The growth of purpose-driven retail

Elvis & Kresse crafts luxury goods from waste materials and does not determine its success by the obvious measure of increased sales and profits. Instead it prefers to look at the amount of produce it saves from going to landfill and the money it gives to charities.

Clearly these two metrics grow on the back of increased sales and profits but co-founder Kresse Wesling refuses to consider revenue as the primary motivator for the company. She has instead turned things on their head and created Elvis & Kresse as a purpose-driven business rather than one that is conspicuously motivated by the traditional drivers.

Although Elvis & Kresse is a pioneer of such a stance there is a growing move by companies across the board to adopt some of these more principled objectives. It is certainly a case that retailers are increasingly recognising the change in the appetite of younger customers that now demand companies address sustainability issues and adopt ethically-friendly initiatives.

Research from KAM Media found that among Generation Z’s as many as 48% base their brand purchasing decisions on a company’s impact on the environment, while 44% make choices on their ethical stance, and 21% on the charity work undertaken by the brand.

Nick Beighton, CEO of Asos, is among the leading players reimagining their businesses with a more purpose-driven imperative. This was initially prompted by a fall in the performance at the company last year: “External people expect linear growth. But we needed to do a reset and it was not financial. It was a time to rethink, recommit, and reconnect with our customers. To rethink the way we go about things.”

This boiled down to Asos developing a purpose – “we want to be famous for our purpose, products and people” – which involves recognising that there is a broad responsibility when accepting a customer order. This has led to the development of a more sustainable approach: “If you scratch the surface you can change it. Customers will expect organisations to do it.”

Sustainability matters

H&M has come to the same conclusion and has brought a myriad of sustainability-related initiatives to market.  

Pernilla Haldin, public affairs and engagement lead for climate and circular sustainability at H&M, outlines the company’s purpose-driven approach: “We want to be 100% renewable, 100% fair & equal and 100% leading [on sustainability].  We need this for us to survive and be a successful company.”

What these actions require is a long-term view, in a similar way that saving the planet takes longer than the next quarter. Richard Walker, managing director of Iceland, has certainly adopted such a perspective as he moves towards taking palm oil out of all products and bans all plastics by 2023 from the Iceland business.

“If I was the boss of Tesco then I’d be sacked but it’s not about private versus listed public companies, it is about long-term thinking. We’ve got to engender more of this in companies,” he suggests.

But he is clear that behind all this the company has to make profits: “We need to make money to grow but we also have a platform on which we can raise issues. We have some clout in the market.”

The fact his actions chime with younger consumers will surely not have been lost on Walker and the financial upsides of his actions could well come through in the future if we are to believe further KAM Media research. It found 81% of Generation Z’s are concerned about climate change, 73% about single-use plastics, 78% about pollution, and 64% about non-recyclable cups. This suggests they will gravitate to more purpose-driven businesses like Iceland.

Charitable investments

Long term views and profitability are entwined within a number of family-owned retail businesses in the UK that have baked-in purposes behind their retail operations, which they know they cannot be delivered on without underlying financial success. This combination affects their investment decisions – including around IT – which absolutely must deliver profits.

They include Pavers shoes where managing director Stuart Paver says: “We’ve a purpose outside selling shoes that involves the Paver Foundation, which gives away some of its yearly profits to charities. It sits well with a family business.” 

This requires profits and he says 90% of its technology has been developed in-house with the objective that it helps determine profitable from unprofitable sales. The “simple system” incorporates an in-house metric.

“We’ve developed a metric to generate a definitive number about the products, which determines what items go into which branches. If there is not a sense of profitability then we will not do it,” says Paver.

This religious focus on profits runs across channels: “We insist on making profits online. We put the costs to the transaction and we charge for delivery and it is normal prices online. We do not get the same sales growth [as some other retailers] but we have a similar margin to our stores.”

It’s a similar story at The Entertainer that donates 10% of profits to charities and has an algorithm of profitability that drives the KPIs in the business. At the heart of this is profitability and not simply sales growth.

Marrying a purpose with success – however retailers choose to define both these elements – looks set to be an increasingly important dynamic within the retail sector in the future.