HomeFEATURESClimate change: an upcoming retail reality

Climate change: an upcoming retail reality

A heated topic

Clothing company Hallenstein Glasson reported a 21 percent profit drop in its first-half results in March 2016 with then-CEO Graeme Popplewell saying an unusually warm autumn had impacted on sales.

Swedish fashion chain H&M had profits fall in the third quarter of 2016 due to “a combination of hot weather and reluctance to buy warmer clothes.”

Australian clothing retailer Forever New saw a 4.6 percent drop in sales profit in the first quarter of 2016, saying “we believe that the disappointing performance in the fourth quarter of 2015 was mainly down to the unusually warm weather.”

This ‘unusually warm weather’ that can be such an issue for seasonal-based retailers can be put down to one unfortunate thing: climate change.                     

For years now, our earth has been heating up. According to the Ministry for the Environment’s 2016 study, Climate change impacts in New Zealand, the rate at which our country is heating up means we can expect rising sea levels, drought, severe weather and a change in seasonal patterns by 2080.

The change in our climate ultimately means a change in consumer demands as people try to adapt to the ‘off-seasons’. An ‘off-season’ is a season that does not match the typical weather expectations.

Not only is a shift in climate conditions adding to frustratingly unspecific consumer demands, but it is also affecting the way in which a typical retail business can operate.

Carbon dioxide pollution is the primary reason the earth is warming. CO² is measured in parts per million – if you take any given volume of air in the atmosphere, and divide it into a million parts, a certain number of them will be carbon dioxide. According to the Bloomberg Carbon Clock, there are currently 408.864923 parts per million. When the measurements started in 1958 it was at 316 ppm. 

According to Dr. Brett Mullan, principal scientist of climate at the National Institute of Water and Atmospheric Research (NIWA), our climate often sees variables, but what we’re seeing recently is human-induced.

“You do get natural variations, the climate is somewhat unstable, but what we’re finding now is if you compare it to climate changes long ago, is that the sort of warming we have now is 10-20 times faster than coming out of an ice age.”

“I don’t think people really appreciate that,” says Mullan. “Coming out of an ice age is a massive change in the climate, and our change is happening a lot faster than that.”

There is extensive research about climate change, and what we know now is based on future assumptions and present information. Mullan says one difficult factor of climate change is not knowing the alternate outcome.

“We don’t know how things could have happened if we hadn’t put more greenhouse gasses in the atmosphere, as we don’t have a second earth to compare it to.”

“What we’re seeing now, I’m convinced, is human induced.”

Since the beginning of the industrial revolution (1900 onwards), the atmosphere has changed dramatically, according to Mullan.

“There’s a 40 percent increase in carbon dioxide in the atmosphere, [since the industrial revolution] and most of that is contributed to human influence.”

The reason climate change often isn’t talked about in a business setting can be attributed to people forgetting about it when there is no urgency.

“The change is long term, but the way that you’ll notice it is a small change in the background with a big storm on top of it,” says Mullan. “And that’s what’s difficult for climate scientists because it’s intermittent, and you can see the direction of change but it doesn’t happen every year.”

What is important for retailers, in both adapting to the change but also becoming more sustainable, is understanding what is happening.

“You have to relate it to the variability,” says Mullan. “There’s always late summers and warmer winters, but are we seeing more than usual.”

“2016 was the warmest year so far, globally and for New Zealand. Before that 2015 was the warmest, before that 2014 was the warmest. When you stack things up like that it becomes pretty convincing that something is happening.” 

Keep the climate change: A retail perspective

With climate change, there can be bigger influences on different businesses sectors. Ongoing climate change can redefine the entire retail apparel market and the practice of supplying out of season for upcoming collections.

Winter apparel shows up in stores at the end of summer. But if weather patterns continue to result in hotter and longer summer seasons that extend into the autumn, then the public will be more likely to delay their purchases.

Susan Maratelli, director for international label Holy Chic, says unfortunately for her label, it works bi-seasonally, meaning only two collections a year are released. Fortunately, however, New Zealanders are terrible at layering.

“We have a summer/spring collection and then a winter/fall collection. Each come out at the start of the respective month, so we rely quite heavily on those collections fitting in with the style, trends and all-round temperature of the season.”

Holy Chic has stockists in Australia, New Zealand, and the US, so the countries’ climates are taken into account before making any expensive judgments on what to stock.

“Our winter/fall collections over the past four to five years have also seen a lot of lighter fabrics come through it. Still with cotton blends but with less merino and wool as it’s getting too hot for it all and those fabrics are expensive to source if they don’t sell.”

