Over recent years, retailers have experienced a notable shift in consumer behavior towards more sustainable products and conscious consumption. Consumers have driven this shift with their increased awareness of environmental issues, ethical concerns, and desire to support products which are eco-friendly, ethically sourced, and produced under fair labor conditions.
Companies that prioritize sustainability in their operations, such as using recycled materials, reducing carbon emissions, or supporting social causes, are gaining popularity among consumers. But those consumers demand proof of these values and product promises at the point of sale.
“The rise of sustainability isn’t just a movement; it is a shift in consumer consciousness,” said Dania Fayyaz, SAP North America sustainability program manager. “Today’s consumers are redefining their purchasing patterns, opting for products and brands that align with their values, and driving a demand for eco-conscious practices and ethical sourcing.” In her conversations with retailers that visited SAP’s booth at NRF 2024, the world’s largest retail fair, she saw a high interest in sustainability solutions.
Consumers – and Markets – Demand Visibility
When the EU Deforestation Regulation (EUDR) comes into effect for large enterprises later this year all products sold in the EU containing palm oil, cocoa, soy, rubber, cattle/leather, coffee, wood, and their derivatives will need proof that their harvest didn’t contribute to deforestation. Non-compliance will result in potential fines of up to 4% of companies’ EU annual turnover. To help businesses simplify this complex task, the SAP Green Token solution can track the geolocation of where raw materials are harvested and automate the creation of due diligence statements (DDS). The solution can also help improve visibility for consumers on where the raw material for their clothing was sourced and offer information on potential reuse and recycling.
Take the example of a cotton shirt made from 50% certified recycled materials. Cotton can be sourced from multiple farms or recycling services and taken to a cotton mill where it’s spun into thread and later fabric. It becomes impossible to distinguish the different cotton elements – conventional versus recycled cotton – once they are co-mingled and the manufacturer loses insight into the sustainability attributes of the raw materials. That’s why it’s important to have a sophisticated tracking solution in place. “SAP Green Token can enhance transparency for bulk-traded, co-mingled raw materials by digitally storing sustainability attributes on tokens that traverse the supply chain,” said Fayyaz.
In addition to making conscious decisions on raw materials and products, consumers can also consider circular economy models. “I’m really intrigued by the idea of revitalizing clothing items,” said Fayyaz. “Imagine being able to exchange a well-loved jacket you’ve had for years and receive credit in return. And the jacket might find a new owner who will genuinely appreciate it.” The SAP Recommerce solution enables that scenario, helping brands and retailers take back, manage, and resell secondhand inventory to help accelerate the shift from linear to circular business models. On an even larger scale, SAP Green Ledger is SAP’s vision to make transactional carbon accounting a reality. It can enable organizations to track carbon like they do cash, with every financial transaction having a corresponding carbon entry. “This is incredibly desirable because we will see taxes for carbon imposed in the future, and decision-makers will want insights into which processes are utilizing the most carbon,” Fayyaz said.
The Future of Retail – A Retailer’s View
At a recent SAP event, Christoph Werner, CEO at German retailer dm-drogerie markt, shared his view on the future of retail and his insights on what customers want – and therefore what will shape the way retailers have to engage to drive business.
For Werner, individualization of the shopping experience and any transaction will play a major role. Therefore, retailers will have to focus on the individual shopper, not on clusters of shoppers like in the past. Hyper-personalizing the customer experience will improve loyalty; the value for the customer will not only be the price, but increasingly the overall service and experience. This will change the concept of promotions. Werner is convinced that retailers will benefit from giving added benefits and delighting the customer, rather than pushing products into the market based on reduced prices. “Bring home flowers every now and then, but keep it special,” Werner said.
To no surprise, AI will be the foundation for personalized shopping experiences. “AI has benefits and downsides and today it remains to be seen where it will take us,” Werner stated. Overall, retailers see AI as an opportunity, with the technology completing repeatable tasks, freeing up employees for more value-adding tasks, and empowering individuals to make a difference. As retail stores often face staffing challenges, this can empower people in sales and marketing teams instead of replacing them. From Werner’s perspective, an AI-empowered workplace will attract new employees.
Learn more about dm-drogerie markt and its path to excellence with SAP.
A Glance into the Crystal Ball
At the same time, low-price online platforms continue to attract consumers with their affordable and wide range of products. They offer competitive prices on trendy clothing and accessories using economies of scale and direct-to-consumer models. Despite concerns about their environmental and ethical practices, these platforms remain popular among price-conscious consumers. However, there is growing awareness of the environmental and social impacts of fast fashion and low-price models. As a result, consumers are becoming increasingly discerning in their purchasing decisions, prioritizing quality, longevity, and sustainability over cheap prices and fast fashion trends.
“Overall, the consumer landscape is evolving, with a growing emphasis on sustainability, conscious consumption, and ethical practices,” said Sven Denecken, chief marketing and solutions officer for SAP Industries & CX. “Companies that can adapt to these changing preferences and demonstrate a commitment to environmental and social responsibility are likely to thrive in the long term.”