Sustainability: Concept, Definition, and Application in Retailing

Winterich (2019) defines sustainability as a set of ideas, attitudes, intentions, and behaviors that involve the strategic consideration of economic, environmental, and social resources for the success of current and future generations. Stated differently, a sustainability oriented retailer, while considering the long run, goes beyond just economics to include environmental and social considerations for current and future generations. Sustainability for businesses is often referred to as the triple bottom line (TBL or 3BL) or the 3P’s, which refer to a company’s consideration of economic performance [profit] as well as environmental impact [planet] and social impact [people] (Elkington 1998). Sustainability goes beyond environmental stewardship to also embrace the “people” component. Sustainability attends to the working condition and well-being of employees, the impact of sourcing decisions on inequalities in society, and opportunities for underrepresented segments of society. Sustainability initiatives for increasing living wages, providing safe working conditions, and ensuring fair treatment apply not only to the retailer’s direct employee pool but also to indirect employees, who work for partners within the retailer’s supply chain. Considerations of stakeholders such as local communities and society at large reflect the broadening definition of sustainability.

Conceptually, sustainability goes beyond corporate responsibility initiatives or philanthropic activities that some retailers have promoted for decades. Early corporate social responsibility initiatives that focused on social issues were primarily grounded in ethics and moral philosophy. Sustainability initiatives that arose later focused on environmental issues grounded in physical science (Bansal and Song 2017). Over time, these initiatives have merged and expanded to also include social welfare issues under the umbrella of sustainability. Today, the concept of sustainability embodies environmental, ethical/moral, and social issues. In terms of definition and scope, we view sustainability as going beyond CSR initiatives alone. We also intend to circumscribe the unique and central position of retailers–among manufacturers, wholesalers, customers, and consumers–that can be leveraged to provide long-term benefits for the environment and society at large as well as retailers’ financial performance.

Financial performance goals such as sales growth and shareholder value have historically been the primary focus of retailers. Increasingly, retailers are integrating sustainability goals with profit and sales growth goals. Rather than competing goals, retailers aim to tackle them as complementary goals whereby achieving sustainability also enhances profits and growth.

Economic benefits aside, retailers are beginning to consider operating costs by limiting the use of natural resources and minimizing harm to the ecosystem by reducing emissions. For example, grocery retailers are responsible for approximately ten percent of U.S. food waste (43 billion pounds annually) with even more food waste in the supply chain (Weigel 2020). Responding to this challenge, large food retailers, including Walmart, are deploying technology to reduce food waste throughout the supply chain, saving money and environmental resources (Kleinman, Schneider, and Strumwasser 2018; Kor, Prabhu, and Esposito 2017). Although it was not always easy to calculate, the impact of sustainability initiatives on critical outcomes can now be ascertained using new measurement techniques and technologies embedded in retail supply chains. For example, retailers in the apparel industry can use the Higg Index to measure and score a product’s sustainability performance at every stage (Radhakrishnan 2015).

In terms of human impact, sustainability recognizes that retail supply chains do not exist in a vacuum; they impact, and are impacted by, their employees, suppliers, and the communities in which retailers operate. For example, Walmart has invested $100 million in training programs to help employees advance their retail careers as well as for training one million farmers who are directly and indirectly part of its supply chain (Macri 2018). When low coffee prices threatened coffee farmers, Starbucks committed $20 million in relief funds to provide them with income stability (Almeida 2019). While social issues may be more difficult to quantify, the advantage of addressing social issues in the supply chain is that it can simultaneously boost firm performance and enhance legitimacy (Carter and Jennings, 2002, Yawar and Seuring, 2017). For example, in the U.K., B Corps, which are a network of purpose-driven companies using business as a force for good, were found to have an average year-on-year growth rate of fourteen percent, 28 times greater than the national economic growth rate of 0.5% (Sustainable Brands 2018). Thus, it is not surprising that companies are increasingly seeking to address social issues in their supply chain and expand from a for-profit business model to a for-profit model with social purpose (Lee, Bolton, and Winterich 2017). The B Corp Beautycounter offers “clean” beauty products that eschew ingredients that are legal yet questionable. Its employees and customers are also instrumental in lobbying for clean beauty regulations. In 2018, Beautycounter’s annual revenue grew by 33% (Raphael 2019).

