UK retailers have cancelled £7.1bn in contracts across the last 12 months with suppliers that don’t meet stringent ethical and sustainable standards
The UK retail sector is no stranger to the transformative impact of sustainable and ethical trading that has been informing the business models of consumer goods and services over the past decade. Whether responding to the urgent environmental challenges of our time or putting more fair and equitable working practices in place, retailers have made great strides in adapting to these evolving imperatives.
According to the findings of Barclays Corporate Banking’s latest thought leadership report, Reshaping retail: how ethics and sustainability are changing retail’s ecosystem, we are now seeing a marked and steady shift among consumers and retailers towards an even greater prioritisation of sustainable and ethical standards when they make purchases or sell goods, especially amongst Gen Z.
No longer is the discourse simply dominated by the efficient use of plastics, dedicated recycling regimes or use of renewable energy. Attitudes have matured – and hardened – among a growing consensus that transparency and authenticity, rather than cosmetic moves to ‘go green’, are needed in the effort to face down the risks to our collective future. Ethical excellence in the way retailers conduct business is also rapidly becoming a non-negotiable requirement for any business serious about its long-term place in the market. Legislation such as the Modern Slavery Act 2015 is helping to drive the agenda, illustrated by online fashion retailer Boohoo’s strategy to link high executive bonuses to improved working conditions in its supply chain.
A significant indicator of this shift is the step-change we are seeing in supply chain management philosophy. Businesses are increasingly aware that they are being held accountable by shareholders, employees, investors and regulators as well as their customers – and our survey reflects the efforts being made to achieve end-to-end transparency across the supply chain. Most importantly, this needs to be done in an authentic manner that demonstrates a collective integrity, with retailers using a range of options from incentives to contract termination to achieve it.
Based on research with senior executives of 302 UK-based retail businesses and over 2000 consumers, our latest report shows that pressure to act ethically and sustainably is having a sizeable commercial impact on the retail industry’s supply chain – with more than £7.1bn of supplier contracts cancelled in the past 12 months alone as retailers seek to improve their credentials.
Although consumers still demand quality and price as their top criteria when purchasing products and services, there is a significant expectation that what they buy is also ethically and sustainably acceptable. Retailers are demonstrating a willingness to meet these demands – and the evidence shows that they are already shifting their models to account for the longer-term trend, with 49% of all retailers saying that ethical standards are now more important than two years ago. Additionally, 51% of all retailers say sustainability is more important.
Supply chain integrity is at the heart of these shifts, and holding suppliers and vendors to account around ethics and sustainability is key to ensuring that there is a moral as well as commercial dimension to good collective retail practice. To this end, 79% of retailers agree that their best strategy is to improve the long-term ethical and sustainable credentials of their supply chain.
While retailers are evolving their own approaches to ethical and sustainable business practice, 21% have terminated relationships with suppliers who do not. Our survey shows that, among the businesses that have done this over the past year, an average of between five and six supplier contracts have been terminated by retailers due to ethical or sustainability concerns.
Home furnishings retailer Dunelm is just one example of a retailer with a far-reaching policy that regularly audits tier 1 suppliers via an independent agency, moving to its tier 2 this year. Where social and ethical performance shortfalls are spotted, suppliers are given action plans with tight deadlines to rectify their operations, or risk being dropped from the supply chain. In addition, the company has linked management incentive plans to the purchase of responsibly-sourced cotton.
Our research confirms that these type of policies and practices are becoming widespread among UK retailers, and shows that businesses across the industry are proactively taking steps to enhance their sales proposition while protecting it from adverse customer response. Doing nothing may put their business reputation at serious risk, but similarly, doing only the bare minimum to appease regulators could be just as damaging. So the cost-benefit lesson that retailers can learn for the future is that efforts made today will maintain their appeal to the increasingly influential customer base that is represented by Generation Z and younger Millennials.
Pricing decisions may also have a part to play in the drive by retailers to enhance their ethical and sustainable credentials, and our research demonstrates a noticeable willingness among some consumers to pay more for products and services that meet their expectations. Retailers show a level of confidence, too, that they can leverage price to reflect higher standards. However, any consistent evidence of a trend towards a sustainable or ethical premium may not become apparent until the spending power of the generation most enthusiastic about it – Generation Z – becomes a more significant part of the retailer’s customer base.
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Sources:
1. Reuters (19 May 2021) ‘Boohoo links executive bonuses to supply chain issue resolution’ [Online] Available at: reuters.com/world/uk/boohoo-links-executive-bonuses-supply-chain-issue-resolution-2021-05-19/
2. Parliamentary briefing paper, Retail Sector in the UK, 25 May 2021; using combined calculation from Barclays research, 2021.
3. Dunelm ‘Responsible Sourcing and Manufacturing’ [Online] Available at: corporate. dunelm.com/sustainability/circular-economy/responsible-sourcing-and-manufacturing/
4. Dunelm ‘Understanding and Managing ESG Risks in Our Key Supply Chains’ [Online] Available at: corporate.dunelm.com/sustainability/circular-economy/understanding-and-managing-esg-risks-in-our-key-supply-chains/
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.