Mar 15, 2023

Consumer spending is becoming more polarized, with shoppers being price-sensetive while also seeking ethical, sustanable, and luxury solutions.

Consumer spending is more polarized than ever.

On the one hand, shoppers are incredibly price sensitive, cutting back on unnecessary expenditures and searching for bargains. On the other, the demand for ethical, sustainable, and luxury goods - which come at a higher price - is also high.

Balancing these behaviors seems to be an impossible task.

In a report by Nosto Solutions, 57% of customers want retailers to become more sustainable.

But here's the thing: in the same survey, 61% of customers said they were more concerned about cost than sustainability.

In fact, only 39% said they'd pay more for sustainably made versions of the same fashion item. At the same time, Research and Markets predict that the fast fashion sector will surpass $200 billion by 2023.

This points to a significant gap between what consumers say they want and the 'inconvenience' that they are willing to put up with to achieve those wants.

In the case of sustainable e-commerce, this inconvenience may be higher prices, reduced product choice, longer production times, slower delivery, delivery fees, and more.

And while consumers may feel that sustainability is important, things like convenience and cost are also important to them. This makes the 'inconveniences' of buying sustainably harder to just accept.

But it's not only consumer behavior that e-tailers must worry about.

Embrace Re-Commerce

At an operational level, e-commerce is grappling with the same seemingly mismatched concerns.

Second-hand shopping has accelerated in every sector from fashion to luxury to homewares.

According to Coresight Research, the US resale market for fashion was worth $28.1bn in 2022. In Europe, Research and Markets reported that the second-hand luxury goods market was worth $16.6bn in 2022. And resale is still growing.

While some of this is undoubtedly driven by consumers looking to reduce their spending, sustainability is another key motivator.

Embracing a circular model can save e-tailers money by enabling them to sell the same product multiple times rather than producing more. It's also far more sustainable to resell goods than to have them go into waste streams.

To make online re-commerce work, retailers need to embed it within their existing e-commerce operations.

Outdoor clothing company Patagonia is undeniably a leader in sustainable retail practices. Its Worn Wear program sees the company buy back used Patagonia products which are refreshed and sold online.

What's powerful about the Worn Wear initiative is that Patagonia doesn't hide it away. There is a button to look at used options right on the product page of the brand's e-commerce site, making it a clear alternative to buying new.

By comparison, fellow outdoor clothing business REI lists its used products on a separate page of its website which is not as visible and could easily be missed by shoppers.

Notably, in 2022 Patagonia reported that 70% of Worn Wear purchases on Cyber Monday were to new second-hand customers. This demonstrates not only the demand among consumers but that second-hand can be a driver of new business.

If e-tailers don't make re-commerce part of their business directly, other companies will do it for them.

Beni is a free browser extension that scours the internet to find resale versions of products that consumers are looking at and displays them right on the page. The shopper can then click on the results to be taken to the second-hand alternative on one of Beni's partner marketplaces.

By doing the hard work for the consumer and showing them used alternatives to what they're browsing for, Beni simplifies the second-hand buying process.

Rather than losing out on sales through initiatives like Beni, embracing re-commerce can provide e-tailers with another revenue stream, as well as increase their customer base, strengthen consumer relationships, and make their business more sustainable.

Reducing Returns

One of the best ways that retailers can make e-commerce more affordable and sustainable is to reduce returns.

Every delivery of an online purchase comes with an environmental footprint. This is then doubled if an item is returned.

To make matters worse, most consumers expect retailers to foot the bill for the delivery and return of products bought online. According to ROI Hunter, 47% of consumers say they wouldn't shop with an e-tailer that charges for online returns.

Even if retailers can get consumers to cover the delivery costs of returning products, they still have to shoulder the financial burden of sorting, storing and potentially disposing of the returned goods.

Getting customers to only buy things they are going to keep reduces shipping and waste, as well as saves money.