In terms of time frame, retail supply chain sustainability not only focuses on the present and near future, but the long term. Specifically, sustainability considers how current operations will impact future generations, as stated in the 1987 Bruntland Report (World Commission on Environment and Development 1987). At the same time, it promotes a shift from short-term quarterly results to a long-term focus on both financial and ESG performance recognized by investors (Eccles and Klimenko 2019).

Retailing and Sustainable Supply Chain Management

Sustainable supply chain management or SSCM is defined as “the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, environmental, and social, into account which are derived from customer and stakeholder requirements” (Seuring and Müller 2008, p. 1700). SSCM aims to maximize supply chain productivity and social welfare while minimizing environmental impact. Initially, sustainable supply chain management focused on reducing environmental impact; in recent years, there has been an increasing emphasis on the social impact of SSCM.

SSCM has attracted tremendous attention from academics and practitioners in recent years (e.g., Linton, Klassen, and Jayaraman 2007; Wilhelm et al. 2016). Emerging evidence suggests that SSCM helps organizations achieve better financial and nonfinancial performance (e.g., Tsoulfas and Pappis, 2006, Vachon and Klassen, 2008). Yet, despite its popularity, SSCM is poorly understood in the retail sector.

SSCM is closely associated with the concept of circular economy (Abbey and Guide 2018; Bernon, Tjahjono, and Ripanti 2018; Govindan and Hasanagic 2018); an idea rooted in the ancient concept of “circle of life” which recognizes that when something perishes, it gives rise to something new (Toupin 2019). Applied to a supply chain, the concept of circular economy contrasts the traditional, unidirectional flow of material and products from a consumer to the end consumer (also called forward supply chain) to a bidirectional flow of material and products amongst members of the supply chain. Specifically, a circular economy emphasizes “closing the loop” by incorporating a reverse supply chain along with the traditional forward supply chain, where the reverse supply chain enables the reverse flow of materials among channel members in such a way that materials are reused or recycled wherever possible (Carter and Ellram 1998). Reverse supply chains augment forward supply chains by ensuring that the product itself is easy to recycle or reuse and made with minimal new materials. For example, an outcome of Coca-Cola’s efforts to build a reverse supply chain is the increased use of recycled products in the manufacture of Coke bottles and cans. A closed-loop supply chain can help a company achieve sustainability goals more easily (Abbey and Guide, 2018, Amin and Zhang, 2012, French and LaForge, 2006, Souza, 2013).

Dell Inc., the computer manufacturer, provides a good example of a closed-loop supply chain. Historically, Dell did not focus on a sustainable supply chain and consumers of its products discarded them, with many ending up in landfills. Today, Dell designs its PCs and components to be easily reused and upgraded. Moreover, they can be easily disassembled and recycled at the end of their life. Additionally, the company has set goals to use 50 million pounds of recycled-content plastic and other sustainable materials in its products by the end of 2020 and to recover two billion pounds of used electronics in the same period (Hardcastle 2017).

Although bidirectional flow of material makes a supply chain more circular, it is not just material flow that matters. Information flow is equally, or even more, important in creating and providing opportunities for sustainable practices and helping channel members coordinate. Besides environmental benefits, enabling a circular economy and this bidirectional flow of material and information can also provide opportunities to advance global social justice by addressing societal and wage inequity. It can also aid and accelerate human development by improving human health in societies facing pollution and environmental degradation, and by providing better health and safety conditions for labor forces across the globe.

Achieving the Circular Economy Through Reduce, Reuse, and Recycle

Achieving a circular economy encompasses three principles or the three R’s: Reduce, Reuse, Recycle (U.S. Environmental Protection Agency 2020).

Reduce focuses on reducing inputs such as resources, energy, and material during the manufacturing phase, along with reduced emissions and waste in the forward supply chain. This includes the application of new technologies and processes to reduce the negative impact of production and consumption on the environment, humans, and society while keeping an eye on financial returns. Companies may also redesign products to reduce the packaging necessary to protect them when shipped. For example, Tide and Seventh Generation have introduced redesigned laundry detergents that are several pounds lighter by cutting down on plastic in the packaging and making the detergent more concentrated (Pisani 2018). Similarly, Modelez committed to eliminating 65,000 metric tons of packaging (Chief Packaging Officer 2019).

