Sustainability: When Doing Good Is Good for Business
As countries, corporations and consumers band together to address increasingly severe climate change, several retailers, including Gap, are leading the charge in supply chain sustainability.
Sustainability isn’t just good for the environment – it’s good for business
As countries, corporations and consumers band together to address increasingly severe climate change, several retailers, including Gap, are leading the charge in supply chain sustainability.
Gap, the namesake brand of ~$16B clothing retailer Gap Inc., has many reasons to care about its contributions to climate change. First among these is economics. Carbon emissions – a leading contributor to climate change – are lower in more efficient supply chains, and more efficient supply chains are less costly to operate. As retailers work to make their supply chains “greener”, they will decrease the costs of producing goods and getting goods to the consumer. [1] Gap has a somewhat unique environmental challenge: it focuses on selling cotton apparel staples, like t-shirts and jeans, that have a particularly high environmental impact compared to many other apparel items. [2] As it reduces the environmental impact of its sourcing and manufacturing, it will save money on natural resources used for production.
Sustainable retailing also has revenue benefits, as corporate social responsibility is gaining importance in the mind of the consumer. In a survey of apparel shoppers, Morgan Stanley found that “good ethics” jumped from 53% importance to shoppers in 2010, to 62% in 2016. [3] By implementing and then marketing its sustainability efforts, Gap has the opportunity to retain or win share of wallet among environmentally conscious consumers.
Finally, there is regulatory uncertainty surrounding environmental allowances and restrictions. Retailers that get ahead of today’s standards reduce their exposure to financial risk from complying with future regulations.
Gap continues to make efforts to reduce the direct environmental impacts of its supply chain
Gap’s past environmental efforts give it a solid foundation on which to keep building. The retailer has stated standards for its mills regarding environmental impact. It has a clear map of its full supply chain (not all retailers do), dutifully tracks which suppliers are being used, and knows which suppliers give visibility and control to Gap. It requires its cut and sew facilities to self-report data for identifying sustainability opportunities. [4]
Going forward, Gap is focusing sustainability efforts on product design, sourcing and production. In the near-term, this centers on reducing water usage during production of textiles and finished goods. To that end, this year Gap launched “Gap for Good” denim, made with 20% less water and available in all Gap stores. [5] Outside of water consumption, the majority of Gap’s environmental efforts will be realized in the medium-term. Gap has set several environmental goals for the next 5-10 years [5][6]:
- Sourcing 100% of cotton from “more sustainable sources” by 2021
- Reducing greenhouse gas emissions by 50% by 2020
- Diverting 80% of landfill waste by 2020
- Producing 80% of materials for Athleta (a Gap “sister brand”) with sustainable fibers, an innovation that will benefit other Gap Inc. brands
Gap also announced in September 2017 its membership in the Science Based Targets Initiative, signaling a commitment to set science-based emissions reductions targets within two years. [7]
In the long-term, Gap has stated an intent to explore “sustainable chemistry” and low-impact solutions for clothing at end of life. However, little progress appears to have been made on these topics.
To reach full potential, Gap should focus on downstream logistics and consumer behavior
While its sustainability efforts thus far, focused on direct emissions, are important, Gap has the opportunity for even greater environmental “savings” by considering the indirect impact it has on the climate. Though hardest to measure and control, these indirect impacts – like emissions from a truck delivering a Gap order to a consumer – are “by far the largest component of most organizations’ carbon footprints.” [8]
Today, shoppers’ expectations for speed and convenience are higher than ever before. Retailers are responding by offering the consumer what he wants, when and how he wants it (and often at no additional charge). This has huge implications for indirect emissions, and Gap should set its sights on limiting these emissions in order to reduce total climate impact.
Gap can further educate the consumer about sustainable retailing. It can encourage lower impact shopping behavior – like making consolidated purchases instead of one-off ecommerce buys or one-off trips to the store. [1] It can teach customers to demand the green retailing Gap is working so hard to deliver. Or perhaps Gap can find more efficient ways to move its products, like partnering with logistics providers leading the charge on sustainability, or using digitalization to shorten the supply chain (e.g., 3D printing components on-site instead of shipping them).
But many questions remain… How best can Gap partner with logistics providers to deliver the experience consumers expect with lower environmental impact? What are the most effective ways for Gap to align its incentives with those of partners and consumers to mitigate climate change?
