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Retail Environment

Do We Have The Energy For Change?

From Falling Footfall to Carbon Footprint—How Energy Prices and Climate Change Are Impacting the High Street

Standing under the Christmas lights in the centre of London’s Oxford Circus with stunning illuminations stretching as far as the eye can see along both Oxford and Regent Street, it’s hard to imagine that Britain, and indeed the rest of Europe, is in the midst of both an energy and cost of living crisis. 

This “go for bust” conspicuous Christmas consumption does not represent a sector in denial or “crisis? what crisis?” moment, but there does appear to be a blithe spirit abroad this festive period, an optimistic “business as usual” and “deck the halls” approach, but one with a caveat—a hope that the lights can remain on despite fears of business failure, energy rationing, and power outages.

Whether it’s the “spirit of the blitz” or the Yuletide refusal to accept the notion of “blackout Britain”’ foretold by many leading economic forecasters earlier in the year, the retail sector very much remains open this winter. But underneath the brightly festooned displays lining London’s premier shopping streets, there is a sense of foreboding and concern. Indeed, it is not only the homeless sleeping rough in shop doorways that are asking for change, spare or otherwise. It is the businesses themselves, driven by concern about their customers’ dwindling spending power and the future of the planet that are demanding that one of the most energy-hungry sectors takes a long and hard look at itself in the changing room mirror.

The retail industry contributes approximately 215 metric tonnes of carbon dioxide emissions (MtCO2e) through the lifecycle footprint of goods sold annually in the UK alone, with additional emissions from vehicle fuel sales by retailers of 50 MtCO2e. This places the sector among the most important contributors to greenhouse gas emissions, contributing approximately 80 per cent more emissions each year than all road transport in the UK.

Emissions come from across the retail value chain. From upstream emissions on farms and in factories through to the energy required for store operations and the diesel to power heavy goods vehicles and downstream, the energy used by customers to power purchased devices and appliances, the CO2 output is one way traffic as far as adding to the effects of climate change already being felt across the retail industry.

It’s not just about the sector that is regarded as the breadbasket of the economy turning the environment into a dust bowl, but the early signs of retail’s hefty carbon footprint are there to see, according to a British Retail Consortium (BRC) report. In the global supply chain, changes to climate patterns and more extreme weather events are forcing adaptations to agricultural practices and technologies, causing adjustments to sourcing arrangements, and threatening the longer-term security of supply of key commodities. With these issues accelerating, the implications for quality, price, and availability of goods are growing yearly.

In the UK, climate change will increasingly pose operational challenges to retailers, with changing weather patterns requiring adjustments to retail buildings, logistics, and infrastructure. Rising sea levels and increased extreme weather events place retail and supply chain infrastructure in vulnerable areas at greater risk of flooding and increase the cost of insurance. Climate-related economic disruption has the potential for knock-on impacts on consumer spending, but so does the dizzyingly upward cost of energy.

The war in Ukraine and the weaponisation of energy has created a scarcity of supply across Europe. While the UK is not dependent upon Russian oil and gas, much of Europe remains in Putin’s sphere of economic control despite EU countries’ efforts to find alternative fuel sources. This scrabble for scarcer supplies means that energy prices globally have sky-rocketed—as high as 500 per cent more than this time last year—and raised the spectre of the lights going out over Europe through power rationing.

Emergency energy price capping for both domestic and business users has resulted in the UK Government artificially fixing payment levies for six months, but bills after that time will revert to what the market and geo-political events dictate. October 2nd, the day after the UK Government imposition of the energy cap, saw the first drop in consumer footfall on the high street. 

Footfall slipped by 0.2 per cent on the September figures across all UK retail destinations, with the biggest drop experienced in shopping centres and retail parks, according to analysis from the monitoring group Springboard. 

Diane Wehrle, insights director at Springboard, said there had been a drop in almost all parts of the UK—in some areas by more than 2 per cent—which she said, “may well be an initial indicator” of the impact of higher energy costs.

“This is a clear contrast to the previous week, when footfall rose universally across all areas of the UK as evidence emerges of UK shoppers cutting back on the number of items they are buying in an effort to offset higher prices,” she said. 

The main cutbacks were on non-food items, with spending down by 0.4 per cent, according to the BRC, as spending on food rose 4.6 per cent, driven largely by inflation.

Helen Dickinson, the chief executive of the BRC, said that consumers were “shopping cautiously” and particularly avoiding expensive products such as computers, TVs, and furniture. She explained that many households are also preparing for higher energy costs this winter by purchasing blankets and more energy-efficient appliances, such as air dryers and air fryers. 

Helen said, “A difficult winter looms for both retailers and consumers. Costs are increasing throughout retailers’ supply chains, the pound remains weak, interest rates are rising, and a tight labour market is pushing up the cost of hiring. All of this is making it harder for retailers to reduce prices and help struggling households.”

