Getting to grips with the woke consumer
The shape of the retail industry has changed dramatically in the digital age. The internet-enabled supply that flooded the retail market over the last twenty years has given consumers new and more convenient ways to shop. Long-established barriers to entry in the retail industry collapsed and incumbent retailers had to adapt - for their survival - to how consumers have increasingly chosen to spend their money.
The retailers and brands that have been able to adjust to - or emerge as a result of - these changes in how consumers are spending now face another equally seismic structural change in consumer behaviour. They need to grapple with the driving forces behind why consumers are shopping.
Consumers are increasingly placing social and environmental considerations at the fore of their buying decisions. According to McKinsey nine out of ten Gen Z consumers (those born in the mid-to-late 1990s) believe companies have a responsibility to address environmental and social issues. This matters to retailers: Gen Z, and their much-discussed predecessors, Millennials, are set to account for a whopping $350 billion of spending power in the United States. Gen Z alone will account for 40% of global consumers in 2020 (Source: McKinsey).
Whilst these two generational consumer cohorts tend to be distinct in some sets of preferences and behaviours, there are some important commonalities: they show less brand loyalty than older generations and share an increased expectation that brands worthy of their custom align to personally held values. At the same time, we’re seeing a multi-generational push for brands to produce less waste and an increasing awareness of the strain consumers' decisions can place on the planet.
A major headache for “big retail”
Analysis from investment bank Numis highlights the scale of the challenge facing the retail industry. The apparel sub-sector alone, they suggest, could account for 26% of the global carbon budget in 30 years’ time. This provides a major headache for some long-established retailers, particularly those with cumbersome supply chains and perhaps tainted histories of waste and pollution. These brands reached the size they are today through rapid growth at a time when environmental (and, to an extent, social) externalities were simply viewed as a cost of doing business. Today’s world is very different. Compounding matters, those without very strong, trusted brands have less price elasticity with consumers. As a result, sharing the cost burden of making ethically motivated operational changes with customers simply isn’t an option.
As with the rise of pure-play online retailers in the early 2000s, a new-age of direct-to-consumer (or DTC) brands are muscling in to capitalise on increasingly values-driven shopping behaviour. They are doing this by creating clear narratives about sustainability and responsibility in their brand stories. Take eye-wear disrupter Warby Parker, for example. Their mission statement could not be clearer and more threatening for industry incumbents: “Warby Parker was founded with a rebellious spirit and a lofty objective: To offer designer eyewear at a revolutionary price, while leading the way for socially conscious business.” After just five years in the market, Warby Parker has become a $1bn e-commerce company.
In the fashion sector, several smaller brands are achieving outstanding growth not by competing with mega-brands on price but by disrupting through sustainability value. This disruption is facilitated through the rise of social media, which has made the values championed by these new brands more discoverable by consumers than ever before. Everlane*, an American DTC brand has set a new benchmark for what they describe as “radical transparency”. For each product on sale, Everlane deconstructs its pricing for absolute clarity and offers customers the opportunity to explore the factory where each product was made (even Everlane’s “sale” is not a sale in a conventional sense – customers are offered to choose what to pay for end of line products, thereby helping to reduce waste).
If this sort of radical approach sets a new standard for conscious consumerism, could some fast-fashion businesses that emerged in the e-commerce boom and who specialise in disposable fashion be amongst the first to fall victim? After all, it’s not hard to envisage the current trend for fashionistas’ regular sharing of social media posts in new outfits to move from being desirable to demonised. Disposable fashion companies might do well to heed of the words of Lidewij Edelkoort, the legendary fashion industry soothsayer and trend spotter who has urged the industry to “make much less, make it better and make it more expensive”.
All is not (yet) lost
Whilst brands can’t fake authenticity when it comes to socially responsible values, hope remains for established retail businesses that have survived and thrived through the digital retail revolution. There have been a number of high-profile examples of mega-retailers and global brands benefiting by more overtly aligning themselves with customers’ values.
Nike showed how a mega-brand can adopt a clear stance on a high-profile, divisive social issue by supporting Colin Kaepernick, the face of the NFL’s “anthem protests”, and making him a brand ambassador. Whilst they were criticised by some, Nike’s core customer rallied behind the business (Nike’s share price rose by c.5% in the subsequent year). Elsewhere, Levi’s – the all American denim maker - recently fronted a campaign against gun violence; the CEO of Walmart, the largest private employer in the US, has publicly lobbied for a higher minimum wage for all US workers; and Sainsbury’s recently pledged to cut emissions to zero by 2040. Herein lies the opportunity for bigger and more established retailers that their DTC challengers can’t match: by being a bigger business in the first place, these companies can make changes with potentially enormous positive impacts on society, and this as the potential to drive a customer connection on an unprecedented scale.
Another tactic that established retailers can exploit to adjust to new consumer preferences is to gobble up fast-growing brands with authentic CSR stories and integrate these into their own brand narrative. The acquisition of craft beer companies by global “big beer” conglomerates over recent years could, cynically, be viewed through this lens.
Finally, Big Retail might simply challenge all of this by pointing to one particularly successful brand, Apple. Apple is by far the world’s biggest retail business and has a market capitalisation of more than $1.3 trillion (more than the GDP of Mexico!). The business has faced multiple accusations of human rights violations in the media over recent years, yet customer demand for Apple’s latest products shows no sign of abating. Perhaps there should be a footnote to everything written above - if the product is stand-out superior, consumers can always be convinced to compromise.
* I recently visited the brand in New York and was incredibly impressed by the products, the brand story, the service, and the model. Notably the store in Soho – which was at full price before Christmas - was overflowing whilst several household names nearby were empty and on significant discount.