Physical Retail

Apparel, Accessories & Footwear

The Apparel, Accessories & Footwear industry includes companies involved in the design, manufacturing, wholesaling, and retailing of various products, including men’s, women’s, and children’s clothing, handbags, jewelry, watches, and footwear. Products are largely manufactured by vendors in emerging markets, thereby allowing companies in the industry to primarily focus on design, wholesaling, marketing, supply chain management, and retail activities.

Multiline and Specialty Retailers & Distributors

The Multiline and Specialty Retailers & Distributors industry encompasses a variety of retailing categories such as department stores, mass merchants, home products stores, and warehouse clubs, as well as a smaller segment of distributors like electronics wholesalers and automotive wholesalers. Common to these companies (except for the distribution segment) is that they manage global supply chains to anticipate consumer demands, keep costs low, and keep products stocked in their brick-and-mortar storefronts. This is a highly competitive industry, in which each company category generally has a small number of key players, characterized by generally low margins. The relatively substitutable nature of retail makes companies in this industry especially susceptible to reputational risks.

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Source: SASB

The physical and online retail sectors are being pushed towards new horizons, with investors and consumers alike now demanding metrics on sustainability, diversity and inclusion, and corporate governance. Consumers are increasingly interested in purchasing from purpose-driven brands that are helping to build a sustainable circular economy. Companies are implementing strategies to decarbonize supply chains and achieve zero emissions by 2050, with plastic packaging and fair labour practices being key concerns. The three main investment areas for the sector are in the circular economy, waste reduction and reuse, and emission reduction. Artificial intelligence is also being used to optimize operations and capture the value of underutilized and discarded materials.

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Industry Characteristics

• The pandemic has significantly altered consumer sentiment and purchasing behavior, and there seems to have been a change in consumer consciousness over the past two years, which will continue to shape future shopping patterns, along with the increasing preference for convenience and shopping online. This has led to greater focus by retailers on ESG issues, with many of them committing to ambitious environment and social goals. Shareholders and investors are also likely to continue demanding action from retailers to report metrics relating to sustainability, employee diversity and inclusion, and corporate governance. Source: Deloitte

Sustainability Impact

• GHG emissions associated with the fashion industry are estimated to be as much as 8% of annual global emissions. The industry is ramping up its efforts to reduce fashion’s environmental impacts with brands committing to halve GHG emissions by 2030 (compared to the previous target of 30%) or setting Science Based Targets (SBTs) and implementing strategies to decarbonize supply chains and achieve net zero emissions by 2050. Source: Accenture
• Today, retailers are among the biggest contributors of plastic packaging, which represents 40% of global plastic usage. Additionally, the green supply chain is not yet a reality in the industry; retailers’ supply chains are responsible for more than 25% of global emissions. Source: BCG
• Fair Labor points mainly to supply chain areas, including working hours, free association and collective bargaining, fair wages, job security, gender and race discrimination, violence, safe working conditions, grievance remediation, supplier inclusion and environmental justice. To elevate workers’ voices and ensure an equitable future, the industry needs to continue its journey, advancing the rights, education and empowerment of workers globally. Key corporate focus areas include comprehensive inclusion, equity and diversity programs at every level across the enterprise, wages, labor laws and OSHA. Source: Accenture
• Sustainability can be aligned quite well with retail players’ strategic and operational goals—reducing wasted packaging also reduces costs, for example. Increasing sustainability requires a rethink of the inventory management, from waste and marked-down products to packaging and fulfillment. Source: McKinsey

Sustainability Investments to watch

• In particular, many retailers are overlooking the $340 billion prize offered by AI use cases in operations. Source: Capgemini
• The worldwide internet of things in the retail sector was worth $31.99 billion in 2020 and is anticipated to increase at a compound annual growth rate (CAGR) of 26% between 2021 and 2028. Source: Relevant
• A lower dependence on virgin raw materials, along with the introduction of new business models, will assist in the transition to a circular economy—essential for meeting holistic Scope 3 targets. Additionally, circularity could unlock a $560 billion economic opportunity in the fashion industry by better capturing the value of underutilized and landfilled, or incinerated clothes. Source: Accenture
• Emission reduction - Supermarket and grocery retailers continue to focus on strategies for reducing greenhouse gas (GHG) emissions and increasing the use of renewable energy resources. Source: Deloitte
• Waste reduction - Another area attracting much attention is the reduction of waste. Leading retailers aim to identify, test and implement innovative new design solutions for everyday retail bags, and deliver both convenience for customers and less environmental impact at the same time. Source: Deloitte
• Circular economy - With the fashion industry being subjected to criticism due to its environmentally harmful practices, retailers have responded swiftly by introducing a new era of ’fashion re-commerce’. Retailers are allowing consumers to donate, rent or re-sell their clothes instead of discarding them to landfill sites. Source: Deloitte