Australia’s retail sector has been hurting over recent years, with bricks-and-mortar retailers being hit hard by the rise of online shopping, the high Australian dollar and poor consumer sentiment.
However, there’s an emerging opportunity for retailers to achieve higher sales, attract and retain high-performing staff, and deliver a better experience for customers. That opportunity is sustainability.
Solid research confirms that integrating green design – such as access to natural light and ventilation, and choosing materials that are low in harmful chemicals – can improve retail takings. A study by Heschong Mahone in 2003 found evidence that daylit stores deliver higher sales than non-daylit stores – sometimes by as much as 40 per cent. Other studies have found a 15 to 20 per cent increase in sales at Target, and significant increases in sales at Walmart.
Even more compelling, a 2012 study from the University of Notre Dame found that bank branches operating from facilities rated using the Leadership in Energy and Environmental Design (LEED) rating tool opened 458 more consumer deposit accounts and had $3 million more in consumer deposit balances per facility per year over non-certified properties.
Researchers found LEED-rated banks also had almost $1 million more in loan balances per facility per year. After controlling for other variables that influence performance (such as market demographics, branch size and advertising spend), the sales at LEED-certified branches increased by $461,300 per employee compared to non-certified locations. Utility costs per employee in LEED branches were also significantly lower than in the non-certified buildings at a reduction of $675 per employee.
Why is this?
We know that green office buildings consistently outperform non-green buildings in terms of comfort and productivity. Natural light, fresh air and access to views of the outdoors, as well as control over individual workspace temperature and lighting, can boost office productivity by as much as 15 per cent. Staff costs are by far the greatest annual business expense in most businesses and an incremental increase in productivity can easily pay for the small premium on a green space.
People working in the retail sector are influenced by their environments as much as those working in offices, so it shouldn’t be a surprise that a retail workplace with higher levels of indoor environment quality will lead to happier, healthier and more productive staff.
Employees, particularly young people, increasingly want to work for the ‘good guys’ - the companies that are conscious of their impact on the environment. Working from a green retail space can positively impact how employees feel about their employer, and higher satisfaction can mean significantly better employee retention. In this market, corporate social responsibility is not a ‘nice-to-have’ but a ‘must-have.’
At the same time, retail customers are increasingly rewarding sustainability with their wallets. A range of international studies suggest changing consumer behaviour, including the Regeneration Consumer Study, released in November 2012, which found that two-thirds of consumers in six countries felt “a sense of responsibility to purchase products that are good for the environment and society.”
In the US, outdoor clothing company Patagonia began urging its customers to buy less in 2012. During this campaign, the company’s sales increased by almost one-third. Patagonia’s founder, Yvon Chouinard, has said, “I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money. Our customers know that – and they want to be part of that environmental commitment.”
IKEA’s latest sustainability report reveals it is well on its way to generating 70 per cent of its energy from renewables by 2017 and becoming a 100 per cent renewable energy company by 2020. Steve Howard, chief sustainability officer of IKEA Group, noted that “sustainability will be a decisive factor in terms of which businesses will be here in 20 or 30 years’ time. It is the future of business...and we use sustainability to drive innovation, steer our investments and develop new business opportunities.”
In Australia, McDonald’s worked with the GBCA to achieve a Green Star rating for its Kilsyth South restaurant in outer Melbourne, and Coles has developed a special Green Star – Custom rating tool for its supermarkets. Lend Lease, Stockland, Westfield, Colonial First State and ISPT all have Green Star-rated shopping centres in their portfolios. From a comparison standpoint, the fact that there are 22 Green Star-certified retail projects compared with 508 office projects clearly illustrates the sustainability divide – although it also reflects the difference in the number of retail projects compared with office projects in recent years.
“Comparing the sectors is problematic, but retail clearly hasn’t experienced the same widespread tenant demand,” said Shopping Centre Council of Australia deputy director Angus Nardi. “Despite our sector’s strong focus on reducing operating costs such as energy and water, we haven’t benefitted from government sustainability funding programs to the same extent as the office sector.”
There is a massive opportunity for Australian retailers to embrace change and reposition themselves for the ‘new normal.’
Kathmandu is certainly seizing the first-mover advantage. In February, the GBCA announced a partnership with Kathmandu, and we are now working together to achieve Green Star ratings for new retail tenancies.
“Kathmandu recognises that minimising our environmental footprint and optimising our contribution to human health and community are integral to our business success. We believe that sustainability is a strategic business decision, and one that will open up new opportunities and reinvent the bricks-and-mortar retail experience,” says Kathmandu’s sustainability and community manager, Tim Loftus.
Retailers need to reconnect with consumers, provide more attractive working environments for staff and achieve greater profit margins. A sustainability strategy can help deliver all these things – plus ensure the planet is in good shape for future shoppers.