Chadstone Shopping Centre

18 February 2014 The retail industry has reached something of a watershed. Corporate demands for more efficient supply chain operations are increasing. These seem to intersect with rising consumer demand for sustainable retailing.

The problem is that retail tends to lag behind the office sector in terms of sustainability. For good reason too. Think of the design and purpose of shopping centres. They tend to be large, brightly lit properties, with large open spaces and customers coming and going for more than 12 hours a day, seven days a week. Also, the tenants are constantly changing. From a sustainability perspective, it’s more challenging under those sorts of conditions, while an office doesn’t have these limitations.

So what should retailers do?

One goal could be to create a “sustainable” supply chain, operating successfully without vulnerable dependencies, while minimising the impact of business activities on the environment and society.

According to reports, cost reduction and energy savings have been the most persuasive drivers for organisations to invest in green measures for their buildings. Owners, architects, engineers and contractors in 62 countries have reported an eight per cent reduction in operating costs.

“Annual operating cost reduction especially helps the retail and the hospitality sectors, which traditionally have been a step behind offices and higher education in their sustainability efforts. This has been true mostly due to inherent challenges in these industries such as long hours of operation, strong ventilation needs, occupants that come and go… In a 2013 study conducted by McGraw Hill in which several retail and hospitality companies were surveyed, 66 per cent of retail respondents and 51 per cent of hotel respondents reported that, in comparison to non green-buildings, green buildings have recorded substantial decreases in annual operating costs.”

Adam Siegal in GreenBiz says retailers can embrace sustainability in a number of ways. They can start by considering global issues like climate risks such as heat waves, floods or wildfires; or the ethical treatment of people and animals, and incorporate that into their sourcing strategies and presentation for the business. They should also consider the impact of their outlet on the environment and work closely with stakeholders.

IBM says retail sustainability should aim to reduce the amount of energy used by data centres and point of sale terminals, optimise the supply chain to reduce waste, increase flexibility and tighten control of product delivery, migrate the systems to green infrastructure and implement green operations to comply with government regulations.

IBM says: “Green retail starts with development of a green infrastructure.

The IT infrastructure used to support a retail company can have large energy demands. A green retail solution can instrument, manage and optimise across many types of infrastructure – including green IT, data centres, facilities and building management systems. An infrastructure audit can help find ways to implement sustainable, cost-efficient solutions and opportunities for greener sourcing, manufacturing and product distribution. Interconnected communication technology enables information sharing and helps strengthen relationships with employees, consumers and communities. In this sense, sustainability refers not only to the environment, but to the long-term vitality of your company.”

The US-based Retail Industry Leaders Association has put out a 2013 Sustainability Report, sponsored by Ernst & Young, which found that retailers are now expecting a two to three year payback for sustainability investments, measuring energy, fuel, material usage and waste generation. The report found that over 25 per cent more will begin to measure code of conduct compliance, water usage, renewable energy generation, chemicals of concern and more over the next two years, and that pressure for retail sustainability efforts is coming mainly from employees, competitors and regulators.

To make it work, they would have to develop management, measurement and IT systems for environmental impacts and create supplier scorecards. They would also have to provide management training and employee training. And there would have to be energy- and waste-reduction goals, and sustainability reporting.

Big trends in retail, according to the Forum for the Future, will see more retailers working together in partnerships. They’ll also have to work closer with suppliers.

“Collaboration will be crucial to the delivery of a truly sustainable retail industry. Retailers and manufacturers will need to unlock vertical collaboration within supply chains. Governments will need to facilitate the development of industry consensus within the context of competition regulation. And civil society will need to engage with all of these parties to develop a shared understanding of how sustainability impacts should be measured, incorporated and communicated.”

The report tells us retailers will also be linking their sustainability practices to consumer value, showing it gives the customer what they want, and allowing for marketing around that.

But there are areas that need to be addressed. AMP Capital says the big issue is supply chain management. This still seems to be unresolved.

AMP says: “The supply chain issues have sprung to the forefront of public concern in the wake of the Rana Plaza building collapse in Bangladesh, which killed over 1100 people. Retailers have made some improvements… Kmart, Target, Big W and Specialty Fashion Group have signed the Accord on Fire and Building Safety in Bangladesh. But many retailers have ethical sourcing policies based on local legal compliance only, and some companies’ management have a ‘hands-off attitude to sweatshop risk’, which poses reputational risk.”

Supply chain issues aside, individual stores around the world are reshaping retail. Tesco has zero carbon stores – four in the UK and one in Ireland, Thailand and the Czech Republic. They use 66 per cent less energy than typical stores of similar size, their lobby helps to save energy by preventing heated air escaping, they have large transparent panels in the roof that let natural light into the store, and they have efficient artificial lighting and sophisticated lighting control systems.

Again in the UK, Marks & Spencers stores, offices, delivery fleets and warehouses are carbon-neutral. It has been encouraging people to donate unused items of clothing either directly into Oxfam stores or into one of the 703 Marks and Spencer stores instead of sending them to landfill. Members of the British Retail Consortium – including McDonald’s and Sainsbury’s – have also pledged a 25 per cent reduction in emissions

Other successes include Ikea cutting its carbon emissions by 19.3 per cent, American retail behemoth Walmart updating its sustainable seafood policy and California banning plastic bags.

Some retailers here are making huge strides too. One example is Kathmandu, which removed excess paper used in the packaging and transportation of footwear, estimated to save a minimum of four tonnes of paper per year. It’s reduced the size of product promotional ticketing by more than half and reduced the amount of store banners from 2800 to 1200. It has developed an information technology recycling strategy which has resulted in 1250 kilograms of IT equipment being recycled during FY2012 and it has become a signatory to the Australian Packaging Covenant – an agreement between companies in the supply chain and governments to reduce the environmental impacts of consumer packaging through better packaging design, higher recycling rates and better stewardship of packaging. Kathmandu has also implemented a comprehensive recycling program in both the Australian and New Zealand Distribution centres and offices.

Not surprisingly, the Green Business Council of Australia has struck a partnership with Kathmandu. GBCA chief executive Romilly Madew says this will help make the retail space as sustainable as offices. “This new partnership signals a new era for Australia’s retail industry. The retail sector is a long way behind the commercial sector when it comes to sustainability,” she said. “Commercial businesses that have taken sustainability seriously are reaping the rewards. The same will be true for those in the retail space.”

The Fifth Estate reports that the big banks, one of the major retailers and one of the major supermarkets have promised that all their new retail outlets will be Green Star-rated.

Other sustainable retail spaces springing up include the Rouse Hill Town Centre in the Hills District of Sydney, where the buildings are positioned to maximise light and airflow, reducing the need for excessive heating and cooling, where open streets provide 100 per cent natural ventilation, with energy efficient lighting throughout, passive solar design and the use of trees and shading devices to increase comfort in warm, windy or wet conditions, and the Knox Shopping Centre in Victoria, which is leading the way in waste management with its recycling program.

In Sydney, Koskela showcases a mix of vintage and new furniture, lighting, homewares and toys selected by owners Russel Koskela and Sasha Titckosky, who produce the majority of furniture.

It’s early days yet, and the retail sector has some way to go before it catches up with offices, but watch this space.