sustainable commerce:three approaches to retail success in 2024
Explore the three strategic approaches that brands and retailers can implement to achieve a more sustainable digital practice – without compromising profitability.
A growing sense of urgency
The climate clock is ticking. There is a growing sense of urgency to the conversation.
New legislation addressing corporate sustainability reporting has been on the rise across authorities in many regions and there’s a new generation of consumers that takes a no-compromise approach to saving the environment and prioritising ethical practices.
In fact, a recent report by Talkwalker shows that a whopping 82% of consumers want companies to put people and planet before profit.
But what if we told you that implementing more sustainability into your e-commerce practice doesn’t mean you have to compromise on profitability?
Actually, it has the potential to improve your profit margins, enhance brand perceptions and provide you with a competitive advantage.
And as digital specialists, we also recognise an often-overlooked opportunity in sustainable commerce: it can significantly enhance the customer experience – a crucial factor in winning at retail in 2024.
In this article, we’ll unfold three approaches to more sustainable commerce that you may not have considered before. By exploring these strategies, businesses can not only align with the growing demand for sustainability but also foster a superior customer experience, positioning themselves as leaders in the evolving retail landscape.
The thoughts behind this?
This piece is founded on the expertise of Karoline Lotz Jonassen, Future Commerce Lead at IMPACT – an accomplished expert in digital commerce strategy, future trends in retail, and emerging tech.
With a passion for sustainability, she’s not afraid to articulate purpose in a commercial setting and specialises in helping retailers and brands develop their businesses and implement more sustainable practices.
Karoline is responsible for the sustainability area of our Omnichannel Index, and together with colleagues, she has led a comprehensive re-commerce insights project, workshops, and concept development meetings regarding traceability and re-sale.
We’ve picked her brain and are ready to spill all her golden insights.
3 paths towards sustainable commerce
Most people have heard the dogma “buy less, buy better, use longer” – or at least they know the principles. In this piece, we’ve tweaked it a bit.
Drawing from these principles, we have conceived three strategic approaches that brands and retailers can implement to achieve a more sustainable and socially responsible digital practice while maintaining a healthy financial business:
It’s important to note that all approaches are highly interconnected – one does not exclude the other. Actually, they enforce one another and applying all three approaches can help take your sustainable commerce practice to the next level.
Let’s dive in.
1. SELL LESS, but better
Yes, you read that right. We’re really advising you to sell less. Here’s why.
Growing your business on a cocktail of price reductions and FOMO campaigns is a dangerous mixture – not only for the planet but also for your earnings.
“While it feels good to watch short-term revenue go up, running constant campaigns will most likely mean you devalue your brand – and in the long run, it hurts your earnings. If your only differentiator is price, I recommend you quickly start building a stronger offering focusing on expert service, community, better products or the concepts that support your company’s purpose and future sustainable growth,” says Karoline Lotz Jonassen
We are now existing in a world where overconsumption is an understatement. Constant campaigns. Endless new collections. Black Friday evolving into Black Week, then Black Month. You know the drill.
This means that a lot of brands are not basing their growth on taking market share from less sustainable companies, but instead on making the same consumer consume more. This leads to excessive overconsumption and, consequently, generating a significant amount of waste.
This poses a huge business opportunity as there is a clear, tangible, and compelling customer pain to solve – stop waste and save money.
Tech innovations to tackle food waste
A painful example of excessive waste is the grocery retail sector. In Denmark, we waste more than 700.000+ tons of groceries every year. This equals 3,8% of our country’s total CO2 waste and sums up to an average of €1300 in pure waste per Danish household every year.
Fortunately, there are already several examples of how thinking out of the box can help tackle this.
Take for example the increase in pantry-tracking apps.
These apps enable users to effortlessly track their available stock and provide recipe suggestions based on the ingredients present in their kitchens. This helps reduce overconsumption and ensures that food items are utilised before they expire.
Such innovative solutions enable businesses to expand their service offering and enhance the overall customer experience, while simultaneously serving as a powerful tool in the battle against food waste.
Not in the food industry?
Most recently, the Copenhagen-based CAPSULE has gained popularity and secured a fund of €600k for its next-generation wardrobe app. CAPSULE aims to contribute to a more sustainable fashion industry by reducing passive clothing and renew women’s love for their wardrobe.
