing models.
- Procurement: Track suppliers to help ensure materials are recyclable and sourced ethically without human rights violations, wasteful production practices, and damage to the environment.
- Manufacturing: Focus on efficient resource consumption and scale operations to support a make-to-order business model to meet demand while maintaining worker safety as a priority.
- Supply chain: Leverage demand-driven planning and intelligent forecasting to reduce loss prevention through less shelf waste and decrease emissions and costs with optimized transportation and logistics processes.
- Customer experience: Make the carbon footprint and origin of products more visible to customers throughout the buying journey.
- Employee experience: Meet expectations for equal pay and fair jobs and foster skills for the future of work ‒ all with a focus on diversity and inclusion.
- Financial compliance reporting: Visualize revenues and costs gained by improving the value chain’s sustainable behavior.
- Real estate management: Consider how stores and distribution centers consume energy to maintain and preserve stock and choose technologies that can improve their practices.
It’s clear how the introduction of even just one new customer or business requirement requires various business functions to work hand in hand to achieve a sustainable and profitable outcome. Retailers need to stay up-to-date on how every organization ‒ from design and production to product management ‒ affects emissions, waste, and equality as pressure around sustainability and transparency grows stronger.
With solutions that support re-commerce planning, replenishment management, and sustainability control, they can leverage an overarching strategy based on the guiding principles of long-term success as green brands.
Find the Right Partner to Move Forward
This is not the time for retailers to invest in small, focused sustainability activities within a company. Just like the planet is reaching its own tipping point, retailers are facing their own, which calls for bold actions across their end-to-end value chain.
Achieving company-wide sustainability goals requires internal alignment between all business units as well as processes that are integrated, standardized, and automated. Although most organizations have a broad sustainability strategy to support this shift to a purpose-driven business model, they often have a significant disparity between strategy and execution.
To bridge this gap, the right partner can help simplify the journey to sustainability with advisory, assessment, and technology implementation. Retailers can get started quickly by defining their unique ambitions, use cases, and strategies and developing a detailed road map to execute them. Then, they can maximize usage and adoption by deploying solutions that drive thoughtful design, production, and curation of products and assortments through capabilities such as demand and replenishment planning and intelligent returns management.
SAP works to deliver on this promise of partnership by providing technologies, outcome-oriented services and support, and expert-led co-innovation. We work with our customers to help ensure key sustainability attributes ‒ purpose, social responsibility, compliance, and efficiency ‒ are embedded across all lines of business and processes, including:
- Design of recyclable and environmentally sustainable products
- Emissions reduction and ethical sourcing of materials
- Adherence to fair work practices and elimination of forced labor
- Compliance with trade regulations
- Production practices that minimize waste and environmental impact
- Sustainable product and service delivery
- Safe and efficient operations of equipment and other assets
- Predictive planning capabilities that detect and anticipate consumer expectations
Move Forward with Bold Action and Intelligence
Sustainability is no longer an embryonic concept; it is developing into a key contributor to a company’s performance. End-to-end green value chains and measurable sustainability performance are now critical to overcome the tipping point of not being ready to surf the next wave of global economic transformation.
While retailers, like all other businesses, are driven by profitability, they are also expected to establish a business strategy that brings profit and the health of our planet together. While sustainability can positively impact our planet and our communities, it can also contribute to the future growth and success of a retailer.
Learn how to holistically manage your business’s sustainability performance and improve sustainability across your value chain with SAP Cloud for Sustainable Enterprises and cloud retail solutions from SAP.
Dirk Dreisbach is chief business enterprise consultant for BTS Consumer Products and Retail Industries at SAP Germany.
Susanne-Kirsten Mueller is director of Sustainability and Supply Chain Innovations for the Retail industry Business Unit at SAP Germany.