Households also made particularly sharp cutbacks on clothing and dining out by about 4 per cent and 12 per cent respectively, according to data from Barclaycard, which also flagged cutbacks on essentials such as the weekly grocery shop, so overall card spending rose by only 1.8 per cent in October, the lowest increase since February 2021 when the UK was still in lockdown.

Esme Harwood, a director at Barclaycard, said, “Energy price increases are understandably causing concern for Brits, as they worry whether they will have enough money to cover their household bills. Consumers are taking a savvy approach to budgeting as they reduce spending on discretionary items and seek more value in their weekly shop, which is having a knock-on effect on retail and hospitality sectors.”

Convenience Stores

Prior to the government extending the energy cap for business, many smaller businesses feared having to put the “closed” sign on the door. And, as the cap is only for six months, a reversal on the two years outlined by the previous Chancellor Kwasi Kwarteng, the assistance may only provide a stay of execution.

In the autumn, the Association of Convenience Stores (ACS) was forced to write to the previous chancellor saying, “We will see villages, housing estates, neighbourhoods, and high streets lose their small shops.” It was asking for the emergency price cap, now in place, but also a business rate holiday to take the burden off smaller stores that are the cornerstone of many communities.

The trade body, which represents 48,000 local shops employing 405,000 staff, said energy bills had surged to an average of £45,000 for smaller members, a figure more than double what store owners had been paying before renewing their contracts in recent months. 

Collectively, it said its members were facing energy bills of £2.5 billion and needed a support package worth at least £575 million to stay afloat.

“The government needs to understand that this is an emergency. Thousands of convenience stores will be forced to make extremely difficult decisions in the face of tens of thousands of pounds of additional energy costs in the coming months, which at best will include cancelled investments, reduced staff hours, and increased prices in stores, pushing up inflation even further,” ACS said. “For some, however, the cost of energy will make the business unviable, and so they will be forced to close unless action is taken to provide meaningful support. 

We cannot overstate the urgency of the situation faced by our members. These are highly resilient businesses selling a wide range of products and services, adapting to the changing needs of their local communities. ACS does not usually forecast large-scale closures of convenience stores, but we are in all seriousness doing so now,” ACS’s chief executive, James Lowman, wrote in the letter.

European Retail Cost and Carbon Economies

As energy bills mount and the threat of rationing increases, some European retailers have put in place contingencies including turning off lights and considering shorter opening hours this winter.

SPAR Austria is already reducing the hours of lighting for store front advertising and outside its more than 1,500 stores across the country. The business, which operates over 1.2 million square metres (12.92 million square feet) of store floor space, posted retail sales of €8.56 billion last year. The move will reduce the retailer’s energy consumption by 1 million kilowatt hours annually, a spokesperson said.

The head of Leclerc has already warned that France’s largest food retailer could reduce opening hours at its stores to deal with power shortages, an announcement that came days after rival French supermarket operator Carrefour signed an “EcoWatt Charter” with national energy grid operator RTE, reducing electricity consumption in its stores during periods of high demand.

Conversely, Belgium’s Colruyt has been partly insulated from potential disruptions and the higher costs due to existing sustainable energy programmes that conserve power. “No concrete measures are planned in the short term, but the firm ambition is to continue the efforts as part of our overall energy policy,” a Colruyt spokesperson said. “That’s why we don’t have any illuminated signs, we opt for closed freezers, a cold room, etc.” The company has forty-four “zero fossil fuel” stores, which do not use fuel oil or natural gas, but are instead heated entirely by waste heat and green electricity.

Dutch supermarket chain Ahold is also looking for ways to cut its energy usage, chief executive Frans Muller said in an interview. “We have not made any decisions on opening times but we’re looking much more at the use of energy,” he said. The company already had some gas saving programmes in place, including running its Albert Heijn stores entirely on sustainable energy in 2023 and beyond.

Attitude Change

Meanwhile, UK customers’ expectations are changing, leaving companies not acting on climate change exposed to reputational risks. Whether shopping for bread or books, t-shirts or TVs, sheds or shampoo, or simply buying a cup of coffee, UK consumers are increasingly champions of climate action and voting with their feet.

Customers want to understand the climate impacts of the products they buy and make purchases that help them live lower carbon lives, according to research undertaken by Accenture across 6,000 customers in eleven countries. 

The research found that 81 per cent of customers plan to buy more eco-friendly products over the next five years while 83 per cent subscribe to a more circular economy view and think it’s important for companies to design products that can be reused, recycled and never go to landfill. In addition, 50 per cent are willing to pay more for a product designed to be reused or recycled while 62 per cent want companies to take a public and passionate stance on social, cultural, environmental, and political issues.