Via the app, users can get an overview of their wardrobe and swipe through their clothes to create outfits – without the stress of having to physically try the different combinations on. Users can browse other users’ wardrobes and get inspired, and the app also facilitates clothes borrowing and swapping between users.
“We recommended businesses to embrace technology as a means to address sustainability concerns – and we’re expecting a rise in partnerships between major brands and these new sustainability tech-solutions that are popping up everywhere,” suggests Karoline Lotz Jonassen
Wrapping up, our first advice to all businesses wanting to embark on a sustainability journey is to think outside of the box. It is possible to be successful, even when consumers buy less, if you instead have a long-term focus on enhancing the customer experience and lifting customer loyalty by rethinking your business offering.
Stop force feeding customers products they don’t need – it can hurt your earnings and it is definitely hurting the climate and environment. Instead, you should focus on making it easier for customers to buy better and helping them use what they already have.
You need inspiration on how to do that? Then keep reading.
2. MAKE BUYING BETTER EASIER
Let’s consider a practical example: You’re in the supermarket – more specifically in the vegetables section. You’re buying tomatoes.
Is it more sustainable to buy locally produced tomatoes grown in a heated greenhouse, outdoor-grown tomatoes from Spain that are transported by plane, or organic greenhouse tomatoes transported from Italy by train?
Many of us have found ourselves in situations where identifying the most sustainable option seems like an impossible task. As a result, we often resort to the most convenient choice.
This is not due to a lack of willingness to buy sustainably. In fact, several studies suggest that consumers are becoming increasingly aware of the social and environmental impact of their purchasing behaviour. One study even found that 73% of Gen Z are willing to pay more for a sustainable alternative.
Now the question is: how can businesses empower consumers to make more conscious choices?
2.1 The true cost of sustainability
Have you ever wondered how some brands are able to sell a t-shirt for the same price as a cappuccino from Starbucks? When you consider the labour, materials, production expenses and costs of transportation of producing a t-shirt, it seems quite absurd that it can have the same monetary value as a hot drink.
Something is definitely off.
“By letting discounts and 3 for 2 campaigns be the driver of growth, businesses bear the responsibility for teaching customers that a t-shirt is supposed to cost less than €5. It’s businesses responsibility to unteach this misperception,” says Karoline Lotz Jonassen
Because the truth is that there’s no such thing as cheap clothing. Someone somewhere is paying the price – and it is most likely someone at the end of the supply chain: the garment worker or artisan.
Now, we may not be supply chain experts. But as digital specialists, we still know a thing or two about how businesses can empower their customers to make more informed choices when it comes to social and environmental responsibility.
Transparency is key
Implementing a pricing transparency tool can be an effective way to educate customers on the true cost of sustainability – what they’re actually paying more for, when choosing the sustainable alternative.
Take, for example, The Slow Label. Recognising that customers need to know what they are paying for to truly understand the value of each garment they buy, The Slow Label has introduced more transparency in several aspects of its brand.
One of the initiatives is the “price breakdown” calculated for each individual item on the brand’s website, showing the true cost. The breakdown includes the material and labour costs, logistics expenses and donations.
Pangaia is another prime example of a business, that has successfully implemented more transparency into their business practice to help costumers choose sustainably.
With the goal of designing an earth-positive business model, they are constantly seeking new ways to promote sustainability and solve environmental issues in the industry.
make it comprehendible
One of Pangaia’s initiatives in this area is their traceability feature, which provides customers with a transparent overview of the impact of each garment.
- Each hoodie produced consumes 133.39 liters of water and creates 5.86 kilograms of emissions.
- This is equivalent to 555.80 glasses of water and 22.52 kilometers of driving.
By stating both actuals and equivalences the total impact of each garment becomes easier for costumers to comprehend.
Initiatives like The Slow Label’s price breakdown and Pangaia’s impact receipt empowers customers to make more informed and conscious purchase decisions in a sea of alternatives and options.
2.2 promoting the lifetime cost
Another effective way to shift consumers’ mindset towards sustainable alternatives is to highlight the cost per wear/use of sustainable alternatives. By doing this, businesses can demonstrate that while these products may have a higher upfront cost, they provide better value over time due to their longevity.
