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An executive recently asked me, “What are the three big-picture trends that will drive the future of sustainable retail?” It led to a robust and fascinating conversation.
We quickly ran through lots of retail-focused sustainability activity – decarbonization efforts, resale retail and the rise of the circular economy, packaging initiatives, sustainable fashion and materials, solar panels on retail stores and distribution centers, electric trucks and ships, sustainability reporting, recycling and zero waste initiatives, sustainable supply chain initiatives, reusable shopping bags and dozens of other efforts.
Seeking an answer to the initial question, we next asked, “What is driving those rapidly multiplying sustainability activities?” We settled on three significant trends, each important and interconnected in ways that make them mutually reinforcing and, therefore, even more significant.
Evolving generational expectations
Surveys continue to show that 70 percent or more of consumers claim to include sustainability considerations when making purchasing decisions. While purchasing behavior rarely reflects those sustainability ambitions, sales of more sustainable offerings are increasing across the entire retail industry from grocery to fashion to furniture, electronics, appliances, personal care and more.
These trends began with the “Millennial Generation,” those born between 1981 and 1994, and are especially pronounced among the generation born after 1994, collectively known as Generation Z.
While Generation X (those born 1965 – 1980) grew up with the cold war between the United States and the Soviet Union as a constant threat, Millennials grew up in an era of smaller government, a focus on private-sector solutions and public debates around climate change and related sustainability issues. Generation Z experienced a continued focus on private-sector solutions and scientific clarity around climate change while witnessing the increasing storm intensity, droughts and forest fires that climate scientists long predicted.
Younger generations expect the private sector to solve global problems. They watched businesses respond to COVID-19 with a speed and agility that few thought possible. They saw a similar rapid response from the business community when Russia invaded Ukraine and companies quickly cut ties to Russia. Employees, consumers and investors now expect that businesses can respond quickly when needed.
Most of the current work force is composed of Generation X and Millennials. As Generation X begins thinking about retirement and Millennials begin controlling more business decisions, sustainability will influence those decisions. Generation Z is just entering its prime spending years with first homes and children on the horizon. Their sustainability interests affect where they choose to work and what they choose to buy. Both younger generations expect that business will be driving sustainable solutions.
Around 2007 when smartphones became mainstream, consumers and investors began assuming they have instant access to any information about almost anything in the palm of their hand. Smartphones powered the rise of social media, and consumers and employees began broadcasting information about anything and everything to almost anyone.
When someone is concerned about working conditions in a distant factory, animal welfare practices on a farm, hazardous ingredients in a product or concerns about climate change, they can voice those concerns to the world. In response to this type of forced transparency, some companies adopted voluntary transparency practices to highlight what they are doing to address or avoid consumer concerns.
Predictably, as both forced and voluntary transparency increases, expectations for even greater transparency also increase. Consumers now expect that they can know who makes products, where and how they are made, what materials are used, what happens when they are no longer needed and the associated carbon footprint of the products they buy.
Rise of artificial intelligence
Artificial intelligence is an enabling technology that can further accelerate demand for greater transparency. AI is helping retailers spot consumer trends, predict supply chain disruptions, identify potential consumer or employee fraud, manage inventory, enhance product design and facilitate strategy development. AI is also being used to predict and quantify sustainability impacts.
See guidance for retailers on reducing greenhouse gas emissions and setting science-based targets.
Soon consumers will have access to the same AI computing power. Rather than passively responding to buying opportunities from AI-powered retailers, consumers will be able to deploy their own AI-powered software to find specific products meeting their price, performance, availability and sustainability needs.
Consumer-controlled AI will enable consumers to ask more sophisticated sustainability questions — questions that will require even greater transparency for retailers and retail suppliers to answer. The resulting answers will create sustainability-inspired shifts in retail markets that we have not yet imagined.
This cycle will accelerate the sustainability-driven innovation flywheel as evolving generational expectations, increasing transparency and more powerful AI continue amplifying and accelerating the other trends.