Focus on ESG initiatives critical to future growth of retail brands

Purpose-driven brands that stand for the things they believe in are setting themselves apart from competitors in the eyes of valuesseeking consumers // By Sean Tarry

The retail industry, generally speaking, has experienced an incredibly difficult stretch over the course of the past two-and-a-half years or so. It’s been a period of time riddled with uncertainty and an inordinate number of challenging circumstances for merchants across the country to overcome. Inflated costs, a disrupted and broken supply chain, a debilitating shortage of skilled labour and a sharp increase in activity on digital channels are but a few of the obstacles that the industry at large has been presented with. The impacts experienced by the average Canadian consumer as a result of fallout from these challenges, mainly in the way of decreased product availability, less than desirable service and the reception of a disjointed experience, haven’t gone unnoticed and lend significantly toward influencing customer retention.

They are all challenges that are clearly recognized by Marty Weintraub, Partner, National Retail Leader, Deloitte Canada. Despite these headwinds impacting various segments within the overall retail ecosystem, however, he believes that rising consumer sentiment and attitudes around environmental, social and governance issues, and the stance that retailers take on them, are becoming an increasingly influential consideration with respect to engagement and loyalty.

“At the onset of the pandemic, the Canadian consumer started to cocoon, which directly influenced what they were buying, where they were buying it and how much they were spending,” he says. “Because the pandemic has been, for the most part, diminishing with respect to the way we live in Canada, some spending has been unleashed over the course of the past six months. But what’s happening geopolitically and economically today is creating a bit of concern in the Canadian consumer and a tempering of their spend and enthusiasm. Not all of these pressures have been felt proportionately across different income segments, resulting in a disparity of current financial situations and differences in the way certain consumers behave. However, despite these differences, what we’re noticing most consumers have in common is the intensified focus that today’s shopper has on an organization’s purpose and how it aligns with their individual values.”

Developing a purpose

Weintraub goes on to explain that it’s a shift in consumer mindset that had already been recognized pre-pandemic, but one that, like many other shifts that have occurred recently, has been accelerated by the adverse pandemic-induced situation faced by Canadians in communities right across the country. And, according to Deloitte’s recent 2022 Canadian Retail Outlook, it’s a shift that’s catching the attention of leaders within the industry. The report reveals that 80 per cent of retail executives are anticipating an increase in government- and regulator-imposed ESG-related mandates; 63 per cent believe that employees prefer to work for retailers that have clear ESG goals and initiatives; 60 per cent think that a company’s ESG record will attract greater investment; and 43 per cent believe that their business’ ESG commitments directly impact customer loyalty.

With such a range of potential influence, Weintraub suggests that the most effective ESG strategies are developed with a holistic approach that includes each stakeholder involved in the retail ecosystem.

“The purpose that an organization has developed for itself is important,” he asserts. “But what’s perhaps even more important is the way in which that organization translates that purpose into its corporate strategy and then brings it to light through its customers, vendors and employees. To do this, they’ve got to understand what the brand itself stands for and believes in, and what its customers value and expect from the brand, strategically connecting that to vendors, holding them accountable, and then sharing it all back to employees. The results are often enhanced partnerships with vendors and improved sustainable practices that allow brands to bring incredible value to the consumer. And, a culture that’s aligned with ESG issues and focused on making a positive impact also goes a long way toward alleviating struggles around attracting and retaining top talent. And if retailers can bring all three of these things together in an integrated way, connecting the dots across their enterprise to make it all hum like a well-running machine, they can start to capitalize on a massive differentiator for their businesses.”

Embedded culture

Weintraub’s sentiments are echoed by his colleague, Livia Zufferli, Partner, Customer and Marketing & CMO Program Leader at Deloitte Canada, who also recognizes the potential results of a holistic ESG strategy. She says that the positive impact that it can have on employee and customer loyalty is massive, adding that the negative consequences that could yield from inaction around these issues can be just as severe. So, in order to ensure that an organization is doing everything it can to enhance its ESG strategies and initiatives, Zufferli suggests that they have got to be imbedded within its corporate culture, touching and informing everything that it does and every decision it makes.

“Not long ago, ESG issues, along with diversity, equity and inclusion, were initiatives that were owned by executives operating within a silo,” she explains. “What’s changed over the past few years is the fact that these pillars are no longer viewed as separate initiatives that reside in a corner office somewhere. Today, ESG initiatives have got to be treated as central to the operation of a company. It needs to start at the top with the CEO and be owned by every executive across the organization. Until this is the case, until this philosophical shift in mindset takes place at the top of organizations, they’ll never truly understand the benefits of embracing ESG as a differentiator.”

Honesty and authenticity

If a brand’s approach to ESG is not of the top down, all-inclusive variety in which purpose and values are imbedded within the culture of the company, Zufferli cautions that the messaging will remain flat and seem more like an advertising message than anything else. She explains that to ensure ESG is engrained within a brand’s strategy and culture, providing transparency to employees and consumers through the thoughtful and effective sharing of communication is critical and lends further credibility to the actions that they’re taking. And, she says, developing the communication and data around the pillars of honesty and authenticity is just as important.

“Internally, retailers have got to develop reporting systems that provide measurements and KPIs so the companies know exactly what they’re achieving and that they’re not just talking in well-crafted slogans to their consumers.,” she asserts. “With respect to communication, scorecards should be shared with the public and employees. And, rather than simply listing achievements, brands should also speak to the issues and challenges that they’re still working on, balancing the message, positioning the organization as honest and trustworthy, preserving brand reputation. They have to share their ESG journey with their consumers and employees, staying true to the values the organization stands for, creating champions for the brand. It’s not enough anymore to simply have a statement in your annual report concerning ESG issues. Retailers need to own their initiatives and commit to constantly improving their practices for the better.”

Long-term investment

Given the incredible pace at which the retail industry moves, driven by a multitude of forcing functions, the task of consistently satisfying and exceeding consumer preferences and expectations is an incredibly complex one. Ensuring that an organization is positioning itself well, aligning with the values and beliefs of an ever-evolving and connected Canadian consumer, makes the task that much more difficult. However, as Weintraub points out, the benefits and advantages of doing so are potentially immense, adding that it’s always a great time for brands to begin developing their ESG strategies and propelling their organizations into the future of retail.

“The industry is really just getting started with respect to the development of ESG strategies and initiatives and understanding exactly how everything connects. However, we’re starting down a path that will forever be a work in progress. It’s a rising sentiment that will continue to grow in its intensity. And, whether you’re a consumer or a retailer, it’s always a good time to do the right thing. Despite the fact that there are headwinds coming at the industry, retailers can’t take their focus off of these issues and their strategies around them. ESG should be seen as a long-term investment, not one for the short-term. And, with respect to getting started, merchants don’t need to ‘go big or go home’. As long as the steps that they take are meaningful and authentic, they should be confident that they’re heading in the right direction, laying a strong foundation for tomorrow.”