Why Digital Brands Face a Reckoning on Fulfillment and Sustainability

Why Digital Brands Face a Reckoning on Fulfillment and Sustainability

Sustainability, the environment and ethics in general are becoming increasingly important to modern consumers.

Services

Author

  • Chloe Hobart

Speed and convenience are the watchwords of modern retail. Especially in the wake of the COVID-19 pandemic, we’ve seen how these two factors have become the golden rule of fulfillment. We’ve come to rely on home deliveries for our consumer needs on an unprecedented scale. And we don’t want to be made to wait.

This can be seen as an acceleration of a long-term trend. Even before the pandemic, the number of vans on our roads had increased by 71% in the past 20 years, last-mile logistics accounting for a significant chunk of that. With the emergence of firms like Deliveroo and Uber Eats, we’ve seen delivery services completely transform the restaurant and takeaway sector. And thanks primarily to Amazon’s intervention, we’ve witnessed next-day delivery emerge as a widely accepted standard.

Home deliveries are, of course, an integral part of the digital commerce model, which itself has enjoyed massive growth, especially in the wake of COVID-19. But this comes at a price - an environmental one.

Amazon, already the world’s largest digital commerce company and on course to become the world’s largest shipping company, was shown to have emitted 44.4 million metric tons of carbon dioxide in a single year, even before COVID-19 saw home deliveries spike sharply.

Since then, the internet giant has embarked on a major blitz of its green credentials, including encouraging initiatives such as ordering 100,000 electric vehicles worldwide, and plans for large scale use of solar panels.

Yet, the over-riding reason Amazon and other firms are making such a big play on sustainability and environmental responsibility is simple - it’s increasingly what consumers are demanding. But are shoppers prepared to compromise on speed and convenience of deliveries to achieve this? No, certainly not in the long term.

Unpicking What Consumers Think About Sustainability

Sustainability, the environment and ethics in general are becoming increasingly important to modern consumers. The evidence that people are increasingly conscious of the impact their buying habits have on the world around them is convincing.

We see as much in the regular surveys of consumer attitudes and behaviours WT Commerce carries out. In our COVID, Commerce & The Consumer (2020) report, for example, close to three quarters (73%) of UK shoppers we spoke to said they wished retailers and brands offered better environmental practices. From the same report, 55% of consumers said that a company’s ethics and morals play an important role in their purchasing decisions.

There is also evidence to suggest that consumers put the blame for this figure not being higher on businesses. In a survey carried out for Futerra a couple of years ago, 88% of consumers said they wanted brands to help them be more ethical and sustainable in their shopping habits, yet 43% said they felt brands got in the way of achieving this goal.

The insinuation is clear - we’d like to be more ethical and sustainable in our purchasing decisions, yet brands don’t currently give us the options we want.

Consumer attitudes and actions don’t necessarily match up

Many consumers may well genuinely believe this to be the case. But that doesn’t mean it is 100% accurate. If we look at things objectively, there is no shortage of sustainable, ethical retail options available these days. In the US alone, the sustainable retail market is forecast to reach $150bn in value this year.

Brands are also well aware of the weight that ‘green’ credentials carry with modern consumers and are positioning eco-friendly practices front and centre of their business strategies. In our survey of commerce decision makers, Ready or Not - The Digital Commerce Leader (2019), two-thirds (67%) of participants told us that their organisation put ethics and sustainability above profit, rising to 79% of enterprises with a turnover above £500m.

No doubt not every retail business or brand is as conscientious as it could be in prioritising ethical, sustainable choices for their customers. But if we’re looking for explanations as to why more than half of shoppers don’t feel their buying habits have become more environmentally friendly over the past few years, we also have to consider another, equally likely reason - that there remains a disparity between what consumers think and say about sustainability and what they actually do when it comes to choosing and purchasing goods.

Our research has revealed similar discrepancies between action and attitude. In COVID, Commerce & The Consumer, for example, although 73% of UK shoppers said they wanted brands to be more sustainable, only 48% said they actively chose to buy from brands that were demonstrably more environmentally friendly.

The fulfillment factor

The rise of to-the-door delivery as a frontline retail fulfilment option helps to shed some light on why this gap between consumer attitudes and behaviour exists when it comes to sustainability. It quickly becomes clear that, as far as deliveries are concerned, two key barriers get in the way of consumers practicing what they preach with the environment - cost and convenience.

Research from returns management platform ReBound in November 2020 found that 79% of UK shoppers would choose more sustainable delivery options if they were available. Yet a similar proportion would only be prepared to pay a maximum of £0.50p extra for more eco-friendly delivery, with just under a third (29%) saying they wouldn’t be prepared to pay more at all.

On the topic of convenience, as part of our Welcome to the Mega-Peak study, we asked consumers directly whether the environment or fast delivery were more important to them. Although 43% said the environment, 49% said that fast delivery was either more (20%) or equally (29%) important to them.

Brands and retailers are obviously correct to listen carefully to what consumers have to say on sustainability and other ethical factors. But the evidence from the actual shopping habits of consumers suggests that, at least for now, cost and convenience trump environmental considerations for the majority of consumers.

