Discounting, Sustainability, and the Grey Economy: A Reconciliation

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How do we reconcile consumers’ sustainability obsession with booming off-price sales? Recent data from Meta show that consumers are 1.3 times more likely to purchase sustainable product since the onset of the pandemic. However, much of what we’re hearing about where consumers are shopping seems counter to the idea of sustainability as a purchasing priority.

Here’s a fact: Not only is the Dollar General opening more stores than any other retailer this year, it’s also opening more stores than every other retailer combined. Like most discount stores, The Dollar General’s position on sustainable sourcing seems to be: “if you can’t beat ‘em, distract them with shockingly low prices.”

The fact that modern consumers have the desire to purchase ethically is undebatable. Whether they can currently afford to put the money and time into conscious consumerism, however, is a more contentious topic.

How, then, do we make sense of the success of companies like the Dollar General and Amazon –– brands which compete based on convenience, but don’t even throw their hat in the ring when it comes to sustainability?

Sustainable Fashion Is a Driving Force

A quick scan of any reigning fashion brand’s Instagram page will paint a very specific picture of its customer’s behavior today. Social and environmental consciousness are integral to the ethos of modern retail shopping. Or, at least, that’s the way people talk about it. In fact, sustainable fashion is 11.8 times more likely to be talked about on Instagram than any other topic. The fact that modern consumers have the desire to purchase ethically is undebatable. Whether they can currently afford to put the money and time into conscious consumerism, however, is a more contentious topic.

We know that modern consumers intend to purchase sustainably. For many, this means making large purchases in local physical stores, rather than ordering household items individually for delivery –– often from a morally contentious brand like Amazon. Customers are paying more than just lip service to this trend.

A recent Forrester survey found that two-thirds of ecommerce shoppers in China, France, and the UK were concerned about the impact of climate change –– yet only a little over half of U.S. ecommerce consumers shared that sentiment. The same study found that two-thirds of U.S. online consumers do want online retailers to be more transparent about their business practices. What we rarely talk about, however, is that many retailers are still as in the dark about the full impact of their supply chain as their customers.

Under half (49 percent) of consumer package goods executives surveyed in a recent Oxford Economics Study report significant or complete visibility into whether their own organizations’ labor processes were ethical from end-to-end, while only 14 percent report having visibility into their suppliers’ processes. Similarly, just a little over half of executives report that their organization sustainably sources raw materials (53 percent of organizations vs. 21 percent of suppliers).

Will Consumers’ Thirst for Discounts Win Out?

Sustainable fashion may be the topic du jour, but the U.S. economy is still rebounding from the Covid-19 pandemic. The gap between the products customers want to buy, as opposed to what they can actually afford, significantly widened during lockdown. The struggle is very real: Around 95 million people fell below the threshold for “extreme poverty” in 2020.

We also need to talk about the caliber of product retailers can afford to produce. Consider that more than half of consumer-packaged goods brand executives surveyed in the Oxford Study say that consumer expectation of low prices is a barrier to their ability to roll out sustainability initiatives.

The age-old question of style versus substance reigns supreme in 2022. Customer willingness to pay for sustainable products or services is highest in the U.S. (42 percent). U.S. customers are also willing to pay more than those in other countries for sustainable goods, with customers willing to pay a 37 percent premium on sustainable products.

Sustainability, however, is rarely of pressing importance to those who are still financially recovering from the pandemic. These consumers are only purchasing goods for convenience and necessity –– which explains why discounters like Big Lots, Burlington Stores, Windsor Fashions, and Citi Trends are joining The Dollar General in expanding their physical footprint this year.

The Grey Economy Reconciles Conflicting Consumer Mindsets

For everyone who thought that the Grey Economy referred to underground crime rings, we are about to burst your bubble. The Grey Economy is also called the “informal economy.” The informal economy refers to any transactions that take place outside of traditional retail sales. These are mostly high human contact professions, ranging from house cleaner and makeup artist to street vendor and rickshaw driver. The International Monetary Fund estimates that a whopping 60 percent of workers participate in the Grey Economy in some form.

The Grey Economy has a few different advantages over traditional retail, particularly when catering to next-gen consumers. Customers have direct insight into where are goods are created, and they’re able to directly interface with the individual providing services. There is no middleman, since customers usually pay the same person or company that does the work or creates the product. They can also use alternative (non-credit card) payment methods like Venmo, Facebook Messenger and cash to pay for goods and services.

So, the question is: How can traditional retailers serve up the alternative, revolutionary energy that gets eco-minded consumers’ blood pumping in 2022? American Eagle’s intimates brand Aerie is a millennial and Gen Z darling –– serving up the perfect combination of irreverence and affordability. With diverse, unretouched models; ample donations to grassroots eco initiatives like Surfrider; and prices low enough to incentivize customers to buy, Aerie is a perfect example of a modern retail brand that offers both low price points while targeting the sustainability angle with its offerings. The right balance of energy and earnestness.

There’s no one-size-fits all path for retailers to achieve the perfect balance. With that said, brands that hit upon the trifecta of sustainability, irreverence for “the man,” and low-price points in a skillful and authentic ways are best positioned to excel going forward.

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