Unethical suppliers risk loss of retail contracts - report

By

Nigel TAYLOR

Published
Feb 10, 2022

Manufacturers that fail to maintain high ethical and sustainable standards beware. One in five UK retailers cancelled contracts last year with suppliers that fell short of required levels. 

And that cost them £7.1 billion in lost orders over the last 12 months, new research from Barclays Corporate Banking shows. The average is six contracts cancelled per retailer, with an average value of £306,000 per contract.

The most common reasons for cancelling contracts with suppliers were: use of unsustainable materials (39%); unfair working hours (37%); and lack of membership of a trade body that monitors ethical and sustainable standards (32%).

To emphasis just how important the issue is, the bank’s ‘Reshaping Retail… how ethics and sustainability are changing retail’s ecosystem’ report shows that 79% of retailers think long-term improvement here is more important than overcoming short-term supply chain disruption.

On average, retail businesses with more than 10 staff are investing £504,000 per year to improve their own footprint, it noted.

In the study of more than 300 retail decision makers, 51% said sustainability is more important now than it was two years ago and 49% say the same about ethical standards.

Meanwhile, consumer demand for improved credentials is highlighted in Barclays’ research among 2,000 members of the public. While quality of product (78%) and price (76%) are shown to be the purchasing factors of most importance to consumers, ethical and sustainable credentials (both 52%) are not far behind.

Younger consumers are leading the demand. In fact, two-thirds of 16-24 year-olds would stop shopping with their favourite retailer due to ethical concerns and 68% of 25-34 year-olds would cut ties and shop elsewhere if their favourite retailer was found not to meet sustainability standards.

There is, however, an upside for retailers, in that consumers are prepared to pay a premium for these higher standards. On average, shoppers say they will pay 4.55% more for an ethically-sound product and 4.36% more for sustainably-sourced goods. 

Consumers do also feel there is room for further improvement with 63% wanting to see retailers make more ethical and sustainable upgrades in future.

The report also noted that the importance of monitoring standards throughout the supply chain is reflected in the £179 million retailers invested last year in joining trade bodies that monitor supplier performance in ethics and sustainability. Over a quarter (28%) of retailers signed up to new bodies last year, spending an average of £34,500 each in doing so.