These findings align with global shifts in public opinion. A recent study by Globescan found that customers in markets around the world view climate change and the depletion of natural resources as top concerns, with 74 per cent of respondents wanting to reduce their environmental impact by a large degree. These shifts in customer expectations are opening up opportunities for retailers to differentiate their offers and attract new customers, with climate concerns particularly marked amongst younger citizens.

The UK’s retailers are already acting to reduce greenhouse gas emissions. Many of the largest retailers in the UK have already outlined ambitious climate targets and plans. Retailers across sectors, from the large to the very small have been innovating to reduce emissions and improve the products on offer to customers. Under the “Better Retail Better World” initiative led by the BRC, major retailers have already cut emissions by 36 per cent in absolute terms since 2005, surpassing goals set for 2020.

Beyond this, many leading retailers have now set comprehensive goals for their businesses under the Science Based Targets initiative (SBTi), which offers guidance in setting emissions reduction targets that are consistent with the Conference of the Parties (COP) targets. While significant progress has already been made, the industry recognises that it needs to accelerate decarbonisation to help the UK meet its net zero targets and mitigate against the worst impacts of climate change.  Retailers recognise that they are uniquely placed to support the UK’s journey to a low carbon future. Therefore, the industry has come together to support this ground-breaking roadmap to accelerate progress towards a net zero UK, ahead of the UK Government’s 2050 target.

While any one retailer can make progress in reducing operational emissions under their direct control, transformative change across the industry and supply chain will require concerted collaborative action. To deliver, retailers recognise that they need to work with other retailers, supply chain partners, governments, investors, civil society, innovators, and other stakeholders. Delivery will take co-ordinated action, investment, systemic change, and innovation. It will also require public policy that drives and enables progress, supporting the markets, innovation, technologies, and behaviours needed to transform the UK to a net zero economy.

New Store Development

One way in which retailers can show commitment to decarbonisation and energy saving is in their new store development programmes.

German discounter Aldi has opened its latest “eco-store” in Leamington Spa, Warwickshire a few yards from its previous location in the town. The new pilot eco-store is made from sustainable building materials and designed specifically to cut carbon consumption by up to two-thirds. Proving its new greener credentials, the £11.6 million store also aims to help make it easier for shoppers to reduce, reuse, and recycle, with numerous plastic-reduction initiatives being trialled. Aldi will use the store as a pilot to test and learn which elements work best for customers and in reducing carbon consumption.

The Leamington store also boasts a “hard to recycle” unit located at the entrance to allow customers to recycle items that are not collected by local authorities. Aldi also plans to be the first UK retailer to trial a recycling point for coffee pods and medicine packets, also accepting batteries, soft plastics and cosmetic packaging. A nuts and coffee refill fixture also features at the store as part of a trial selling packaging-free products to help customers shop more sustainably at even lower prices. Customers can use their own containers or free FSC-certified paper bags. This follows Aldi’s refill trial at its store in Ulverston, Cumbria last year.

Built from sustainable building materials—from timber fibre insulation, cement replacement concrete, recycled lighting columns, and low temperature tarmac, to a partial green roof, several changes to traditional store design have been made to reduce lifecycle carbon emissions and to improve the ecological credentials of the site. 

These are in addition to energy saving initiatives—the store has solar panels and uses chiller doors to reduce energy consumption, while redesigning the building structure has also helped reduce overall energy demand by 57 per cent compared to a normal store. The car park has dedicated electric vehicle charging ports with capacity to expand these in the future as demand for the spaces increases.

Giles Hurley, chief executive officer for Aldi UK and Ireland, said, “Now more than ever, we must do our bit for the environment and this store offers us the ability to easily explore new in-store initiatives and low carbon store designs. We are committed to reducing our environmental impact in any way we can and are continuing to explore new initiatives all the time. What’s even better is that many of the changes made to this store, whether it be the energy saving initiatives or our latest packaging-free trial, could allow us to put even more money back into the pockets of our customers. We’re focusing on contin our longstanding price promise by offering the lowest possible prices in Britain, every single day.”

The increased number of stores is part of a recruitment drive in the Coventry and Warwickshire area and Aldi plans to create 2,000 permanent new roles across the UK this year.

While the Christmas lights over Oxford Street welcome last-minute shoppers, the irony of this very conspicuous consumption is not wasted upon the retail sector facing an energy and cost-of-living crisis at the same time. But there is renewed energy for change with risk professionals including facilities management practitioners at the heart of squeezing the best value out of the stores and distribution centres in terms of energy economies and sustainable development, day-to-day operations that can determine cost savings that can impact not only footfall and spend but also whether the lights stay on or fizzle out during this long winter of discontent. 

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