Retailers ‘face ethical sourcing cost challenge’

A significant number of people working in retail expect ethical sourcing to drive up production costs by at least 5%.

That’s the finding of a new report, The Future of Ethical Sourcing, from Verdict Research. Of those questioned, 9.5% said there would be no increase in costs, 35.7% thought there would be an increase of up to 5%, 40.5% thought between 5 and 10%, and 14.3% believed costs would rise by over 10%.

The ethical sourcing agenda is widening to incorporate environmental sourcing concerns as well as those surrounding labour, says Verdict. Sourcing with high labour standards in mind is increasingly considered a basic feature of a product, and the extent to which it adds value has lessened. Environmental sourcing credentials therefore now offer retailers a more credible way of adding value and trading shoppers up to premium ranges with higher price points, Verdict concludes.

However, it goes on: “With margins already under increasing pressure from escalating rents and fixed costs, finding a way to absorb the ethical sourcing expense will prove crucial to the profitability and survival of many retail businesses.”

Accounting for that expense will be particularly challenging for value retailers, which are heavily price driven and whose customers are very sensitive to even small price increases, and would be less likely to trade up for ethically-sourced products. This will provide further advantage to larger retailers that can leverage economies of scale, says Verdict.

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