Reuse refers to the reuse of the entire product or its components, after its first life cycle, that is, initial utilization by the original consumer. Reuse can take the form of remanufacturing the product into new products or repairing the products for extending their lives. Consider the fashion industry. Global consumption of apparel hovers around 80 billion items, but, on average, each clothing item is worn between three to seven times based on the country studied (Thomas 2019). Yet, in a single year, fashion contributes nine trillion liters of water usage, 3.3 billion tons of CO₂ emissions, and uses 1,074 billion kWh of electricity (Gwozdz, Nielsen, and Müller 2017). Rent the Runway, an e-commerce retailer, rents out fashion clothing, and leverages the principles of reduce and reuse to lower total production and consumption of apparel by facilitating reuse.

Recycle involves converting and transforming materials that would otherwise be considered waste into new materials or products that can be used. Retailers can encourage recycling by providing a convenient place for consumers to return goods at the end of the initial life cycle, and even incentivize them to do so. Adidas’ Futurecraft Loop shoe is the first performance running shoe designed for a circular life cycle. Adidas takes back these worn shoes to make new shoes. Apparel retailer North Face offers a discount on purchases when customers bring in worn clothing to be recycled. By telling customers that the materials collected for recycling will be transformed into new products, retailers can increase their recycling behavior (Winterich, Nenkov, and Gonzales 2019).

Achieving a circular economy through the 3R’s involves both upstream suppliers and downstream consumers, and retailers can play a pivotal role in facilitating, propagating, and enforcing the 3R’s in the retail supply chain. Retailers can enhance their suppliers’ sustainability efforts by helping them reduce the amount of raw material and natural resources (e.g., wood, water, energy) used in manufacturing the products they sell. For example, retailers can encourage their suppliers to use reusable packaging or returnable transport items as replacements for cardboard shipping or pallets. Using this type of packaging may encourage buyers to send the material back to manufacturers (e.g., Glock and Kim 2015). Retailers can also encourage their suppliers to reuse waste, used products, and scrap material to manufacture the product (Lapkin, Joyce, and Crittenden 2004), ultimately reducing the amount of material that ends up in landfills. A critical aspect of this is providing infrastructure, information, and training to suppliers who often lack these means to implement sustainability initiatives. This is particularly true of small, native, and indigenous suppliers in developing or underdeveloped geographies.

A major challenge facing upstream suppliers in implementing a circular economy is creating a process for acquiring already-used products to return to the reverse supply chain loop (Abbey and Guide 2018). On this front, retailers can motivate, enable, and facilitate consumers to reduce, reuse, and recycle and therefore facilitate the adoption of the circular economy in multiple ways. First, retailers hear consumers’ demands for products that meet environmental and social sustainability goals and alter shelf-space allocation for companies that meet these demands. Second, retailers enable consumers to reduce waste by encouraging them to purchase less aesthetically pleasing products (Grewal et al. 2019; Koo, Oh, and Patrick 2019) or products that have less packaging. Third, the success of the circular economy hinges on consumers returning used products via various product acquisition management programs (Amin and Zhang, 2012, Guide and Van Wassenhove, 2001). Retailers can increase consumer convenience through simple efforts such as clearly labelled recycling bins at each store location. Fourth, consumers need to be open to reused and remanufactured products. Retailers can promote reused and remanufactured options to increase their attractiveness, thereby addressing this concern. Last, retailers are the face of the product for many consumers and are best suited to meet consumer demand for social initiatives through better treatment of employees and charitable initiatives.

Retailers’ Role in Facilitating the Circular Economy

Retailers are well positioned to take the lead in driving sustainability via the circular economy concept for several reasons. Retailers represent the central and critical linkage between the upstream and downstream actors in a supply chain (Grewal and Levy 2007). They can lead and support the supply chain linking raw material producers, manufacturers, wholesalers, transporters, warehousers, and other elements of the supply chain involved in serving customers (Ellram, La Londe, and Weber 1999). The upstream actors include natural resources and resource producers, suppliers (manufacturers, wholesalers, transportation vendors, among others), technology partners, NGOs, and other constituents that interact with retailers prior to customer purchase of a product. The downstream actors include customers who purchase the product from a retailer, retailer employees interfacing with customers, consumers who consume the products, the households and communities where consumption occurs, and potential stakeholders who influence and are influenced by the consumption process. Examples of these stakeholders include, but are not limited to, local organizations that facilitate recycling efforts, providers who help consumers with their consumption process such as household service providers (lawn mowing, cleaning, housekeeping, etc.), and so forth. As shown in Fig. 2 and Table 2, retailers are the focal point of interaction among the myriad upstream actors (e.g., suppliers) and downstream actors (e.g., customers) in the supply chain. This is discussed next.