“With our thicker wool coats and faux furs we’ve seen a drop in sales over the past eight years by almost 23 percent,” says Maratelli. “And although it does seem like a lot, that’s about 50 coats less each week we see being sold nationwide.”

Maratelli says she doesn’t bother stocking her fur coats in New Zealand anymore because she doesn’t make enough profit: “It just doesn’t get cold enough here to sell them.”

“Three years ago we released a thinner silk coat range with Italian cotton blend, and although its warm it isn’t heavy. And every winter since it was introduced it remains as one of our top selling items.”

Maratelli says she saved time and money by choosing to stock items closer to the season, which allows her to adapt to any ‘off-seasons’ that may occur.

“A fast turnaround of design, shipping and stocking mean we can alter our collection materials to fit more with the type of season we expect to see.”

“Places that stock collections out of seasons are the ones who will struggle the most with off-seasons,” says Maratelli. “Because once the collection it out it’s costly to change it to suit the weather.”

The adjustability that a late season-stock provides allows retailers to alter what they need to provide in order to meet consumer demands.

Maratelli’s advice is to expect the unexpected, as not being able to change collections to meet seasonal requirements is how you can get stuck.

“For the meantime, what will affect us as a retailer the most will be fitting that need to have clothes that can suit both cold and hotter days. Adjustable items that can be used in multiple settings are a surefire way to make sure no matter how hot the winter is or how cold the summer is, the collections can cope with it.”

Global fast fashion company Zara offers both southern and northern hemisphere collections. The model helps keep flexibility throughout the year while catering towards the relevant hemisphere season at that time. It entered New Zealand in 2016 with a flagship store at Auckland’s Sylvia Park shopping centre.

A Zara spokesperson says a small commitment of products at the start of each season allows Zara to adapt the collections according to the season’s change.

Zara’s Inditex Business Model is what the company follows to track what customers seek in every local market through a constant feedback loop.

“The model works by having a low commitment of items at the beginning of each season. Then, designers try to react as closely as possible to customers’ demands and changes of the seasons,” says a spokesperson for Zara.

The turnaround for Zara clothing is only three weeks from design to shopfloor, meaning it is set up to react quickly to late summers or warmer winters.

The Ministry of the Environment figures shows 100 million kilos of textile waste is thrown into the country’s rubbish dumps yearly. That’s the equivalent of every person in New Zealand chucking about 145 medium-sized men’s T-shirts a year.

With a warmer winter period, associated seasonal clothing ranges that aren’t expected to shift with the same velocity are leaving retailers with excess stock that must be heavily discounted in order to clear.

Let there be (natural) light

Another aspect of climate change that is affecting retailers is the cost of energy it takes to light, heat and fill their store.

Energy use, according to the Energy Efficiency and Conservation Authority (ECCA), goes up around 2 percent every year. But being smarter about energy and the way that it is used can save New Zealand about $2.4 billion a year.

Sam Archer, director of market transformation for the New Zealand Green Building Council (NZGBC), says energy can be a big part of the cost of running a business.

“A big idea is that a sustainability causes costs outsides a business’s sphere. Making a case for a sustainable business can be tough, especially if the business is bearing that cost.”                                  

“The biggest barrier is the lack of long-term thinking in companies. I think companies that do think long term will be more resilient and will last longer in the market.”

Energy is a tough subject for a lot of retailers who usually don’t think about the cost of energy as something that can be changed past just not using it.

Reducing energy use requires knowing how well you are managing it. There are several websites that allow you to measure the energy consumption you use in your business, and in turn to easily reduce the consumption.

Using renewable energy sources where you can, like air, wind, sunlight and geothermal heat is a way you can save more on the cost of your energy usage.

Archer says the use of more natural resources can improve staff productivity as well as save costs.

“Energy can be a big part of business costs, but there is more evidence around saying the biggest cost for businesses and retailers is staff costs.”

 “The more you can improve the environment that your workforce are in, [with] things like daylight and better air quality, the more a business can retain staff and the more productive they can be.” 

According to the New Zealand government’s 2015 Electricity Authority report, Electricity in New Zealand, 39,000 gigawatts of power were consumed over the year, and 66 percent of that usage was by commercial and industrial consumers.

Brett Mullan for NIWA says energy is one of the main contributors to climate change.

“Carbon dioxide is a product of energy consumption… and it’s really hard to change without damaging the economy.”

“Businesses in the past have faked innocence over the release of CO² emissions,” says Mullan. “But now they’re realising that quite expensive, simple problems are solved when you change your energy business plan.”