This is an important message for commerce businesses to grasp. Unless you can guarantee your customer base will buy into it, the danger with going all out with sustainable, eco-friendly offers is that you add costs or points of friction, particularly when it comes to fulfilment, that drive consumers away. If that happens, the whole pursuit backfires.

Sustainable Delivery: Can Brands Square the Circle?

Consumer demand for ever faster, more convenient delivery coupled with high expectations around sustainability creates a problem for retail brands. The truth is that current fulfilment practices, especially around rapid delivery, are far from eco-friendly.

Even before the COVID pandemic, the World Economic Forum (WHO) predicted that demand for urban last-mile delivery would increase 78% by 2030, leading to 36% more delivery vehicles in 100 cities around the world. According to this model, deliveries would directly account for vehicle emissions rising by a third.

The problem has been specifically pinned on the rise of next-day and now same-day delivery. While Amazon, which pioneered rapid fulfilment at scale, claims that its use of local inventory centres cuts down on journey distances for fast deliveries, the alternative view is that rapid fulfilment reduces opportunities to optimise truck space and consolidate journeys.

In addition to vehicle emissions, you can throw in the fact that a third of all solid waste in the US now comes from delivery packaging.

All in all, squaring the circle between fast, convenient delivery and ethical, sustainable values is not easy. But as we have seen, it is increasingly what consumers are demanding. ReBound’s research not only found that 80% of consumers would choose more sustainable delivery options if they were available, 75% also said they intended to shop online with companies who could meet that expectation.

Brands and retailers must view this as a market opportunity. For one thing, sustainability and environmentally friendly practices are an opportunity to grab market share back from Amazon. But as Amazon starts to clean up its act with massive new fleets of electric vans and major investments in renewable energy, the window for rivals to act is shutting fast. The question is, how?

One thing we know is that when markets start making specific demands, solutions are usually found. The WHO’s Future of the Last Mile Ecosystem (2020) report sets out 24 potential ‘interventions’ for making delivery more sustainable, grouped into solutions that are already in use, those that are just emerging, and those that are still at the concept stage (i.e. we’re not likely to see them deployed at scale for more than three years). Some examples in each category include:

Already in use

  • Electric delivery vehicles
  • Parcel lockers
  • Dynamic re-routing

Emerging

  • Trunk delivery (i.e. using cars as ‘mobile addresses’ to cut down on delivery distances)
  • Retrofitting of parking infrastructure to make it suitable for deliveries
  • Load pooling (i.e. optimising space in delivery vehicles by making spare capacity available to multiple operators)
  • Parcel shops (a step up from the parcel locker concept, and a way to potentially use retail real estate being vacated as physical footfall drops)

Future

  • Hydrogen Fuel Cell Electric Vehicles (H2 FCEVs)
  • Autonomous vehicles (either with a ‘runner’ to deliver parcels to the door or with lockers for consumer collection)
  • Drone deliveries

In the short term, electric vehicles and AI-powered intelligent and dynamic routing have significant potential to reduce the carbon footprint of deliveries. Dynamic routing boils down to real-time journey planning, using AI to plot the shortest and most efficient route.

Looking forward, it is easy to see how intelligent routing technology could evolve to coordinate pickups as well as deliveries, which is a step towards load pooling. We’re also seeing moves towards single vehicle fleets being used for multiple purposes, e.g. Uber running shared ride or food and parcel delivery services, which will help to reduce the number of vehicles on the roads.

Similarly, an increase in the use of parcel lockers for click-and-collect services can help to cut down reliance on delivery vehicles, especially if they are numerous enough and conveniently placed so people can easily walk to them. Options for increasing click-and-collect drop off locations leads onto parcel shops and making use of existing parking infrastructure, and then further down the line, electric autonomous vehicles.

Conclusion

There’s no doubt that retailers and brands have a tightrope to walk when it comes to balancing customer-friendly fulfilment with meeting increasing expectations around sustainable, eco-friendly behaviour.

Particularly in the wake of the COVID-19 pandemic, consumers have come to rely on digital commerce and home deliveries like never before, and they are no longer prepared to wait for their purchases to arrive. Speed and convenience are what consumers expect from delivery, and they are making their online purchasing decisions accordingly.

At the same time, environmental and ethical considerations are having a clear impact on choices and behaviour, although there remains evidence of a gap between what consumers say they want to see and what they actually do when it comes to making eco-friendly choices. But given the differences in attitudes across generations, the assumption has to be that this gap will close over time.

This suggests brands and retailers would, for now, be justified in prioritising convenience and service over sustainability. Taking the long view, you could argue that a sustainable business has to be built on sound foundations, or it is no business at all. For long-term gains in sustainability to be made, brands and retailers have to put in the groundwork to create an offer that consumers want first, and then help them act on their eco conscience.

On the other hand, one could argue that there are huge market opportunities for the leaders who act now to make fulfilment more eco-friendly. The challenge is how to make deliveries more eco-friendly without adding time and cost to the process, something many consumers aren’t prepared to tolerate.

On that basis, the right choice is to prioritise both - speed and convenience of fulfillment, and sustainable practices. It’s a tricky balancing act for sure. But if brands and retailers don’t start taking action to meet consumer demands for both now, they risk falling behind as competitors do. Just look at the push Amazon is making on the environment.

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