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[1] Cheris, A. et al. (2017). Retailers’ Challenge: How to Cut Carbon Emissions as E-Commerce Soars. Available at: http://www.bain.com/publications/articles/how-to-cut-carbon-emissions-as-ecommerce-soars.aspx [Accessed 15 Nov. 2017].
[2] World Wildlife Foundation. (2017). Cotton: a water wasting crop. Available at: http://wwf.panda.org/about_our_earth/about_freshwater/freshwater_problems/thirsty_crops/cotton/ [Accessed 15 Nov. 2017].
[3] Morgan Stanley. (2017). Is Ethical Retailing Real?. Available at: https://www.morganstanley.com/ideas/ethical-retailing-consumers-survey [Accessed 15 Nov. 2017].
[4] Gap Inc. Sustainability. (2017). Mapping the Product Life Cycle. Available at: http://www.gapincsustainability.com/product/mapping-product-life-cycle [Accessed 15 Nov. 2017].
[5] Peck, A. (2017). CEO Letter | Gap Sustainability. Available at: http://www.gapincsustainability.com/strategy/ceo-letter [Accessed 15 Nov. 2017].
[6] Gap Inc. Sustainability. (2017). Product Sustainability | Gap Sustainability. Available at: http://www.gapincsustainability.com/product/product-sustainability [Accessed 15 Nov. 2017].
[7] World Wildlife Foundation. (2017). Gap Inc., NIKE, Inc., Levi’s Among Retailers Joining Initiative to Tackle Climate Change. Available at: http://wwf.panda.org/what_we_do/footprint/climate_carbon_energy/?311650/wwf-sbt-companies [Accessed 15 Nov. 2017].
[8] Greenhouse Gas Protocol. (2017). Scope 3 Calculation Guidanc. Available at: http://www.ghgprotocol.org/scope-3-technical-calculation-guidance [Accessed 15 Nov. 2017].
That’s a great point about consolidated orders. I always find it sad (but understandable from a logistics standpoint) when I place orders at the same time from an online retailer and they come separately (and not due to stock-outs or availability). I imagine it’s due to inventory being held at different locations, but the amount of packaging used is always overboard, and is as much as doubled if two items come separately. With Amazon Prime and more and more retailers, the incentive is I can order this right now because I can place an order later and don’t have to pay anything. At this point, changing the culture, a difficult, long-term play, would be necessary to incentivize consolidating orders. Minimum order sizes have just become annoying.
I like how you discuss that Gap is “doing well” and “doing good” at the same time. We’ve had that debate (whether or not you can do both) in class multiple times this year, and you highlight some very good examples (e.g., decreasing cost of goods sold) of how Gap is doing this. I’m not really sure how to interpret the quote from Morgan Stanley. I feel like most people would claim that “good ethics” are important to them when asked, although I wonder how Gap could actually measure the impact of the changing sentiment.
Convincing customers to bundle their orders seems difficult; you discuss how customers have ridiculous expectations for speed. Given Gap’s large retail footprint, maybe there is a way to further build out their omni-channel offering? For customers that place orders online, you could offer them a discount if they came into a nearby store and picked it up. This has the dual benefit of cutting out some shipping/packaging cost (in exchange for the discount) as well as getting the customer into the physical store (with the opportunity to make more purchases while they’re there).
To Sergio’s point about consolidated orders: I agree that we as consumers have to adjust our own buying culture if we want retailers to adopt these practices. As you said, minimum order sizes are annoying; companies are disincentivized to implement many of those measures or else watch their orders dwindle.
Gap might consider reducing emissions from their e-commerce business by holding more inventory in its local stores and partnering with on-demand platforms such as Roadie to bring orders from the local stores (versus distribution centers) to local customers. To offset this cost, they may consider offering this option as an additional delivery option at some extra cost, while being upfront about the beneficial impact you, as an individual shopper, can make with this delivery option. After a while, they can collect enough data on how many purchasers use that delivery option, to determine its longer-term viability.
Very interesting article as it highlights that while climate change overall might be a negative phenomenon for mankind, it might provide some great opportunities to businesses that are willing to focus on sustainability and build it into their supply chain upstream as well as at the consumer level.
To the point of pushing sustainability at the consumer level, I think consolidated orders and making changes in the logistics downstream are low hanging fruits to attain sustainability and should definitely be focussed on.