If you’re a retail leader who’s still thinking of sustainability as a “nice-to-have” or “a problem to solve tomorrow”, you’re missing out on a massive opportunity to grow your customer base. A broad segment of today’s consumers no longer view sustainable products as luxury goods; they demand them and are even willing to pay a premium. According to a 2022 consumer study by IBM’s Institute for Business Value (IBV), some consumers will pay up to 70% more for products branded as sustainable. The study also found that purpose-driven consumers — those who “choose products and brands based on how well they align to their values”— now represent the market’s single largest segment, eclipsing value-driven consumers who make purchasing decisions based on price. “You really need to connect with the purpose-driven consumer,” says Jane Cheung, Global Consumer Industry Research Leader, IBM Institute for Business Value, specializing in consumer industries. “That’s where your revenue is.”
The challenge for today’s retailers is justifying new sustainability investments, especially in the face of volatile market forces. “Market forces are the number one concern of 70% of consumer CEOs, whereas it’s only 48% of other CEOs,” says Karl Haller, who leads IBM’s Consumer Center of Competency. “They’re asking, ‘Can I be sustainable at the same cost? If it costs me more, does that mean I’m not going to be competitive in the market?’”
These questions illustrate why retailers are more likely to fall into what’s known as the “intention-action gap” when it comes to sustainability. The intention-action gap refers to when we (whether as consumers, employees or business leaders) want to do something—and we know why we should do it—but for some reason, we fail to execute. According to a 2022 IBV study called “Own your impact”, 86% of companies across industries have a sustainability strategy, but only 35% of them have acted on that strategy. Among retail companies, Haller says the gap is likely much wider. But with the rising influence of purpose-driven consumers, plus a market flooded with competition, that gap represents more than a disconnect between ambition and action. It’s a blind spot that could prevent retailers from connecting to an expanding consumer base.
To get sustainability into retail operations faster, Cheung says, “you have to change your mindset and start to infuse it into your corporate strategy. Think about sustainability as an enabler of what you’re trying to achieve with your financial performance and operation metrics.” In other words, focus on small wins and technology investments that not only generate returns but inherently drive sustainability. (IBM recently published a five-step guide on how to accelerate this process; read it here.)
Here’s one example: The Mumbai-based fashion retailer Bestseller, working with IBM’s Garage, developed and deployed an artificial intelligence tool (known as Fabric.ai) that helps design and produce clothing that more closely matches market demand—a key consideration in a “fast fashion” world of dizzying product cycles, quicksilver trends and high numbers of product returns. Beyond streamlining design and production, the tool also aids in planning and forecasting. “By matching supply and demand, you’ll be more efficient. But you’re also reducing wasteful inventory. You don’t have to worry as much about markdowns that will eat up your margins,” Cheung says. “It’s all interrelated.”
Rather than a costly trade-off, leaders must view sustainability as an innovation opportunity that can spur top-line growth. This isn’t theoretical: According to a 2022 IBV report, CEOs who commit to sustainability initiatives across their organizations experience more revenue growth than those who do not. For retail leaders, this presents a path forward, even in the face of current market forces. “For anything a consumer buys, there are usually dozens, hundreds and potentially thousands of choices,” Haller says. If a retailer doesn’t capture purpose-driven consumers today, its competition will.