THE PROMISED LAND

Sustainability has been on the agenda for most companies, particularly in retailing, for the past fifteen years or so. Recent events and individuals, such as the high-profile demonstrations by the Extinction Rebellion group and Greta Tunberg, the sixteen-year-old Swedish activist, has arguably moved it to the top of the agenda.

High profile takeovers of major cities have brought much disruption to many commuters trying to go about their daily lives and business. However, such demonstrations have worked because they have captured the headlines globally. Schoolchildren have also joined in the protests and argued that the decisions and strategies of governments and businesses fail to take account of the longer-term damage to the environment and their future prospects.

Predictably, politicians have made mealy-mouthed statements about putting the environment on the top of the agenda.

Arguably, the activists have not helped matters by advancing the view that people will have to stop eating meat, stop flying and give up their cars. Irrespective of whether they are correct or not in their estimations, it becomes a difficult “sell” to older individuals who are set in their ways and are unlikely to respond to such draconian instructions.

Studies show that even young people are largely disinterested in the issue of sustainability.

Many people, irrespective of age, do not fully understand such apparently complex terms such as “the carbon footprint”.

I would argue that it will take time, perseverance and an incentivised approach on the part of policy-makers and businesses to migrate individuals to a more positive and active approach to this complex topic.

I was motivated to consider sustainability in the context of retailing by some recent changes in strategy by Zalando, the German online retail platform company.

Firstly, some background to this retailer.

Two university friends: Robert Gentz and David Schneider started the business in 2008. It mainly replicated the business model adopted by the US e-commerce company, Zappos. It focused solely on selling shoes online and gradually branched out to a range of categories including clothing for men, women and children.

It buys clothing, shoes and accessories from over 2,000 different brands and sell in seventeen countries in Europe. The footwear category represents the biggest percentage of its revenue – around 21 per cent.

It caters for all segments, ranging from high street brands, designer labels and lower-priced merchandise. It also created its own brands, called “zLabels”. It uses its own brands to cater for gaps in the product lines, which are not addressed by its portfolio of branders who operate on its platform.

This is in contrast to one of its main competitors: Yoox, which focuses only on high-end, premium merchandise.

It is now estimated to be Europe’s leading online fashion platform and generates around 4.5 billion Euros. This is comparable to an established iconic brand such as Puma.

The success of its business model revolves around the word “platform”. It provides the technical, IT and operational infrastructure to its 2,000 branders. Zalando argues that this allows the brander to concentrate on its core competencies such as design and marketing, whilst leaving the inventory and fulfilment functions to Zalando. It provides a wide range of different sizes for its customer base and absorbs costs such as the returns policy.

Senior management have stated that it wants to become “the Spotify of music or the Netflix of entertainment”: a one-stop-shop for online fashion merchandise and accessories.

It employs over 6,000 employees (average age – 32) at its headquarters in Berlin. As of 2019, it has promised to invest around 300 million Euros in its logistics and technology infrastructure to ensure a smoother and seamless customer experience for its shoppers and its brands.

It also promise greater levels of personalisation as it analyses the data and identifies specific preferences across its individual shoppers.

It retains around 30 million active customers (2019 estimates) and its revenues increased by 26.7% by the third quarter of 2019.

Since 2018, Zalando has reappraised its approach to the topic of sustainability. Prior to 2015, it confesses that it had little or no awareness of its growing importance. In mid-2018, took a strategic decision to widen its sustainable assortment.

This included brands such as Ecoalf, MudJeans, Swe-s, Girlfriend Collection and Stripe + Stare. It currently carries around 15,000 such sustainable items from over 240 brands on its platform.

It also introduced a sustainability “flag” label to help shoppers identify such items on the website. It tested the “flag” concept in 2017 and rolled it out across its seventeen markets in 2018. It stated that its overall objective was to make its sustainable benefit fashion assortment “the largest available in Europe” in the next few years.

In 2019, it made some even more ambitious plans to address the issue of sustainability.

Zalando management argue that people hold a number of different interpretations about what constitutes sustainability. They criticise other retailers such as Zara for claiming to be going “100 per cent sustainable”. Zalando posits the view that this is impossible, as everything leaves a footprint anyway. It revised approach includes the provision of a wider selection of brands together with more detailed information about the items in order to help them make more sustainable choices.

The CEO of Zalando: Rubin Ritter calculated that he leaves an average of 40 tonnes of carbon footprint annually (reflecting business class flights to Japan and clothing that he wears). The EU average per person is around 12 tonnes and the global average is 2 tonnes. Motivated by these statistics, he has reoriented the approach of Zalando to sustainability and set a number of targets to be achieved by 2023. He is acutely aware that the fashion sector generated around 8 per cent of global greenhouse gas emissions.

The “game-changing” sustainability strategy features the following targets.

  • Zalando commits to a net-zero carbon footprint in its own operations, delivery and returns policy by 2023.
  • It has revised its sustainability by launching its own “do More” strategy.
  • By 2023 it will have increased is ethical standards and will only work with partners / branders who will agree to align with Zalando’s principles.
  • By 2023 it will generate 20 per cent of gross merchandise volume from its sustainable products.
  • It will eliminate single-use plastics in its packaging and materials.
  • It will extend the life (in line with the principles of circularity) of over 50 million fashion products
  • It pledges to cut ties with any brands that do not comply with its sustainability guidelines.
  • It is not willing to compromise on these principles and will introduce a code of conduct for its branders to adhere to on the dimensions of sustainability such as materials and processes and ethical and social criteria.
  • It will therefore limit the brands customers have access to on Zalando’s platform and thereby encourage them to shop for sustainable items.

How practical and achievable are these goals? Can they be implemented successfully by 2023?

Some commentators argue that in order to address the issue of sustainability, retailers such as Zalando have to be prepared for a drop in growth and potential reductions in profitability in the short to medium term. Otherwise, they will not be around in the world of the future.

Others argue that such aggressive approaches will only create a negligible environmental impact, annoy shoppers and have tangible consequences for profitability. In this obsessive drive towards a sustainable future, other serious social issues such as the elimination of poverty are equally as critical and may fall “under the radar”.

This aggressive approach by Zalando certainly encourages both branders and customers to think about sustainability. Will it work? What do you think? How can they make it work?

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