The era of conscious consumerism is settling in. Capgemini research shows consumers are willing to pay a premium for products they deem sustainable, and prefer to purchase from businesses that place sustainability at the core. Questioning where the raw materials come from and where the waste will end up is a growing trend. Customers now demand to be part of the sustainability conversation and increasingly use their wallets to make their opinions count. Retailers across the globe are u
e under constant scrutiny to reduce their environmental impact as they experience a shift in customer preferences and expectations, while also striving to meet the sustainability goals they have set for themselves.
They are responding to this challenge in delightfully diverse ways that often boost their business performance while eliminating waste and pollution, keeping products and materials in use for longer, transitioning to renewable energy sources, and creating a more transparent and traceable supply chain.
Consumer demand shapes retail perspective
A report by the Retail Industry Leaders Association (RILA) states that 93 per cent of global consumers expect brands they engage with to support social and environmental initiatives.
Covid-19 has increased the urgency of pursuing sustainability in retail. During the pandemic, many retail players experienced a shift in customer preferences and expectations. Among consumers in Germany and the UK, 65 per cent have indicated they will buy more high-quality items that last longer, and 64 per cent of Chinese consumers will consider more environmentally friendly products.
Also, Capgemini’s recent research has indicated the creation of a new business environment that embraces the following shifts:
FROMTOA model based on large volumes of single unit salesA service economy based on a usage-oriented logicGlobalised value chainsRegional trading blocsProduct obsolescence Product resilienceIn-house R&D driven by production costsOpen innovation driven by added-value creation to close loopsSource: Intelligent Industry: The rise of circularity, Capgemini in partnership with Change Now 2022
Technology’s major role
To adapt to the demands of more informed and expectant consumers, business operations, in their entirety, require a shift. This includes a change in product lifecycle management processes – from sourcing, development and waste management to packaging and fulfilment.
Technology offers many avenues to help businesses address these challenges at all points across the value chain.
AI is fast becoming an enabler and differentiator for retailers and leveraging AI and data across the spectrum of business operations is fundamental to solving the sustainability and profitability puzzle.
Predictive analytics, for example, adjust supply to consumer demand and mitigate waste. They improve the integration of the sales chain with the production and product lifecycle management (PLM) process. AI and digital technologies leverage the data and insights from PLM to determine the best actions to make the development process more consumer-centric. This process is more effective when the predictions are augmented with third-party data.
Shein, the Chinese fast-fashion giant, is by no means a leader when it comes to sustainability. However, its mastery of consumer sentiment predictions can be harnessed to drive more sustainable practices. The company leverages social and online data and AI to predict trends, then aligns its production with consumer demand. While no brands claim zero stock, making apparel that closely matches needs is a path to keeping unwanted products out of landfill.
More sustainable shops, less waste
AI helps customers shop used clothing more easily. Online used clothing platform Depop is using AI to improve personalised recommendations to shoppers. “We can finally train machines to have taste and recognise what we like” or don’t like, Depop founder Simon Beckerman said. Better predictions have the business benefit of boosting customer lifetime value, while also driving them to more sustainable purchases in their wardrobe.
Clothing underuse and lack of recycling cause more than $500 billion in lost value each year, the Ellen MacArthur Foundation estimates. Businesses are developing inventive, tech-driven solutions to address these problems as well.
EyeFitU takes consumers’ measurements and helps find products with the right fit. This helps customers get what they want while increasing online conversions and reducing returns. But it can also optimise future production by feeding aggregated customer data back to apparel makers. This can be embedded across apparel sellers’ online and bricks-and-mortar stores with contactless sizing.
The integration of AI with operational technology can boost precision in manufacturing to reduce waste and energy consumption while increasing speed to market.
A Capgemini report shows that French goods maker Danone uses machine learning to predict demand variability, which has improved its forecasting process and led to more efficient planning between different functions such as marketing and sales. This has contributed to a 20 per cent reduction in forecast error and a 30 per cent reduction in lost sales.
In 2018, Burberry was famously panned for burning millions of dollars in unsold bags, clothes and perfume, revealing one of the dirty secrets of the fashion industry and highlighting the scale of the problem. A McKinsey & Co report then confirmed that AI could reduce prediction errors by 50 per cent and overall stock amounts by 20-50 per cent . Unsurprisingly, Burberry has since integrated AI into its value chain and describes itself as an “end-to-end digital business”, allowing it to take early steps to better match demand and supply and start to reduce the financial and environmental cost burden of producing excess product that ends up in landfill.
Embedding circularity from the start provides a range of benefits to consumers while also providing positive environmental outcomes, especially when it rewards customers with ease or value.
Giving consumers options to make sustainable choices at the outset can build future marketplaces and share the responsibility for circularity among the consumer, the retailer and its suppliers. AirRobe is helping consumers make conscious choices at the point of purchase, their CircularWardrobe widget integrates into any e-commerce platform, allowing customers to add items to their digital wardrobe when they shop so they can repurpose them later. AirRobe.com is a global designer marketplace that sells pre-owned fashion. The company estimates the adoption of its technology increases the value of the average order by 20-55 per cent, increases conversion by 15 per cent and doubles customer purchase frequency.
Fashion label Eileen Fisher has founded a program where users send back their used clothing in exchange for credit in stores. Ikea’s buy-back program offers gift vouchers in exchange for used furniture. The brand estimated that it would prevent more than 15,000 pieces of furniture from ending up in landfill.
Small steps, giant progress
At the luxury end of the market, very different dynamics are driving the circular economy. Despite rising prices for luxury goods, demand outstrips supply, increasing consumers’ motivation to hunt down the items they desire outside of the traditional retailers, in the luxury resale market. Vestiaire leads the pack in resale, with more than 3 million items for sale – and every item is authenticated. A recent study by Vestiaire and BCG found the resale economy is already worth between $100 billion and $120 billion a year, or 3-5 per cent of the overall apparel, footwear, and accessories sector. And it could grow to as much as 40 per cent.
Companies are increasingly making progress by showing steadfast commitment and driving tangible outcomes toward sustainability. These efforts to embed sustainability and circularity have accelerated over the last few years; however, there is a great deal more to be done. The road to sustainability is a long one, with more to be done in mitigating wasteful manufacturing and consumption. By applying technology, data and AI through the value chain, we progress closer to eliminating waste and finding more sustainable paths forward.