Insights

How Brands Can Achieve Sustainability in E-Commerce

SustainableEcommerce

Over this past holiday season (ancient past by retail timekeeping), the Amazon logo was an ever-present sight on stacks of packages waiting to be delivered, or on porches, or on the cardboard spilling out of the recycling bin. A recent study by Macquarie Research states that Amazon accounted for $0.51 of every $1 of growth in U.S. e-commerce during 2015 and captured 24% of total retail growth. These numbers are staggering, in addition to the projection that 50% of American households will be Amazon Prime subscribers by 2020. Trends support that Amazon will grow. And grow. And grow.

Amid this growth and constant chatter of Amazon’s ambitions – global, local, into the cloud (computing), into the clouds (drones) – Amazon has an opportunity to drive sustainability through its marketplace. However, Amazon must first create a marketplace that allows for sustainable growth. A recent article in The Guardian points to Amazon having been “mostly absent from the corporate responsibility conversation.” However, for brands that are concerned about opportunities to support their sustainable product strategies – or simply want to protect any upstream investment in sustainability – there appears to be a couple of quick win opportunities for the Amazon marketplace focused on leveraging the third-party seller base, and zeroing in on packaging.

A BRIEF ORIENTATION

Third-party sellers are why Amazon is able to offer an unparalleled selection of products and create competition that results in lower prices for customers. The images, descriptions, and other content displayed on a product listing might have been created and maintained by Amazon or by a third-party seller. The name listed after “sold by,” if not “Amazon,” is a third-party seller. Amazon’s algorithms chose a seller among possibly many to win that sale when “add to cart” is clicked. This is called the “buy box.” Winning the buy box is presumably based on many factors and low price is clearly a major one. Clicking on the list of other offers reveals all the sellers selling this same product. Amazon claims more than 2 million third-party sellers sell via its marketplace and third-party seller shipments now account for 46% of all Amazon shipments, up from 26% in 2007. This intoxicating mixture of more sellers, more selection, and lower prices is the engine that drives Amazon. This, in turn, should attract brands who want to exist in this dynamic market. For brands who care about sustainable e-commerce, this should light up the radar on three fronts: supply chain sustainability, environmental sustainability, and business continuity.

SELLING WITH INTEGRITY

Brands who enter the Amazon marketplace willingly (as opposed to products just showing up – which happens) must also understand where and how e-commerce retail selling fits into their value chain and values. In short, brands need to have an e-commerce strategy before understanding how e-commerce can support their sustainability efforts. There is a parallel to how sustainability is approached in supply chains. Over the past twenty years companies slowly looked upstream – against the strong current of another intoxicating engine called globalization – to address a wide variety of social and environmental issues hidden in a complex maze of suppliers. Today, leading companies have reined in the fragmentation by driving good practices into the supply chain, consolidating the supply base by focusing on suppliers who contribute, share the same values, and comply with standards. Fast forward twenty years, and with the explosion of e-commerce, brands must address this same complexity and fragmentation downstream, right to the point where the branded products meet the end consumer, on an Amazon listing where there is another complex maze of sellers. Brands must take that same due diligence approach that created sustainable supply chains and take a hard look downstream, with the same desire for transparency and visibility, to ensure that the twenty years of effort to create a sustainable value chain is not undermined at the point of sale. Unfortunately, this part of the value chain is not as “easy” as following goods from east to west, or from producing countries to consuming countries.

Complicating matters, e-commerce has made it possible for the seller to be anyone, anywhere. The relatively low barrier to entry for selling on Amazon is what makes the democratizing force of the internet attractive for economic development and small business growth. This low barrier plus the anonymity, however, make it difficult for brands and customers to know who they are selling to or buying from. This has resulted in the growth of “gray market” selling, by sellers who obtain products from means other than directly from manufacturers and authorized distributors, and brands often have surprisingly little visibility into how their products end up on Amazon. Part of this is simply driven by the arbitrage between wholesale and retail prices – if you can get your hands on a product at a good price you can make a few bucks on Amazon.

This dynamic has always existed in the world of retail and distribution, and Amazon provides a fast outlet to unload almost any product. However, sustainability hindsight should tell us that the lack of transparency into gray market selling lends itself to all the risks that come with failing to align all the parts of the value chain. Assuming that Amazon wants to attract and retain brands that care about their products and customer experience, it can help brands protect that upstream sustainability investment by creating a marketplace where ethics and integrity are important. Amazon can put a greater focus on attracting sellers that promote sustainable growth and use their open source marketplace model to lead sellers into a race to the highest standards for customer experience. Brands will want the Amazon marketplace to respect their brands as much as they do, and ensure that a lack of standards for sellers does not attract social, environmental, and labor risks, in addition to risk factors from important e-commerce issues such as tax compliance, privacy, minimum pricing, and counterfeit goods. Sustainability history shows that standards work best when they promote a race to higher quality and better customer experience. In addition to creating standards for a marketplace of responsible sellers, packaging is another clear example of where Amazon can lead brands into a future of more sustainable e-commerce shipments.

THE FRUSTRATION WITH PACKAGING

In 2008 Amazon launched their Frustration-Free Packaging Program (FFP) to ease customer stress caused by numerous plastic coated twist ties and other impediments to alleviate what Amazon called “wrap rage.” The certification standards for FFP also prohibit Styrofoam, require recyclable packaging material, and stipulate that contents can be removed from the packaging within 120 seconds. However, there is an argument to be made that it’s the unsustainability of the packaging and material – including the box within a box problem – that still drives some of the customer frustration.

For the program to truly drive improvements, sustainability considerations should be at the forefront. Fortunately, good sustainable packaging standards already exist – ones that balance materials with damage protection, and minimize empty space – and Amazon is well positioned to have a large positive impact by integrating new criteria. Most importantly, the current Amazon standard already allows third-party sellers to certify product packaging as FFP. If Amazon invests in improved packaging standards, these efforts should be applauded, and they should also be strongly supported by third-party sellers to help provide exponential sustainability impacts – third-party sellers ship more than 2 billion packages annually. Like any company, Amazon will have greater sustainability impacts by collaborating in the value chain. In the case of packaging, Amazon should find support from leading third-party sellers who share sustainability values.

CREATING THE CONDITIONS FOR SUSTAINABLE BRANDS

The anticipated growth of Amazon’s marketplace business provides clear opportunities for driving sustainability improvement and setting the stage for the future of sustainable e-commerce. The Amazon marketplace is poised for success and can enable massive sustainability impacts for sustainable brands by building on existing standards and mobilizing responsible third-party sellers. Amazon’s more than 2 million third-party sellers help drive the marketplace – these sellers create and deliver digital content, pack and fulfill shipments, and have the last word on delivering customer experience.

Brands have choices to make about how to market, position, and grow their e-commerce presence without losing the integrity of their brand. Adding sustainable e-commerce to the checklist of retail due diligence can ensure that all the upstream investments in securing supply chains and developing truly sustainable products are not undermined by the daunting realities of selling online. This is not easy, and the typical hands-off approach to e-commerce won’t get you there. However, brands can navigate this reality – riding the wave of growth while not being crushed by it – by being thoughtful about their e-commerce strategy, understanding sustainability risks and opportunities and, most importantly, by increasing their expectations for what a sustainable marketplace could and should be.

Raj Sapru, Brand Control Manager at Netrush, recently wrote this article for GreenBiz.