Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
HIGHLIGHTS
- The production capacity of new homes is less than 1% of the existing homes with an average age of homes at around 40 years in developed countries, making it a century-long wait for them to be replaced.
- There is a huge potential for green home improvement products retailing which play a critical role in maintenance, renovations, and remodeling of existing homes into ecofriendly homes.
- A regenerative by design framework that assesses the sustainability maturity of a home improvement retailer across five dimensions will help the enterprise transform into a values-first retailer, future-proofing the business in the process.
Home improvement is a growing industry
The buildings and construction sector is responsible for more than a third of energy-related carbon emissions, globally.
Pegged as the largest contributor (at 37%) of greenhouse gases (GHG) by a UN Environment Programme report, this sector naturally has a huge responsibility toward ensuring sustainable operations. Home improvement retailers are an important player in the buildings and construction sector, which makes them responsible for the sector’s overall commitment to the sustainability agenda. These retailers cater to a diverse customer base across genders, preferences, abilities, and are some of the largest employers in the industry. Apart from the non-frequent home improvement projects, they also cater to more regular needs like home cleaning, holiday decorations, party supplies, and so on, and can influence several consumption patterns.
Given that the home improvement industry is poised for aggressive growth due to the increasing average age of homes in the coming years, these retailers have a tremendous responsibility to become more sustainable. They are also well placed to capitalize on the several opportunities leveraging sustainability as a strategic advantage and differentiator.
We examine the ways home improvement retailers can embrace the sustainability principle holistically and become what we call ‘regenerative by design’, thereby addressing the needs of customers, suppliers, employees, partners, and investors.
Going green is no longer a choice
As environmental preservation gains focus among consumers, the need to embrace sustainable operations has become a business imperative for home improvement retailers.
According to a recent survey by the National Association of REALTORS® Research Group, nearly half of the agents and brokers (out of nearly 4,300 valid respondents with a median age of 53 years) found that consumers were interested in eco-friendly homes that consume less resources and use materials and technologies with a low carbon footprint, thereby contributing to the larger goal of a healthier, sustainable planet.
This trend is not restricted to consumers alone. We see from a recent Statista survey that nearly half of home builders and remodelers that have done green projects in the United States mentioned that doing the right thing was one of the main reasons to engage in green projects. So, there is a visible shift in the home construction and improvement industry toward eco-friendly buildings.
Industry experts believe that the green building material market share is expected to grow at an average of 8-12% CAGR globally, from 2024 to 2033. This brings home improvement retailers to the center stage as they can help the ecosystem by providing quick access to a range of certified sustainable materials, meeting the quality and quantity requirements of consumers, at affordable prices.
The current focus of retailers with respect to sustainability is primarily driven by regulatory compliance, and to an extent, customer sentiment. They now need to shift gears and look at this aspect as an opportunity to drive cost efficiencies and fuel growth. Of course, that will mean tackling some challenges such as:
- A limited range of eco-friendly home improvement products that cater to diverse customer segments and price points
- A complex supply chain plagued by lack of transparency and traceability
- Evolving regulatory requirements like Extended Product Responsibility (EPR), guidelines around the use of per- and polyfluoroalkyl substances (PFAS), accounting standards, and reporting needs
- Lack of standardized emission calculation mechanisms, especially for Scope 3 emissions
- Lack of data democratization across the value chain
- Lack of mature and scalable technological innovations
A five-dimensional framework approach
To overcome the challenges in sustainability transformation, home improvement retailers will need work across five key dimensions.
Out of over 100 home improvement retailers globally, only seven have committed to the net zero target. Clearly, we can see there are challenges that home improvement retailers are facing in embracing sustainability. To help retailers make a start or go beyond what they are currently doing, we propose a ’regenerative by design’ framework (see Figure 1) that focuses on five broad areas in order to drive holistic sustainability transformation across an organization and its ecosystem.
Figure 1
Regenerative by design – a framework for sustainability maturity
Figure 1
Regenerative is a concept that ensures the actions we perform and measures we take to reverse the adverse impact of climate change so that the net positive is always greater than the net negative.