Video shopping services can connect online shoppers with expert staff in stores for advice and a closer look at products. This can give the consumer confidence in their purchases when they can't see and touch the goods themselves.

Hero, a video shopping company acquired by Klarna, has previously reported that customers are 50% more likely to keep purchases and spend 63% more when using its video shopping services.

While custom-made clothing is a great way to reduce unwanted purchases and returns, it has historically come at a high price. MTailor is an affordable bespoke clothing company that uses an app and the customer's smartphone to take measurements.

MTailor reports that its system is 20% more accurate than a professional tailor. This means that customers receive items that fit them perfectly, reducing the number of returns. In turn, this lowers MTailor's operating costs as it is only producing clothes to order so isn't left with unwanted goods.

Other companies that use technology to reduce returns include Sofology, Coat, and fonQ. Customers often find it difficult to visualize how furniture and home décor will look in their homes when buying online. This can mean costly returns or even customers not converting in the first place.

Hullabalook's Room Creator technology lets customers create digital examples of rooms and place furniture and décor items inside. This gives them a sense of how things will look and fit in the room before they buy. Hullabalook reports a 1.8 times increase in conversions and spending from customers using the technology.

Don't Ignore Stores

According to IMRG Capgemini's Online Retail Index, multichannel brands have seen a 36% increase in e-commerce sales compared to 8% for online-only retailers.

The reason for this is simple - the store can be a powerful way to get online purchases to customers.

An interesting case is the made-to-order online furniture company Made.com. In 2021, the company was valued at £775m. Just one year later Made entered administration and was bought by Next for £3.4m.

Notably, Made operated just two showrooms in the UK. By comparison, Next has 477 stores in the UK. This will give the Made brand a way to connect with a huge potential audience to sell and fulfil orders.

Click-and-collect can be a more sustainable option (depending on the product type) as multiple orders can be fulfilled from the fixed store compared to individually delivering them.

This doesn't only apply to retailers with large existing store portfolios. Small, individual spaces can also provide a sustainable collection option for local communities.

Box is a self-service collection space in Helsinki operated by the Finnish postal service Posti. Customers can choose to have their online purchases delivered to Box and collect them at a convenient time.

While in the space they can unbox and check their purchases, including trying on clothing in the changing rooms. They can also package items for returns.

Box gives Posti economy of scale in both deliveries to the space and returns. DPD Germany operates a similar space in Berlin which also functions as a micro-depot where parcels are then locally delivered via electric cargo bike.

What's more, using the store can massively cut the cost of fulfilling online orders for retailers.

In 2020, Target revealed that online orders that are delivered to the customer's home from the store incur 60% of the cost of delivering the same order from a warehouse. Click-and-collect, curbside collection, and Shipt delivery fulfillment options cut that cost even further to just 10%.

While it may seem counterintuitive, using the store to fulfill online orders is one of the best ways to bring down the cost of e-commerce selling

A Sustainable and Affordable Future for E-commerce?

Achieving green and economical e-commerce is a particularly difficult challenge because of the gap between what consumers say and what they do.

Making something more affordable for consumers - whether that's product price or free delivery - increases costs for the e-tailer. Adopting more sustainable practices can increase prices, which consumers won't necessarily pay. But if retailers deprioritize sustainability in favor of cheaper goods, consumers react negatively.

The truth is that perfectly balancing sustainability and affordability from a consumer perspective as well as a business one is likely impossible right now.

But that doesn't mean that there aren't things that e-tailers can do to make their operations greener and more economical.

Recently, a study by CDP reported that 95% of organizations said that suppliers with sustainable practices are more competitive. Just 5% found sustainable suppliers to be more costly.

Likewise, as this post has highlighted, embracing new business models like re-commerce, making use of physical assets like stores, and minimizing returns through digital innovation, can have a significant impact on both operating costs and environmental footprints.

To understand how your e-commerce business can be more sustainable without sending your costs skyrocketing, talk to one of our experts today.

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