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Trends Shaping the Future of Retail

Trends Shaping the Future of Retail 2
Trends Shaping the Future of RetailSignals of change Retail everywhere n Retail everywhere is becoming possible as a result of a convergence of trends, such as increasing rates of smartphone ownership and the growth of the internet of things, which makes digital connections among objects, consumer desire for No longer confined to traditional stores, retail is convenience, and competition for consumer ‘share of mind.’ increasingly ubiquitous. Transactions are becoming n According to Forrester Research, 60 of U.S. retail sales will involve using the ever easier using mobile payments and automated internet by 2017. Consumers will either buy a product online or use the internet to research it before purchasing it in a store. subscriptions for regularly consumed goods. Stores n Most Millennials have never known a world without internet, social media, and are also popping up in new and unexpected places, mobile technology. They represent 15 of U.S. consumers in 2014 and will such as train stations and truck and bus “stores.” account for almost one third of total spending by 2020. Business responses n Launched in April 2014, Amazon Dash is a small WiFienabled scanner that consumers can use to scan items in their homes for automatic addition to their Amazon shopping list. n Grocery delivery service Peapod is testing a system that allows consumers to shop ‘virtual shelves’ at train platforms in Philadelphia. n Warby Parker, named Fast Company’s most innovative retailer, is driving a school bus retrofitted with a showroom across the United States to test different retail markets. Questions n How can your business build brand favorability through retail everywhere n Could there be a consumer backlash against retail everywhere n How could retail everywhere help consumers adopt more sustainable behavior 2Signals of change Augmented reality n Semico, a marketing and research firm, estimates that revenues generated from augmented reality applications in the U.S. will exceed 600 billion by 2016. n The provision of augmented reality data can be triggered by a user’s GPS Augmented reality uses mobile or wearable location or, increasingly, by electronic ‘beacon’ transmitters placed in an technology to interpose a layer of rich audiovisual environment such as a store. In January 2014, beacons were installed in 150 data between users and their environment, grocery stores on the West Coast to send highly targeted coupons to customers while they are shopping. providing them with useful, contextspecific information. Augmented reality applications will increasingly be used in retail environments to give Business responses consumers product information and help them n Google Glass, a wearable computer with an optical headmounted display integrated into a pair of eyeglasses, is now available to consumers for 1,500 interact with brands. and offers a range of augmented reality applications, from map overlays to facial recognition services. n Clothing retailer Topshop and cosmetics company Shiseido are using augmented reality to help customers try on clothes and makeup virtually. Questions n How could the use of augmented reality help you improve operations or enhance the customer experience n Augmented reality will increasingly enable consumers to access thirdparty information about products, such as health or environmental ratings, in real time. How might this impact your business n How could the emergence of augmented reality in the retail environment help consumers make more sustainable choices 3Signals of change d istributed n Making products by printing them in ultrafine layers, 3D printing has long been used in highvalue manufacturing (e.g., to make jet engine parts). Recent improvements in the technology, coupled with a significant drop in price, are manufacturing transforming it into a disruptive technology. It is now possible to print a wide variety of materials, such as ceramics, textiles, food, and biological tissue. The availability of inexpensive, compact 3D printers is also enabling consumers to Technological advances are making print, rather than buy, a growing range of products. localized production easier than ever, and 3D n A Michigan Technological University study estimated that by using a lowcost 3D printing and information technology could disrupt printer, such as the RepRap, to produce commonly used household objects, a family could save 300 to 2000 per year. and localize conventional manufacturing. Industry n A Boston Consulting Group survey found that more than half of USbased is using networks of geographically dispersed manufacturing executives at companies with sales greater than 1 billion are manufacturing facilities, and 3D printers have planning (or actively considering) to shift production from China back to the become affordable for consumers to own for their U.S. However, other studies suggest that while there is a slight increase in U.S. manufacturing, there is not a widescale movement towards reshoring. homes or use in their local community. Business responses n Organovo, a Californiabased startup, is developing printable human liver tissue. n New Matter, an easytouse 200 3D printer, is being created to make sharing a 3D object with a friend as easy as sending a text message. It’s expected to be available in 2015. n In 2013, Walmart committed to sourcing an additional 250 billion from US produced goods in ten years. It will do that by buying more of the goods it already buys from U.S. manufacturers, sourcing newtoWalmart US produced goods, and reshoring some products that it already sells. Questions n How could the growth of distributed manufacturing affect your business n The growth of 3D printing may drive customer expectations for products that are customizable, modular, and upgradeable. How would this impact the design of your products n Are your products capable of being produced by consumers at home, without any need for you How can you ensure