Younger Generations Are Creating Growing Demand for Sustainability
It shouldn’t come as a surprise to anyone that Industry demographics are changing: For example, Millennials and Gen Z now account for about 30% of luxury shoppers and will represent 45% of the market by 2025. Luxury brands need to account for the preferences and shopping habits of these younger generations, who are more eco-conscious and more digital - but also less loyal.
So what does luxury mean to Millennials and Gen Z? For one, it’s sustainable. “Luxury” is no longer spelled out by fur coats and leather handbags, instead, we’re seeing a shift into companies that prize sustainability, eco-friendliness, low carbon footprints, and so on.
A 2015 Nielsen study that explored global consumers’ attitudes toward sustainable, ethical goods and services found that consumers are more likely than ever to both care about and support companies committed to social responsibility. And with that growing demand by consumers comes a shift by suppliers in making more goods and services ethically and sustainably.
Millennials (age 21-34) appear to be the most responsive group to sustainability actions. Interestingly, the Nielsen study found that among global respondents who are receptive to sustainability actions, half are Millennials; they represent 51% of those who will pay extra for sustainable products and 51% of those who check the packaging for sustainable labeling. It’s safe to say Millennials have done the lion’s share of the heavy lifting when it comes to making sustainability mainstream. Millennial consumers care about social responsibility and impact, and they show it through their actions and buying power. It’s now up to the supply side to flood the market with sustainable, socially conscious products
This increasing demand for greater sustainability coupled with the recognition of Millennial buying power will undoubtedly influence not only the luxury sector, but many other industries. The next generation of buyers and consumers is already dictating their preferences for organic, environmentally conscious goods and services.
An especially fitting way to think about Millennials’ impact is to think of them - and their buying power - as a class all its own. In her book, The Sum of Small Things: A Theory of the Aspirational Class, sociologist Elizabeth Currid-Halkett defines this Millennial-driven paradigm shift as “the aspirational class.” Currid-Halkett describes a change over time, from scarcity to wide availability. Because most consumer products are now widely available, all but the most exclusive items have lost their value as class signifiers. So, what can take their place? What signifies class and status in the modern era?
Goods that broadcast a consumer’s high education levels and cultural awareness have gained importance - think pressed green juices and yoga classes. Think about it: the lifestyle and philosophy surrounding a product is now as important as the product itself - at least for this up-and-coming generation of consumers.
With demand this intense, it’s no longer just “nice to have” sustainable and eco-friendly options, it’s an imperative. Brands must now go beyond traditional focus areas like product performance and affordability; instead, they must act quickly to prove their social and environmental credentials and show consumers they can be trusted with the future of the planet - as well as their own bottom lines.
A real-world example illustrating this paradigm shift: Amazon’s acquisition of Whole Foods. The recent acquisition perfectly exemplifies status-seeking consumers’ new mood when it comes to all things organic, eco-conscious, and local: they want it. (P.S. - We wrote about Amazon’s Whole Foods acquisition in our recent series on Packaging & E-Commerce)
Luxury status today is expressed through the “language of conscious consumerism,” defining this new breed of luxury consumers as those who are keen to express who they are regarding being “ethical, creative, connected and tasteful.” For this growing demographic, luxury is about quality over quantity - they are less keen to merely possess more goods and instead want to express their high education levels and cultural awareness through their purchases and lifestyle. Niemtzow notes customers are starting to ask more questions about the origin of ingredients and raw materials, animal welfare and social and environmental impacts of products more broadly.
For example, what are you buying when you pay $5 for a cup of organic, single-origin, fair-trade coffee? How about a locally produced, sustainably sourced linen tunic, picked up at a local craft fair? Or even - and this is by far the flashiest example out there at the moment - a Tesla Model X electric SUV?
These products and all others like them (thoughtfully sourced, sustainably curated, evoking an image of modern luxury) are the new breed of luxury goods now in demand. And while all these products are delicious, attractive, or well-engineered products, luxury goods are now rarely just about the product.
Clearly, consumers desire good design, quality craftsmanship, and high-end ingredients and raw materials, but they’re willing to pay a premium for something more than that - often, it’s the subtle conveyance of good taste, access, and wealth. And increasingly, that high status is suggested in the language of conscious consumerism: ‘organic,’ ‘sustainable,’ ‘ethical.’”
It’s thanks to this demand by consumers that companies are growing greener than ever before.
How Companies Can Meet Sustainability Supply Needs
Companies that choose sustainability will undoubtedly perform better than those that don’t in the future. The Nielsen study exploring global consumers’ attitudes toward sustainable, ethical goods and services found that consumers are more likely than ever to both care about and support companies committed to social responsibility. And with that growing demand by consumers comes a shift by suppliers in making more goods and services ethically and sustainably.
It’s now up to the supply side to flood the market with sustainable, socially conscious products. Clearly, consumer demand created the market for supply. But how to deliver? How can brands adapt and stay relevant?
It begins with the approach: companies must be robust and coherent in their approach to sustainability.
