Omni-channel retail – environmental risk or opportunity?
Omni-channel is fast becoming the dominant retail model. Over 15%(1) of UK retail sales are now made online with rapid year-on-year growth. Tablets and smartphones are used for more than 50%(2) of online sales, and same day and next day delivery are the new normal for many customers.
However, is this explosion in choice and convenience also creating a hidden environmental burden?
The shift away from bricks and mortar may seem like the ‘virtualisation’ of retail. However, the complex supply chains and expansion in last-mile delivery services required for online sales also create major new road transport and energy requirements, potentially driving up carbon emissions. Whilst retailers have made hard won progress over the last decade in cutting carbon (Tesco(3) cutting the footprint of its stores by 40% since 2006-07, M&S(4) by 64% since 2006-07) that progress could now be eroded.
Data on the carbon footprint impact of omni-channel retail is scarce, and the relative efficiency of different channels is highly variable by product category and geography. However, there seem to be five major challenges and five key opportunities for retailers aiming for a carbon-efficient future.
Carbon challenges for omni-channel retail
- Expanding distribution network: Home delivery, particularly the ‘last-mile’, creates a huge expansion in retailer transport emissions, as shown by the increasing numbers of delivery vans visible on the road. Failed deliveries and customer returns create additional trips, frequently at low load capacity. Furthermore, balancing stock across multiple channels, click and collect, and dealing with returns typically means many more journeys between stores and distribution centres.
- Declining footfall: As shoppers move online store footfall gradually declines. The overall efficiency of existing stores potentially decreases on a per shopper basis, despite improvements in the building fabric and equipment. Retailers have to optimise their estate (and likely close stores) whilst still meeting consumers’ desire to buy in-store and to experience the physical brand.
- Outsourcing of emissions: Omni-channel retail models often lead to greater outsourcing of business functions (e.g. data centres, customer service, logistics and fulfilment) and carbon emissions are therefore outsourced in parallel. Retailers are losing direct control over their environmental footprint and performance. Procurement teams must step up to ensure that suppliers meet the same high standards for emissions reduction.
- Wasteful behaviour: Omni-channel retail creates new behaviours with potentially adverse effects. For example, in clothing, many customers buy multiple sizes of the same item (or multiple styles) with the intention of returning those that do not fit – creating unnecessary journeys (and inventory and processing challenges on returned items). In grocery, the tendency to purchase in bulk and to add items in order to hit free delivery thresholds may also lead to unnecessary purchases and increased food waste.
- Insufficient data: Above all, retailers lack sufficient data to optimise for the new world. Key data gaps include real insight on customer behaviour (e.g. the extent of show-rooming and customer travel or delivery preferences). They also lack granular information on the true cost-to-serve on a carbon and financial basis at the transaction level. Retailers need to strengthen their analytics capabilities now.
Major environmental sustainability opportunities for retailers
Retailers can overcome carbon challenges by prioritizing five key environmental sustainability opportunities that are unlocked by omni-channel retail:
- Reduce customer travel: Every online purchase reduces the need for physical customer journeys, reducing fuel use and ultimately taking cars off the road. By offering multiple fulfilment options, stores can help customers select the most time, cost and carbon efficient options. These might include the use of convenient collection points (e.g. Collect +), combining deliveries with third parties where they are non-time critical, or direct fulfilment to a shopper’s place of work.
- Personalise fulfilment: With the right data on a customer’s location and fulfilment preferences, retailers can dynamically present the most relevant and efficient options at checkout. This can improve the user experience and build loyalty by incentivising options that both lower costs and cut carbon. Grocery retailers do this well by highlighting ‘green’ delivery slots, when a van is already in the neighbourhood.
- Leverage partner capabilities: As emissions are outsourced, retailers should look to leverage the capabilities of their suppliers. Logistics companies have the financial strength and incentive to invest in energy and carbon-efficient e-vehicles long before the typical consumer. Furthermore, the ‘uberisation’ of delivery should enable more efficient networks for those companies with the right partners and digital capabilities.
- Go circular: Omni-channel retail accelerates the potential to build a ‘circular economy’. Retailers can promote subscription-led ‘product as a service’ models and ‘sharing’ – improving the utilisation of existing goods. Furthermore, home delivery can enable a significantly reduced packaging footprint through right-weighting, re-use and material recovery – reducing wasted resources across the cycle.
- Engage consumers: Finally, digital channels enable retailers to share much richer information and stories on the origins, social and environmental performance of their products. By building a stronger dialogue on ethical purchasing, stores can improve sustainability across the value chain whilst also building engagement and loyalty.
Will the opportunities outweigh the costs? On balance it is expected they will – retailers should embrace a more digital and environmentally sustainable future.
The optimal solutions will vary widely by product mix, geography and brand. Retailers should start by building a much stronger and detailed fact-base on how omni-channel retail is changing their environmental footprint and the relative performance by channel. Above all, they should focus on how to make their business more personal, engaging and circular for a commercially successful and environmentally sustainable future.