E-Commerce for the Ecology
If nobody cares about having too much stuff, or the environmental impact of "next-day shipping", then any transaction should be equal to the next. But consumers know this is false.
I have this friend who is primus inter pares among a smallish group of leading marketers from leading companies representing a wide range of industries. Remarkably, they let me hang out with them.
As ‘trouble-thinkers’ this group is consistent in the belief that business leaders must start applying social and environmental filters to how they do business. But this one friend is actually starting to walk the talk. He has left his comfortable marketing role to start a consultancy focused on ESG. He cannot be chasing a paycheck; nobody that starts a new consultancy can realistically be chasing a paycheck.
“Ummm,” you are almost definitely thinking right now, “why are you talking about this, now as I’m entering the busiest selling season of the year? Aren’t we supposed to be talking about e-commerce?” Yes, but the fact is, you need to start thinking now about 2022 and beyond. And ESG should be top of your agenda.
You can maintain two completely different thoughts in your head at the same time, can’t you?
What is ESG?
The Financial Times Lexicon describes ESG as, “a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing a company’s carbon footprint and ensuring there are systems in place to ensure accountability.” An entry in Wikipedia (that, it must be said, doesn’t quite meet their standards for tonality) pointed out that, “in less than 20 years, the ESG movement has grown from a corporate social responsibility initiative launched by the United Nations into a global phenomenon representing more than US$30 trillion in assets under management.”
ESG is regarded as something a publicly traded company has to do to impress investors. Investment firms — never wanting to miss out on a way to lure investor cash — bundled sustainably progressive companies into funds. Hence the “assets under management” part. Smaller companies are drawn into the action because large companies have to cascade their practices down to their suppliers. If your retail partner is active and compliant with ways of operating that are consistent with ESG, then you must be as well or you risk being dropped as a supplier.
It’s not the threat that should bring action, it’s the benefit: Pursuing practices that ensure a sustainable future is responsible, it leads to a general cleanup of your operations, and it helps future-proof your business. As noted in a recent article by McKinsey about the Bloomberg New Economy Forum (NEF), Alan Jope, CEO of Unilever, said, “any company that wants to stay relevant in the future should think about sustainable behavior.”
What exactly are we talking about when we say, “sustainable behavior”? It broadly covers two intertwined areas according to my research: Climate impact and waste reduction. We start with the notions of carbon-neutral, climate positive, and net-zero, because these are gateway concepts to some bigger thinking about how we can all do more good.
Obfuscation for the Betterment of Mankind
Definitions abound, but some degree of clarity and simplicity is found in these, from the German sustainability consultancy Plan A:
Carbon neutral means that any CO2 released into the atmosphere from a company’s activities is balanced by an equivalent amount being removed.
Climate positive means that activity goes beyond achieving net-zero carbon emissions to create an environmental benefit by removing additional carbon dioxide from the atmosphere.
Net-Zero emissions balance the whole amount of greenhouse gas (GHG) released and the amount removed from the atmosphere.
Across the board, the notion of being sustainably minded is also acknowledged as being at least partially a marketing ploy. Plan A notes that “terms like ‘carbon-neutrality’, ‘net-zero’ or ‘climate positive’ have been around for a while, but for the last couple of years, small startups to global corporations have integrated them, mainly for mainstream marketing purposes.” Past the greenwashing there is real, tangible benefit in organizing your operations to reduce impact. Almost every major e-commerce capability provider — Salesforce, SAP Hybris, Big Commerce, Magento (Adobe), WooCommerce, Shopify, Sellfy — operates as a cloud-based SaaS provider. These are generally hosted and managed, whether overtly or behind-the-scenes, on Amazon Web Services (AWS) or Google Cloud or Microsoft Azure.
Using one of the main cloud-based e-commerce providers cascades environmental impacts to your organization. According to AWS, “When companies move to the AWS Cloud from on-premises infrastructure, they typically reduce carbon emissions by 88% because our data centers can offer environmental economies of scale. Organizations generally use 77% fewer servers, 84% less power, and tap into a 28% cleaner mix of solar and wind power in the AWS Cloud versus their own data centers.” Google tells the same story, with a twist: “Google is…sharing technology, methods, and funding to enable organizations around the world to transition to more carbon-free and sustainable systems.”
