The key question of whether e-commerce is more or less sustainable than traditional retailing is particularly difficult to answer, because it compares visible with invisible waste.
Visible waste is easily seen in excessive packaging and the inevitable emissions from delivery trucks. Invisible waste from car emissions when we drive to the store is generally taken for granted.
Reports suggest that our store trips are unsustainable, and often retail’s greatest emissions generator. They reason that multiple consumer store trips are less efficient than multi-stop delivery routes. As a result, reports typically lean toward e-commerce being the more sustainable option. That said, they also agree that packaging waste and delivery emissions are the most unsustainable elements of e-commerce, while noting that varying consumer habits can easily tip the balance.
A couple of e-commerce uncertainties weigh heavily in this determination: returns and order size. E-commerce returns vary widely, averaging between 20% and 40% of total volumes, and appear to be increasing. Each return is an additional shipment and often generates product waste, because many returns end up in the dump. Order size data is less clear, but e-commerce order baskets tend to be smaller than store baskets. Single-item orders aren’t penalized when shipping is “free,” but driving to the store costs time and money, so we commonly bunch items together. Therefore, what we buy on a store trip might represent multiple e-commerce shipments. Returns and order size are high multipliers to e-commerce’s sustainability impact, but less emission-sensitive with store shopping. These will tip the balance much further.
An interesting conclusion from research reports is that retail’s carbon footprint is largely dictated by consumer behavior.
Returns and small order sizes have an outsized effect on contribution margin as well. A recent CNBC article claimed that returns increased 60% last year, and cost over $760 billion. Small order sizes tremendously impact fulfillment cost as a percent of sales, also reducing margin.
But e-commerce costs are daunting by themselves, regardless of returns and order size. Direct-to-consumer fulfillment adds two expensive costs to the retailer that store shoppers handle for free: selecting the product from the shelf and bringing it home. For a business with razor-thin margins (brick and mortar retail averages about 3% net profit), a retailer absorbs handling, packaging and delivery costs, easily an additional $8-$12 per package. Instead of making $3 by selling a $100 item, with e-commerce they lose between $5 and $9. Losses gets worse as average order value drops, because package costs are relatively constant.
The strategic response has been to right-size and re-purpose stores, as seen in a raft of store closings in recent years. What we’re seeing in the e-commerce evolution is the transformation of retail stores into a hybrid mix of new store formats, urban warehouses and delivery trucks, all key building blocks of omnichannel commerce.
Using GHG Data
Innovative omnichannel strategies may be able to overcome e-commerce’s sustainability and profitability challenges by using greenhouse gas (GHG) data to influence shopping behavior.
Omnichannel retailers have the ability to influence how consumers shop through their online connection. We’ve seen constant experiments to attract customers, with options involving time, choice, price, delivery, pick-up and assistance. Why not display and compare GHG data for various order options? By showing options on timing and delivery, for example, data-savvy retailers could display comparative GHG data for different ordering scenarios, such as:
An infinite number of possibilities could spring from this to drive more sustainable shopping behavior. This concept essentially optimizes how consumers currently shop. But what about better ways to shop? What about omnichannel solutions that optimize sustainability?
The Subscription Solution
Consider a solution that displays GHG data and includes a regular subscription service, enabling consumers to proactively plan shopping needs, replacing frequent store trips and small one-off online orders.
How many times per week does a household drive to the store — 10, 15, 20? A regular weekly service offering a variety of merchandise and a convenient, intelligent ordering platform could cut out many of those trips. It could source from nearby locations (whether stores or “dark” hubs), and, given time in the order cycle, use the location as a cross-dock to bundle merchandise from remote locations. To eliminate disposable packaging, it could incorporate a closed-loop return system, allowing the introduction of re-usable packaging.
A regular service could be a significant time-saver. Relative to the previous concept, GHG data could be displayed for these orders and be compared to their normal behavior (such as saving x number of trips per week).
Many possibilities could be designed around these concepts. Elements of the sustainability “secret sauce” include:
For profitability, larger bundled orders increase revenue per order and fulfillment cost as a percent of sales is reduced. Re-usable packaging is yet another cost advantage.
Omnichannel is racing ahead, resulting in the following present or emerging trends:
Will consumers buy into this? They might. Late last year, Forbes reported on a Forrester consumer interest survey with notable results:
Given that consumer preference drives omnichannel design, this is particularly encouraging.
It seems likely that in some cases, sustainability should be an omnichannel design objective. Could these and other concepts de-carbonize shopping? Maybe. The big winner is the climate, but others are retailers (more profit) and consumers (more time). We’re already seeing parts of it, and even better, surveys indicate consumers might be delighted. We look forward to further investigation and pilots. Why not?
Bill Loftis is owner and principal of Supply Chain Ecology.
Read more of SupplyChainBrain's 2022 Supply Chain ESG Guide here.
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