For example, let’s consider a pair of shoes.
A cheap pair of shoes may cost €30, but they wear out quickly and need to be replaced every few months. On the other hand, a more expensive (and sustainable) pair may cost €100 but can last for several years with proper care. By dividing the cost of the expensive pair by the number of times they can be worn, the cost per wear may actually be lower compared to the cheap pair.
By openly communicating the lifetime cost of products, businesses can help consumers understand the long-term value of sustainable alternatives. This can play a significant role in shifting consumer mindset towards more sustainable consumption patterns.
2.3 ELIMINATING THE RISK OF OVERPRODUCTION...
Every year, more than 92 million tons of textile waste is generated. Every second, the equivalent to a rubbish truck full of clothes ends up on landfill sites around the world.
This amount is expected to increase to more than 134 million tons by 2030, underlining that overproduction is an issue that needs immediate attention.
Make-to-order production can be a great way to accommodate this. Put simply, make-to-order is the practice of producing goods only when there’s confirmed demand – and there are several benefits of this approach. Both for the environment and the bottom line.
It significantly reduces the threat of overproduction and the waste it entails while also lowering storage costs and the risk of dead stock. Moreover, it provides flexibility enabling companies to quickly respond to changing demands and offer greater variety and customisation options, which can result in higher customer satisfaction and loyalty.
...with make-to-order production
Danish company Son of a Tailor’s on-demand production model is a prime example of a successful make-to-order solution. Their Perfect Fit Algorithm allows customers to create custom-sized garments in under 30 seconds by providing their height, weight, age, and shoe size.
Once the individual pattern is created, Son of a Tailor’s production teams in Italy and Portugal craft the garments to perfection and deliver them to the customer. If the garment doesn’t fit, customers are covered by the Free Remake Guarantee. With Son of a Tailor, the process is simple and convenient, making sustainable and personalised fashion accessible to all.
But make-to-order production is most certainly not only preserved for fashion. Furniture chains such as BoConcept and Sofacompany are also offering customised items on-demand. This approach ensures that customers receive tailored products that are built to last.
2.4 RETHINK YOUR DELIVERY and PACKAGING STRATEGY
By 2030, urban last-mile delivery emissions – the final leg of the journey to deliver a product to the customer – are set to increase by more than 30% in 100 cities globally equivalent to 25 million metric tons Co2.
But the last-mile shipping is not just bad for the environment – it also hurts the bottom line. In fact, the last-mile delivery compromises 53% of the overall shipping costs! So, there’s a huge business incentive to handle it more efficiently.
Consider committing to using electric delivery vehicles or partnering with fleets that prioritise sustainability. This strategy not only reduces emissions but also enhances your company’s reputation for sustainability.
But the answer isn’t just in fossil-free EVs, which currently represent a tiny portion of the market. Investing in intelligent technologies, such as a Transportation Management System (TMS), and collaborating with smart suppliers like Mover, who excel at route optimisation, can also significantly reduce inefficiencies and minimise emissions.
This approach is not only easier and more cost-effective than transitioning entirely to fossil-free alternatives but also remains environmentally beneficial.
Zooming in on packaging, it doesn’t look much better.
According to Statista, the global e-commerce industry was responsible for almost one million tonnes of plastic packaging waste in 2019. This is expected to increase to more than 2 million tonnes in 2025.
The good news is that consumers are starting to take notice. One study revealed that 64% of consumers say they are more likely to buy from a fashion brand or retailer if its packaging is sustainable.
Yet we found that only 1.8% of Nordic retailers provide reusable packaging leaving an opportunity for businesses to gain a competitive edge within this field.
2.5 Reduce returns
Reducing return rates is a top priority for most business owners, and for good reason. One estimate suggests that returns cost companies an average of 66% of the original item’s price due to transportation, processing, discounting, and liquidation.
But it’s not just the bottom line that suffers; high return rates are a significant contributor to a company’s carbon footprint.
In fact, in the U.S. alone, online returns generate 27 million metric tons of CO2 emissions annually, and the vast majority of returned items end up in landfills. This is particularly troubling in the fashion industry, where 4.8 million tons of waste from returns are dumped in landfills every year.
However, the best solution is not necessarily to start charging for returns. Instead, businesses should investigate how to minimise the risk of the products being returned in the first place.