Over the last several years, many luxury brands have adopted stronger environmental and social practices, prompted by a strong business case and stakeholder demands. These brands are investing in sustainability to protect their exceptional quality raw materials from climate change, to respect implicit client expectations about social and labor practices and to support community and cultural life alongside their top clients. In their report, luxury goods leader Kering highlighted some of the key risks and opportunities posed by climate change for the luxury fashion sector. The report provides an overview of climate change risks across the value chain and demonstrates the importance of addressing raw materials in any robust and ambitious climate strategy. The analysis focuses on six raw materials that are central to the luxury fashion sector: cotton, beef leather, sheep and lamb leather, vicuña, cashmere, and silk.
The report then offers guidance in the form of a resilience agenda for the luxury fashion sector. The agenda covers the dual aspects of resilience—mitigation and adaptation—by addressing greenhouse gas emission reduction efforts, as well as adaptive capacity-building measures. These measures are actions that companies can take to adjust their practices in their own operations or in their value chains to proactively manage risks and seize opportunities associated with climate change.
But beyond an assessment of raw luxury materials, the importance of companies adopting sustainability distills down to this: Sustainability is a lynchpin of desirability.
Further, companies can improve their desirability through proximity and taking a stand. Proximity is about how a brand positions itself from one of distant authority to one that facilitates sharing and interaction. Taking a stand, similarly, is about how a company manifests its point of view on the world, makes commitments (whether to values, culture, the environment, ethics or society) and shares its values.
After the  Paris Agreement, sustainability became an increasingly common topic of discussion for businesses. Global warming is real, yet people worry that not enough is being done about it. Concerns about the environment have led the march towards environmentally friendly business, and as it turns out, sustainability efforts affect more than just the environment: they bring more business.
Sustainability is no longer just good for the environment; now it’s good for a business’s finances. The tech industry is starting to take note of this cultural shift, and many technology brands focus their marketing and resources on sustainability. Some even go as far as to become a regenerative company, one that not only creates net zero carbon emissions and uses clean energy, but one that actively creates positive results by producing excess clean energy resources.
So which companies really are sustainable, and which companies just talk about it?
- Apple: One of the biggest household names in tech has done an admirable job of transitioning to sustainability. In Greenpeace’s 2015 report, “Clicking Clean: A Guide to Building the Clean Internet,” Greenpeace notes that “Apple continues to lead the charge in the race to build a green internet, and has significantly increased its impact as a change agent driving renewable energy in the past year.” Earning top marks, Apple has been transparent about its sustainability efforts. Apple’s data centers run on entirely clean energy, and in fact, 93 percent of the whole company’s energy consumption comes from renewable sources. Whether you like Apple products or not, the tech giant has relentlessly increased its sustainability efforts while the company continues to scale, and so is one of the most sustainable brands in 2016.
- Toptal: Impressive not for its transparency or its clean energy resources, Toptal earns a spot on this list because the startup is changing the very way businesses approach structure and organization. Toptal, a network of freelance developers and designers, represents the peak of the freelance marketplace and remote work. Why does this make Toptal sustainable? Toptal doesn’t have an office anywhere in the world, and all of its employees work remotely. Telecommuting can potentially save up to 14 billion kilowatt-hours of energy each year, and if people worked remotely even half the time, 119 billion miles of highway driving would be cut immediately, making a huge environmental impact. Toptal brands itself as an elite freelance network and is proof that not only does the freelance model work, but you don’t even need an office to run a big business.
- Salesforce: Sustainability can mean several things, and to Salesforce, a customer success platform, it means not only increasing clean energy consumption and overall efficiency, but ensuring that their workforce is as sustainable as it can be. Salesforce recently signed two wind farm agreements and once they are both running, they will produce more energy than Salesforce used in all of 2015. As for sustainability in the workplace, Salesforce is an industry leader in pushing for gender equality. Starting with Women’s Surge, an initiative that focused on including more women in meetings and promoting women to higher positions, Salesforce later conducted an internal audit and spent $3 million dollars increasing women’s salaries to create equal pay between men and women in the company. Salesforce was the first major tech company to achieve equal pay, and the company is on its way to total gender equality and to using 100 percent renewable energy, making it one of the most sustainable brands in the tech world.
Increasing the “supply” of sustainability in luxury is both about the substance of the company’s actions and its public communications about its activities and values, which presents the next question luxury brands and marketers need to tackle: how to credibly communicate on sustainability activities, ethics and values in ways that fit with company.
Most companies are working to improve their environmental and social practices and have long roads ahead, but this shouldn’t stop brand owners from using their reach and influence to speak out in authentic ways that move the agenda forward.
Modern business models had already expanded to include supply chain management as a cost-containment strategy before sustainability became a concern. For example, the 1990s brought increased demands on the athletic shoe industry to take responsibility for the working conditions and pay scale of contract labor in foreign countries.
Applying supply chain management to the issue of sustainability was a simple and effective solution. Companies simply added the location of the supplier to their supply chain management system and began giving preference to those located closer to the delivery location. This had the additional benefit of providing documented results of changes made to improve sustainability.
Communicating those changes, and the overall attitude of the business toward sustainability, became a touchstone for business. Almost 90 percent of consumers stated they would be more likely to purchase products from a company that is making changes with the goal of improving sustainability. A similarly high percentage felt it was the responsibility of the company to make this information available.
Heightened consumer sensitivity to sustainability issues is likely to continue in the foreseeable future, and business is sure to address these concerns. Communicating those efforts and their results may increase consumer awareness even more, potentially leading to a truly virtuous cycle and a more sustainable economy.