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Shop until you drop - but do it sustainably

Date: 22 April 2020

Sustainability is the buzzword of the moment. Politicians and industry leaders have made the climate a key priority but what do consumers actually think? Using new research from Kadence, Amisha Chohanexplores the impact of the climate agenda on the retail sector.

Last month, the world’s sixth largest oil and gas company, BP, joined the likes of Shell and Repsol in announcing a new “ambition” to become a net zero company by 2050 or sooner. The response to the announcement was mixed. Some saw it as a sincere commitment to a sustainable future, whilst others believed it was simply meaningless PR fluff. Whatever your view, the commitment does typify a complete shift in attitudes towards the climate and sustainability that would have been unthinkable even five years ago.

Public figures such as Greta Thunberg and Sir David Attenborough have captured the popular imagination and shifted the narrative enormously, no doubt assisted by a succession of natural disasters including the dreadful Australian bush fires earlier in the year. As a result, sustainability is the buzzword of the moment in pretty much every corner of industry. Companies are scrambling to position themselves as sustainable and purposeful companies with a saint-like ethical compass.

Consumers want sustainability…

It is not just companies that are internalising the sustainability narrative. New research from Kadence, presented at our evening with Lord Mark Price, former Managing Director of Waitrose, has found that 84% of consumers claim that sustainability and the environment is important to them. Surprisingly, this is not just a millennial fad. The attitude is matched across all regions, both rural and urban, all age groups and all social grades.

When it comes to putting their money where their mouths are however, Kadence discovered that consumer spending habits are not currently aligned to their values. People are not prepared to pay more for greener goods. In fact, not only do consumers emphasise value for money, but 77% of people feel it is impossible for an individual to do everything to tackle climate change.

…but brands need to lead the way

Consumers therefore feel that brands are vital for leading them in the right direction and showing them how they can be more responsible consumers. 58% of those surveyed are looking to brands to help them do good, and this is particularly true for millennials (here defined as 18-34) and those that live in a city. Retailers could have a label stating the water consumption and carbon footprint used per garment, for example.

But what does this mean for the retail sector? To be successful, businesses will have to have a strong brand with demonstrable associations to sustainability and the climate, and they must also be prepared for consumers to expect higher quality and longer lasting products, at lower costs, and with less frequency of purchases. No easy task.

There have been big strides made in the fashion sector, which is responsible for around 5% of all man-made greenhouse gas emissions. Gucci and a number of other major brands have been carbon neutral since the end of 2019. This year’s fashion weeks in London, Milan and Paris had promised to be the most sustainable yet – had they not been cancelled by the coronavirus that is.

Kadence’s research shows us that consumers will be changing their fashion preferences, with 71% of consumers planning to purchase clothes made of recycled fabric in future. Shoppers will also change their purchasing habits, with 67% buying fewer clothes (compared with 38% today) 22% renting clothes (versus 1% now) and 42% swapping clothes (almost four times as many as the 11% currently).

When it comes to food and beverage, consumers are already taking steps to become more sustainable, with many reducing food waste, buying locally, eating less meat and becoming vegan. In the future, 82% of consumers will be buying food with less packaging, although only 37% would be willing to pay extra for this.

It’s not just retailers

As if the travel industry did not have to worry enough about with the impact of coronavirus, consumers are also increasingly conscious of the impact of their travel choices on the environment. The airline industry alone contributes to around 2% of man-made greenhouse emissions. More people will be walking, cycling, using public transport and driving electric vehicles. It is anticipated that 40% of consumers will share lifts (compared with 8% today) and 50% will reduce the number of flights they take (compared with 20% today). Crucially, consumers also expect airlines to start offsetting their carbon emissions, though only 34% are willing to pay extra for it.

For a business to thrive in the post-Greta world, they will need a strong brand that consumers associate with ‘doing-good’. But they will also have to adapt to changing consumer purchasing habits, most notably in the fashion sector, whilst be willing to absorb the increased costs that come with making their products more environmentally friendly.

The biggest global brands have been investing in their sustainable fashion offer over the past few years. In fast fashion the business model will change as consumer habits evolve. More sustainable materials will need to be adopted quickly to reduce the risk of a sustainability-driven volume decline. If corporates do not accelerate change, we expect regulation will force more drastic measures at a later point, or they could see demand for their products reduce.

For investors, finding these businesses will be difficult and there is a danger of jumping on the bandwagon at the wrong time – the rise and fall of Beyond Meat’s share price provides an example. But finding a business that is agile to adapt to customer needs, profitable and cash generative l should reward investors with a superior return and a sustainable world.

Author

Amisha Chohan

Executive Director, Head of Small Cap Strategy

Amisha chairs the Quilter Cheviot AIM Committee. She has over fifteen years’ experience in investment management and researching small to large cap companies globally. Amisha joined Quilter Cheviot in 2016 from Sanlam. She read Business Finance at the University of Durham and has a MA in Finance and Investment from the University of Nottingham.

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