Here are three quick tips on how to do this:
The average online apparel retailer experiences a return rate of 28%, and 80% of these returns are due to fit issues. Utilising technologies like AR or sizing tools can be a great way for businesses to offer proper size guides and help their customers better understand what size to buy.
Nike’s Nike Fit app is a great example of exactly that. The tool is an AR-driven measuring solution built directly into the company’s mobile app that uses a phone’s camera to scan feet and determine the size.
Or what about Danish fashion brand, GANNI’s smart size guides? By implementing Fit Finder, leading size advisor tool for clothing and shoes, GANNI provides its customers with seamless shopping experiences, knowing that the items they purchase will fit perfectly. Every time.
Not only does this lead to greater customer satisfaction – it also has a positive impact on conversion and return rates. In fact, data from Fit Finder itself suggests that the add on has the possibility to increase conversion rates by 4-6% and decrease the return rates by 2-4%.
In a recent study by Nfinite, it was found that 75% of consumers would return a product if the image displayed didn’t match the product received. Yet only 9% of the surveyed consumers said that they are ‘very satisfied’ with the product images on retailers’ websites.
Faulty descriptions of the products can likewise lead to higher return rates. In fact, 49% of returns are returned due to a mismatch between the description and the item received.
So, we really recommend you enrich all products in your web shop with high quality images and accurate, detailed descriptions.
Studies reveal that when shoppers have access to user generated reviews and visuals prior to purchasing, it significantly reduces their likelihood of returning an item.
Also, there is a potential 91.4% lift in conversion when visitors interact with user-generated photos and reviews on a product page.
So, there’s plenty of good reasons to encourage customers to leave a review or take a photo – both if you want to lower the number of returns and increase your conversion rate.
Businesses play a vital role in making it easier for customers to make ethical purchases. At the same time, consumers should utilise their power to drive change by voting with their wallets and consciously opting for responsible options.
Fortunately, there is growing evidence to suggest that consumers are willing to make these choices – as long as they do not compromise on convenience.
Therefore, it becomes imperative for businesses to ensure that the purchase experience of sustainable alternatives is effortless, seamless, and convenient.
This includes both communicative efforts, such as promoting more transparency and re-educating customers on price, as well as operational initiatives like make-to-order production, offering sustainable delivery and packaging options, and reducing the number of returns.
All initiatives, that cultivate a more sustainable form of commerce while also enhancing the overall customer experience. That’s what we call a win-win situation.
3. Resell, renew, rent
Re-commerce related concepts such as resell, repair services, refurbishment and rental options are gaining momentum as companies seek to explore new avenues for growth. It’s still in its early phases, but we predict that these new business models will become the next big driver of retail growth.
Take for example resale. According to thredUp’s Resale Report 2022, the global second-hand apparel market is expected to grow 127% by 2026 – that’s three times as much as the clothing industry overall!
Not only do this contribute to a more sustainable form of commerce – it also serves as a means for businesses to address customer pain points, deliver extraordinary service, and prolong the customer lifecycle, thereby enhancing customer loyalty.
“Re-commerce is becoming a huge driver for growth for those who manage to integrate it into their business model in a customer centric way,” says Karoline Lotz Jonassen
3.1 REVAMPING RE-SELLING
The demand for second-hand is booming, and the stigma of purchasing pre-owned clothing or products is virtually gone.
This is not only benefitting the environment, but also the bottom line and consumers’ wallets.
According to a study of luxury goods by Bain & Company, reselling an item can increase its profit margin by 40% while increasing revenue-per-product by 65%. Meanwhile, amidst fears of recession and the stress of inflation across every industry, 93% of consumers state that higher prices affect their decision to buy or sell pre-owned products to save money. In fact, thrift-shoppers save nearly $150 a month, or $1,760 a year on average.
“It is safe to say, that re-commerce is a fast-growing business opportunity. It is changing the way we shop and redefining the traditional product life cycle, all while adressing significant customer concerns” says Karoline Lotz Jonassen
3.2 Leaning into technology
The business model isn’t new, of course – flea markets, garage sales and swap meets have been around for centuries. But it lacked structure. Because while second-hand shopping ticks of the reduce, reuse, and recycle boxes, consumers still want convenience.