Retailers and brands of any size that avoid running tech purely in-house and instead align with providers that are already carbon-neutral benefit from the cascading effect, making it that much easier to reach carbon-neutrality themselves. If the data center — most likely in the top 3 if not the largest consumer of energy for a company — is already carbon-neutral then it’s that much easier for a company to do its share by having a smaller environmental impact. For all the talk of green-washing and mainstream marketing, consumers do want to know that their favorite brands care.
Which brings us to shopping.
We (Trans)Act As One
Transactions of any kind come down to a simple exchange: You want, I have (or, indeed, the other way around). The degree to which this works is impacted negatively by the number of adjacent considerations there are in the mix. If nobody cares about the problems caused by having too much stuff, or the environmental impact of “next-day shipping”, then any transaction should be equal to the next. But consumers, through heightened awareness brought on by enhanced visibility into the impacts of such retail categories as fast fashion, know this not to be true. Case in point: The fashion industry is the second-biggest consumer of water and is responsible for between 8 and 10 per cent of global carbon emissions — more than all international flights and maritime shipping combined. Yet, according to research firm ResearchandMarkets.com, the global fast fashion market was expected to grow from $25.09 billion in 2020 to $39.84 billion in 2025 at a compound annual growth rate (CAGR) of 7%. For context, the US GDP growth rate between 2020 and 2025 has a CAGR of -1.92%, thrown wildly asunder by a -3.51% growth rate in 2020 thanks to COVID followed by a post-lockdown 6.39% leap in 2020.
For most of us here, e-commerce is our life. It is a pursuit, a craft, and probably a profession. For consumers, e-commerce is just a channel. When operating properly, e-commerce is practically invisible. This invisibility means that e-commerce is also an enabler: You can go to ZARA to buy the latest “near-duplication” of a ripped pullover that you saw in the recent Balenciaga runway show on Instagram, but if your local store doesn’t carry it or is out of stock, you can buy it online either from ZARA, or through any marketplace retailer. This is because e-commerce is, in fact, more than a channel. It is a main character in the drama about the dangers of over-consumption. Fast fashion companies don’t thrive because they trick people into being acquisitive. Their XXXL performance is due to people wanting more and having more ways than ever to scratch that itch.
In the days before e-commerce became “a thing” retailers like Walmart became global behemoths by being in-tune with people’s desire to have newer things at the best price all the time. These global players found cheaper imported sources for items that used to be made locally. They exploited every available means of global transportation to bring these items to retail, and then used their scale to further drive down the base prices of materials, labor and every other aspect of the supply chain. Consumers were understandably drawn to new things and great prices. It was a natural fit.
Terms “Big-Box retailer” and “Category Killer” point out quite succinctly the strategies at work: Dominate the consumer’s normally limited options with selection, whether generally or in a specific category. The moniker “category-killer” in particular is quite appropriate: According to Investopedia, these large retail chain superstores dominate their product categories, putting less productive and highly specialized manufacturers and merchants out of business.
Given all this, e-commerce should have a moderating effect on the notions of “big box” and “category killer” but this hasn’t happened. Instead, consumers have become accustomed to vast choice, price competition, and “free shipping”. But the shipping is only “free” to the consumer. There is cost absorbed by the retailer that is ultimately paid in non-performing dollars (i.e., something the company pays for that doesn’t directly lead to business improvement) as well as in the damage / depletion of natural resources. FedEx will burn 1,430,000,000 (1.43 billion) gallons of jet fuel by end of 2021, which is 26.5% more than it did in 2016. That’s just FedEx, and just for its planes. If we define “free” in the context of a transaction as being no-cost, then none of it feels free.
TL/DR: Catch the thrilling conclusion on our blog: https://medium.com/future-shopping