FT Rethink
Can recycling stop the retail waste crisis?
Online sales have continued to surge across the globe this year, driven higher by a lockdown-induced boom in delivery and click-and-collect shopping.
But even before the pandemic struck, as high street stores continued to struggle, online sales were thriving. Consumers spent a staggering USD 3.46tn online in 2019, up almost 18 per cent on the previous year according to figures published by ecommerce anti-fraud provider Signifyd.
Each one of those sales had to be packaged, stored, shipped and tracked, a process that cost US retailers a record USD 1.5tn in 2017.
Many online sales are returned, often at little or no direct cost to the consumer, but at a significant added cost to the supplier. Returns also add to the carbon footprint of online sales, as rejected or unwanted items are shipped back into a fossil-fuelled transport cycle. Opened or damaged goods that can’t be resold have been burned, buried in landfills, or broken down for salvage, all of which cost even more in emissions and service charges.
Ben Whitaker is CEO and founder of Reconomx, one of several players in an emerging services market helping suppliers deal with an ever-growing mountain of waste generated by “free” online customer returns.
“Well, actually nothing is free, because it all has a cost. It has become too easy to a certain extent and I think we’ve all become very conditioned as to how convenient things are. It’s great, don’t get me wrong, it has its place, but there is a side effect too, and I think that side effect will become more and more apparent.”
He says consumers would be shocked to know the consequences and global cost of wasted returns, estimated to run into many hundreds of billions of dollars.
“No retailer sells everything, it’s a fact of life, and if they sell online it’s a fact of life that inventory comes back, like night follows day. When a return comes in I think every retailer should be looking to sell that on, find a new user for it. Overstock and returns, it’s always been a cost of doing business, and to understand what you can do with these products you’ve got to understand who the next buyer is. It is absolutely fundamental to understand what you can do with that product so that it doesn’t end up being recycled unnecessarily or in a landfill.”
In the past it’s been easier for suppliers to dispose of unsold goods rather than reprocess them, but as Ben Whitaker explains, legislation and consumer demand for cleaner, more sustainable trade are closing those avenues down.
“Landfill avoidance is probably the biggest single driver to making sure retailers become more sustainable because that opportunity to just throw things away or burn them or incinerate them is rapidly diminishing, if it’s not already gone in most countries now.”
The French government recently passed a range of anti-waste laws in the wake of a documentary showing containers of unsold and returned stock at an Amazon warehouse being earmarked for destruction.
Before the new legislation came into force, an estimated EUR 650m worth of new consumer products were dumped every year in France. Now, the raft of new rules bans designer clothes and luxury goods companies from scrapping unwanted goods. Electrical items, hygiene products and cosmetics must be reused, redistributed or recycled. Producers, importers and distributors, including online firms, are also required to donate unsold goods except for food, and any items posing a potential health or safety risk.
For many shoppers, price, availability and speed of delivery still take precedence over sustainability, but some evidence suggests the balance is shifting due to a change in attitudes over the course of the global pandemic.
A UK survey of small business owners and consumers for energy provider E.ON’s Renewable Returns report looked at the impact of the pandemic on consumer and business behaviour, as well as the potential for a “green economic recovery”.
According to results of this survey reported in October 2020, 72 per cent of consumers surveyed said they paid attention to whether a business acted in a climate-friendly way, and 65 per cent felt it was important that the products or services they bought didn’t harm the environment.
The research also suggested that consumers are willing to pay more for sustainable trade. More than a third of respondents said they’d already knowingly paid more for “green” products since the pandemic struck, and more than half thought the environmental credentials of a product or service had become just as important as the price they paid.
Commenting on the report, Michael Lewis, CEO of E.ON UK said: “The coronavirus pandemic has heightened people’s concerns around the climate crisis and this has brought the environmental footprint of the products and services we buy into sharp focus”.
Big high street brands are responding to such sentiments with new schemes aimed at cutting waste and boosting their eco-credentials by recycling or re-selling returned stock at a discount.
The sporting and outdoor retailer Decathlon recently launched its “Second Life” scheme, offering its customers discounts of up to 40 per cent for unwanted, opened or slightly damaged stock which passes safety and quality control tests.
As Decathlon’s UK project manager Nick Connell explains, saving such stock from disposal or further energy-consuming processing means carbon savings can be measured by calculating the CO2 it took to manufacture items like bicycles and fitness gear.
“We can measure all of the CO2 outputs we have – a bike being 100 kilos of CO2, a treadmill being 1000 kilos of CO2 and if these products haven’t had a purpose, it means that CO2 would just go into the atmosphere, it’s gone forever without living its purpose. So the targets for this scheme are not around profit but around carbon. This year we aim to save 100 thousand tonnes of CO2 from going into the atmosphere without reason.”
Flat-Pack furniture giant Ikea is expected to resume its extended rollout of a buyback scheme for a limited range of used furniture. Customers can exchange a range of second-hand items including bookcases, tables, chairs and chests of drawers for cash vouchers, depending on condition.
In Australia the scheme has been up and running for more than a year, with more than 10,000 items returned. Further measures to improve green credentials include using more sustainable wood, switching to renewable energy and adding a plant-based alternative to the meatballs on canteen menus.
For DIY enthusiasts, perhaps the most exciting part of Ikea’s sustainability push is the planned extension of a spare parts initiative, which has already delivered an estimated 14 million spares to customers in 2020.
While saving a sagging bookshelf, or replacing a loose sofa leg promises to become easier, fixing the crippling waste exacerbated by “free” customer returns will be more of a challenge for a retail sector increasingly dependent on shipping to shoppers online.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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