Utilising new technologies can help build this structure and provide the convenience that is the essence of online commerce.
Marketplaces such as eBay and Craigslist paved the way for online re-commerce back in the 1990s by facilitating peer-to-peer platforms for consumers and businesses to exchange used goods directly.
More recently, several brands and retailers are starting to join in as well by offering professionally managed and authenticated online shopping experiences for reselling used items.
Take, for example, the Danish cycling apparel brand Pas Normal Studios’ peer-to-peer programme, En Route, which allows customers to shop for and sell pre-owned items through the company’s own platform.
Or what about IKEA’s Resell & Buy-back initiative? The Swedish brand now offers its customer to trade in gently used IKEA products in exchange for store credit. All products approved for resale will be available in designated “as is” sections in stores at discounted prices.
Compelling examples, but what do the numbers tell us?
Well, in our Omnichannel Index we found that only very few companies across the Nordics offer reselling either online (7.2%) or in-store (2.5%).
This leaves the door wide open for brands and retailers wanting to jump into the untapped potential of resale.
5 THINGS TO CONSIDER
WHEN VENTURING INTO RESALE
When businesses venture into resale, they have two options: handling it internally or partnering with a re-sell platform.
Handling it internally offers control but requires capacity, such as investments in technology, logistics, staffing, and marketing. Companies like IKEA and Zalando are handling resale themselves, leveraging their existing resources and expertise.
On the other hand, by partnering with a re-sell platform such as Arhive, Recurate, Trove or Create to Stay, you might lack control, but instead gain market expertise and scalability benefits. These platforms often have the infrastructure and resources to adapt to changing volumes quickly and can offer tailored solutions.
Currently, many re-sell partners cater to the apparel market, offering tailored solutions for clothing and accessories. So, if you’re in this industry, partnering with a platform that specialises in apparel resale could provide a more targeted and efficient solution.
Peer-to-peer facilitation involves companies or partners acting as intermediaries, facilitating the sale between consumers. They earn fees for their role in facilitating the transaction, like drop-shipping setups.
This model minimises the risk of excess inventory and eliminates costs associated with product handling. However, it also results in lower control and consistency compared to traditional commerce and resale. Factors such as delivery times, unpacking experience, product quality, and security may vary.
On the other hand, the buy-back or take-back model involves the company or partner taking ownership of the product before selling it to a new customer.
This model provides a higher level of control but comes with certain risks. There is a risk of dead stock if products cannot be resold, and there may be additional costs associated with handling the products and sales. Despite the costs, this model offers a higher revenue opportunity.
Here are three approaches to consider when it comes to pricing and payment:
- Fixed price: In both peer-to-peer and buy-back setups, the facilitator can determine the price. The pricing model may involve offering sellers a percentage of the original price, such as 30%, while reselling the item for 70% of the original price. Alternatively, prices can be individually determined for each item.
- Loyalty incentives: Companies can encourage sellers to repurchase from the brand by offering loyalty benefits, increasing the sellers’ customer lifetime value. Sellers can choose between cash payment or loyalty benefits worth a multiple of the cash payment. Critics argue that this setup may promote new sales and therefore may not be a sustainable model in the long run.
- Seller-determined price: In the peer-to-peer model, sellers have the freedom to determine the price of their products. In some cases, the facilitator may provide recommendations based on similar products. The facilitator earns a fee for providing the platform and access to customers.
- Third-party marketplaces: Integration with platforms like Vestiaire and Poshmark offers wider reach and improved customer experience.
- Existing B2C site: Selling secondhand products through the company’s current e-commerce site, either with a dedicated category page or full integration, leverages existing customer base and brand presence.
- New B2C site: Creating a separate site solely for secondhand product sales can be a standalone platform or combined with other channels.
- Stores: Trade-ins in stores, especially for high-priced products, can be offered to loyal customers or as a take-back program. Some businesses incorporate secondhand shopping into their in-store experience.
Here are some key considerations around quality assurance measures in resale:
- No quality assurance: In a peer-to-peer model, where products are shipped directly between buyers and sellers, there is no quality assurance or authentication provided by the company or a partner. If a brand or retailer facilitates peer-to-peer transactions, it may be necessary to offer returns to address cases where products are in worse condition than expected.