We propose a framework to assist home improvement retailers as they work toward becoming values-first enterprises using sustainability as a lever.
The foundational block of the framework focuses on the need of the hour, ensuring retailers understand where they stand by gathering and reporting the ESG metrics. Our research on the Science Based Targets initiative (SBTi) data reveals that fewer than 20% of global home improvement retail companies have committed to science-based targets and even fewer have set explicit targets to net-zero greenhouse gases (GHG) emissions. This means that there still is a lot to be done with regard to the industry’s commitment to the United Nations' Paris Agreement. Addressing the gap in data collection and reporting is essential for decision making and credible disclosure.
Enterprise culture is key in achieving sustainability targets. For example, a leading equipment rental company in North America has tied employee incentives to the company’s ESG targets. By aligning employee motivations with the organization’s sustainability goals, the company was able to achieve their targets ahead of schedule. Such is the power of a culture-driven approach to sustainability. While building the organizational culture, it is important to empower employees with data democratization, inducing an innovation culture and personalized training.
While the foundation block and enterprise culture focus on operational excellence the next three blocks help retailers with growth drivers.
Products, services, and operations are intertwined and should be closely looked at from a circular perspective. A European home furnishing retailer has started looking at circularity aspects starting from the design phase of the product to provide a clear direction on how its end of life should be. Combining this sustainability by design concept with the life cycle assessment would provide a greater value in understanding the impact of a product on the planet and open avenues for new partnerships on eco-friendly reusability and end-of-life treatment.
It doesn’t stop with the product innovation. Consumers are looking at retailers to engage them in sustainable practices. For example, providing the ease of navigating and identifying ecofriendly products, highlighting of ecofriendly parameters in the product details page and aisles, recommending the professionals who are licensed (e.g. LEED, Energy Star) and committed to sustainable practices, and so on. One such example is a leading global marketplace based out of the US and how it is embracing sustainability in last mile delivery and parallelly rewarding customers with digital coupons on those who are opting for sustainable fulfilment.
As home improvement retailers move up the pyramid in Figure 1 toward ecosystem-level sustainability maturity, they would play a critical role in the value chain decarbonization. Home improvement retailer consortiums and trade bodies are working together to define industry standards. Retailers and suppliers share the best practices from on-ground experience and exchange knowledge to orchestrate or participate in relevant and purpose-driven ecosystems. It is important for large retailers to implement climate resilient, sustainable, and ethical sourcing from suppliers, reinforcing the values-first retailing thought.
The most mature home improvement retailers would be able to focus on using sustainability as a growth driver with new business models. A leading North American retailer has imbibed the circular economy principles by using packaging material that can be used as an insulation at homes. Like these, there are options for establishing new models like gear swap business for professionals, buyback programs, repairs, rentals, re-commerce, extended warranties for sustainable products, refill options for some of the materials, subscriptions services like heat as a service, and so on.
Start early to gain big
A journey of a thousand miles begins with one step.
As climate change and sustainability become mainstream concerns, more homeowners have started to prioritize ecofriendly homes, driving demand for retrofits in existing homes. Governments are also implementing regulations and stricter standards for home improvement retailers to comply with. Retailers can use this opportunity to gain competitive advantage and move up the ladder by establishing processes and investing in innovations across the maturity framework. We outline some steps for retailers to make a start:
- Baselining and establishing science-based targets and regularly reporting their progress
- Fostering enterprise culture toward meeting ESG targets, while boosting employee morale and productivity
- Investing in technological advancements and making sustainable products and services more accessible and affordable for consumers; ensuring transparency in disclosing product materials, sourcing, and environmental impact
- Partnering with industry peers, governments, and suppliers to develop industry-wide standards, sharing best practices, and pushing for sustainable practices in sourcing to drive a positive change across the value chain
- Focusing on newer business models such as product as a service, leasing options, and rentals; investing in digital platforms and marketplaces connecting sustainable products, service providers, and end consumers
To conclude, by prioritizing sustainability and climate change actions, home improvement retailers can future-proof their businesses, drive growth and become a values-first retailer.