Think globally, act locally, panic internally

For consumers, there has been a not-so-subtle shift — led by Millennials — toward supporting brands and products that are made by sustainable businesses. 

The ongoing move to buy ethically, work sustainably and operate with climate change in mind are things that most younger consumers will base their expectations on.

Abbie Reynolds, executive director of the Sustainable Business Council (SBC), says for a business it’s about understanding that Generation Y are considered more socially minded than previous generations.

“We are starting to feel the real effects of climate change, particular brands will be feeling that from customers who are demanding something better.”

Reynolds says younger generations will ‘punish’ businesses by shopping elsewhere if they don’t seem to be meeting climate sustainable expectations.

“Businesses are seeing these risks, which are now becoming these big challenges. And climate change is a really good example of that. For retailers, where it is going to be affecting them more profoundly is at a customer level.”

More and more New Zealanders are starting to accept that climate change is real and is in fact caused by humans says Reynolds, who also says this awareness is starting to result in more requirements for a business to meet.

“Because there is such a growing awareness of climate change and the risks, we’re starting to see things, such as some structural and energy saving requirements, that are starting to affect how you run a business.”

A new corporate governance code is to be released in the next two months by the NZX which outlines that all listed businesses have an obligation to report their sustainability efforts.

“What that means is that retailers who are listed entities, for the first time will actually be required to report the environmental matters in their annual report, or they’re going to have to explain why they haven’t.”

As younger consumers are driving change in the way businesses operate, Reynolds says this means the whole system will start to shift to factor in climate change in their business models.

“Investors are starting to notice that climate change is a big risk, and that will affect how company directors are looking at that risk.”

It’s not up to you

Climate change has long been discussed as a hoax, with many people believing that what we’re seeing is just the earth’s natural variations.

Between 1990 and 2014 there was a 36 percent increase in warming due to greenhouse gasses, according to the World Meteorological Organization.

But these days it isn’t up to your beliefs or doubts, according to Reynolds, it doesn’t matter what you believe anymore – your customers believe it.

“If [customers] see you doing things which undermine them, they’re going to punish your business accordingly, they want to see you taking action against [climate change]. And it almost doesn’t matter now, the government has signed up to reduce our carbon emission by 80 percent by 2030 against a 2005 baseline which is going to be difficult.”

Sam Archer for NZGBC, advises retailers to keep informed on what the government is doing and what consumers are asking for.

“You don’t have to believe in climate change, you just have to accept that others do and that’s not going to change… Younger consumers, those who are part of the emerging markets are more likely to believe in it.”

Archer says dealing with climate change doesn’t have to be complicated when it comes to the way you’re expected to alter your business.

“Recognize that just the bottom line is to be sustainable in the long run. All of these issues are becoming bigger every year. Get with the picture, understand those issues and start working with them.”

Reynolds argues that becoming sustainable against climate change isn’t just costs, it’s about businesses thinking about their community impact. 

“I think businesses still hear the word sustainable and still think tree hugging and costs. And the reality is it’s a business goal, it’s about how we create value over the long term. This isn’t about cost, this is about an opportunity.”

Sustainability is about working together, for retailers, Reynold says. In starting to understand the factors which contribute to your own business’s sustainability, she says, you will often find you don’t have complete control over many of them.

“Fashion retailers, for example, they can’t decide to be sustainable without working through their supply chain. No business can do it by themselves, and that’s one dimension where they need to learn how to work together.”

“We can learn from each other; we can learn what’s hard and we can learn what works.”

Too little too late

Average global sea level is expected to rise 23 inches before the end of this century. More than a million species face potential extinction as a result of disappearing habitats, changing ecosystems, and ocean acidification thanks to a rise in the climate.

As much as a business owner ignores climate change, they cannot ignore it when it starts to affect them and their operations. And eventually it will, with a risk of inflated fabric prices due to crop failure, or loss of stock transport due to harsh and unpredictable weather conditions.

But is it too late to stop the effects of climate change happening? Brett Mullan from NIWA says yes, it is.

“It’s certainly too late to stop some things happening. Like stopping or turning an ocean liner, you need a lot of lead time to do it.”

“So no matter what, we need to continue acts against climate change. The sooner you do something, the sooner you can avoid the worst of the effects further out to the future.”

While it’s too late to offset certain environmental aspects as a result of climate change, in the scope of protecting the future of business, it’s not too late. 

“In that sense, it’s never too late… But some things are already in movement and you’re not going to be able to stop them. These changes will be slow, but relative is a relative term.”

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Courtney Devereux is a Communication Consultant at Clear Hayes and freelance business writer.