- Partner managed: In this scenario, a re-sell or authentication partner takes responsibility for determining and managing the product’s condition, authentication, repairs, and cleaning. If this is applied in a peer-to-peer model, it may lead to longer delivery times unless the partner manages the products before they are sold.
- Company managed: Similar to partner management, the company itself takes charge of assessing and managing product condition, authentication, repairs, and cleaning.
In the future, companies may explore innovative methods such as utilising previous purchase data or blockchain technology to authenticate products and ensure quality.
3.2 IF BROKEN, FIX IT
Producing better products allows customers to use them longer. But companies still need to support their customers in extending the product’s lifetime.
“There has definitely been an increase in sustainable, conscious, or green options – especially when it comes to fashion. But the obvious truth is that the least environmentally damaging garment is the one that is already hanging in your wardrobe. Once upon a time, when you bought a coat, it lasted a lifetime – because it was of high quality and you took good care of i,” says Karoline Lotz Jonassen
The good news is that people are starting to pick up on this. According to a recent study, there’s a growing desire to repair items across all age groups. In fact, the global inspection, repair and maintenance market size is projected to grow from $42.66 billion in 2022 to $72.46 billion by 2029.
So, there’s plenty of good reason to incorporate repair services into your business model.
Repair, refurbish, renew
“The increasing demand for resell and repair services suggests that any brands or retailers that have not yet explored these channels should start doing so. Incorporating a resale or repair component can visibly demonstrate a commitment to contributing to a more sustainable and circular economy,” says Karoline Lotz Jonassen
Take, for instance, the repair programme of ASKET, a Swedish slow fashion brand. They offer to send spare parts like buttons and fabric patches, address product defects, and provide comprehensive repair guides to their customers.
But repairs aren’t just preserved for fashion. With global e-waste set to grow to almost 75 million metric tons by 2030, according to Statista, we’re definitely expecting increasing demand for tech repairs in the near future.
With an aim to turn buying a used smartphone into something as common as buying a second-hand car, Swappie sells second-hand, refurbished smartphones – and the concept is solving several customer pains.
Customers get a high-quality, well-functioning phone at a discounted price, which is sold through a reliable source, thus avoiding scams, while at the same time contributing to a more circular economy. What’s not to like?
3.3 Return of rental?
While rental took a hit during the pandemic, things are looking positive again for this sector.
“Rental economy is a phenomenon that has gained significant popularity in recent years. People are starting to realise that they do not need to own everything,” says Karoline Lotz Jonassen
For instance, there has been a rise in car-sharing services such as GoMore, Share Now and GreenMobility enabling multiple individuals to use a single car, reducing the need for each individual to buy and maintain their cars.
Likewise, the rental economy is highly evident in the fashion industry with an increasing number of retailers venturing into the rental ring by loaning out their items. In fact, one estimate suggests that the online fashion rental market is anticipated to grow 10% year-on-year until 2027!
However, it is important to note that rental economy is not without its challenges from a sustainability perspective. The environmental impact of shared resources can vary depending on how they are produced, maintained, and transported.
So, are rentals mainly preserved for cars and fashion?
Not necessarily – and Skagerak’s RENT programme is a great example of exactly that. With this service, customers can rent outdoor furniture for a minimum of three months.
Once the rental period ends, the furniture is picked up, restored, prepared, and re-rented to the next customer. The initiative gives customers the benefit of changing their furniture regularly and having it stored during the winter while at the same time acting responsibly.
All though there are some environmental costs associated with transportation and cleaning, Skagerak is a very good example of a business that has successfully implemented a more sustainable form of commerce. In fact, they’ve achieved the prestigious B Corp status, which requires assessment against a stringent list of environmental requirements.
Resale, repair services, and rentals has the potential to become the driving force behind the future of retail.
The projected growth in the second-hand market, increasing demand for repair services, and the rise of rentals all demonstrate the potential and relevance of these business model integrations.
By integrating these practices, businesses do not only contribute to a more sustainable form of commerce but also address customer pain points, deliver exceptional service, and extend the customer lifecycle, ultimately fostering increased customer loyalty.
So, what are you waiting for? It’s time to jump on the bandwagon of resale, repair and rental.
Want to join the movement?
Reach out to Karoline. She’ll help you get started on your sustainable commerce journey.