Over half of those who work in retail expect ethical sourcing to drive up production costs by at least 5 per cent. Some 14 per cent expect cost increases to exceed 10 per cent.
This is according to a new brief, “The Future of Ethical Sourcing” published by retail analysts Verdict Research, part of the Datamonitor Group (DTM.L).
“With margins already under increasing pressure from escalating rents and fixed costs, finding a way to absorb the ethical sourcing expense will prove crucial to the profitability and survival of many retail businesses”, says Verdict.
The ethical sourcing agenda is widening to incorporate environmental sourcing concerns in addition to those around labour in the supply chain.
Traditionally, the ethical sourcing agenda worked towards minimising the exploitation of labour resources in companies’ supply chains.
However, as progress has been made regarding headline labour issues such as worker health & safety and child labour, new issues are becoming a greater priority on retailers’ corporate social responsibility (CSR) agendas.
Environmental sourcing credentials currently offer retailers a more credible way of adding value to product and trading shoppers up to premium ranges with higher price points.
Sourcing in compliance with high labour standards is increasingly considered a basic feature of a product and the extent to which it adds value has lessened. Retailers are turning to alternative methods of adding value to justify higher price points.
Accounting for increased costs will be particularly challenging for value retailers who are heavily price-driven.
The consumer perception that cheap clothing cannot be produced ethically has forced value retailers to defend their ethical sourcing policies.
Value retailers’ customers are very sensitive to even small price increases, and would be less likely to trade up for ethically sourced products.
This will provide further advantage to larger retailers in the sector, including Primark and Tesco, who can leverage economies of scale and consolidate their market share.
Over 90 per cent of respondents to a survey undertaken by Verdict Research named Marks & Spencer as being one of the most innovative retailers in its approach to ethical sourcing.
Marks & Spencer has embraced the widening ethical sourcing agenda and has introduced comprehensive policies to improve protection for all of the resources in its supply chain.
As the retailer with arguably the most established and comprehensive CSR programme now, Marks & Spencer has a considerable advantage and has nurtured customer loyalty through its early commitment and proactive attitude towards CSR.
To what extent do you expect ethical sourcing to drive up production costs?
% of respondents
Not at all
Small increase (0-5%)
Some increase (5-10%)
Significant increase (10%+)
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Source: Verdict Research
V E R D I C T
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