that you are adding value n If consumers have more power to create the product they want, how does that affect the retailer’s responsibility for product stewardship, performance, or recyclability 4Signals of change Advances in n The impacts of biotechnology are distributed across the economy, but they are particularly significant for food production. Many experts believe biotechnology will play a key role in food security in the future, but consumer acceptance of it biotechnology in food is far from certain. n The U.S. biotech industry generates 98 billion in annual revenue and employs Biotechnology is rapidly advancing as roughly 1.6 million people. n new technologies, such as synthetic The garage biotech movement is an extension of the hacker principle applied to genetic engineering and synthetic biology. Although not generally pushing the biology and rapid genomic sequencing, boundaries of the science, doityourself (DIY) groups conduct projects such as work faster and become more affordable. These analyzing their own genomes, making fluorescent yogurt, and finding ways of making the technology cheaper to use. advancements are driving the development of n There is concern that the tools of bioterrorism may become widely available. powerful new applications in sectors ranging from The U.S. Federal Bureau of Investigation has set up a neighborhood watch agriculture to energy to medicine. type scheme with groups like DIYbio as an early warning system for identifying suspicious behavior. Business responses n Ecover is developing an algaebased liquid laundry soap in an effort to reduce the use of palm oil in its products. Other benefits include fewer greenhouse gas emissions, less water use, and reduced land competition. n Unilever has also developed algal oils and adopted them for its Dove and Brylcreem products through a joint partnership with biotechnology company Solazyme. Questions n Biotechnology is impacting a wide range of materials (such as food and fibers) and industrial processes. How might this affect your business n Manufacturers face mounting pressure to use biotechnology in consumer products. What role can retail play in helping consumers to make informed choices about the ingredients in their products 5Signals of change s hifting n Unlike many developed countries, the population of the U.S. is still growing rapidly, as a result of a relatively high birth rate, increased life expectancy, and continuing immigration, thus increasing the size and diversity of local markets. demographics n More than half the growth in U.S. population between 2000 and 2010 was attributed to the increase in the Hispanic population. Based on current census The U.S. population is growing and changing, data, the white majority will become the minority by 2043. n becoming older and more multicultural society. By 2030, current projections estimate that there will be about 72 million Americans older than 65, more than twice the number there were in 2000. The global population is also increasing and the Projections also say there will be 78 million Millennials in 2030. Millennial generation will soon be filling out the n Millennials already account for 1.3 trillion in direct annual spending in the U.S. workforce. This sum is projected to increase as they reach peak earning and buying power. Business responses Populaton by Age and Sex: 2012, 2035, and 2060 n New businesses targeting the needs of ethnic groups are emerging. Retail real estate firm The Legaspi Company has successfully rehabilitated 10 struggling shopping malls by transforming them to cater to Hispanic families. n Technological solutions are being developed to alleviate the caregiver shortage for the growing elderly population. Devices like Lively provide lowcost, in home kits that monitor the whereabouts of the user so that family members can remotely keep track of elderly relatives and be alerted if there are any breaks in their daily routines. Questions n How will changing demographics impact your customers and employees How will you meet the needs of different groups, such as the aging population, the multicultural population, and the emergent Millennial generation n How will a growing global population impact your overseas business operations and customer base 6Signals of change urbanization in n According to the U.S. Census Bureau, “the nation’s urban population increased by 12.1 percent from 2000 to 2010, outpacing the nation’s overall growth rate of 9.7 percent for the same period.” the united s tates n In his 2013 book Reshaping American Metropolitan, Arthur Nelson explores a shift toward urban lifestyles in the United States, citing recent surveys that show Despite a pause or even reverse in city growth that “about half of Americans want to live in walkable communities with mixed housing and other mixed uses.” in the late twentieth century, cities are now n By 2025, large U.S. cities are expected to generate more than 10 percent of experiencing a resurgence. Shifting patterns of global GDP growth, a bigger contribution than all of the large cities of other settlement have implications for infrastructure, developed countries combined. people’s lifestyles, and for consumer priorities and n Urban planners are increasingly concerned with smart and sustainable cities. Cities such as New York and London are experimenting with apps for parking demands. and other services, designing for ample green space, and building bike lanes. n There is criticism that cities are becoming places where only the rich can afford to live. The most expensive cities in U.S. include New York, Washington D.C., San Francisco, and Los Angeles. City planners and citizens are concerned about gentrification and affordability of city services. Business responses n Retailers like Target, The Office Depot, and Walmart are expanding into cities by opening smaller format stores in urban areas. In some cities, like Chicago, large retailers have met with resistance from local residents. n Retailers like Petco and Best Buy are developing new store brands that adapt to smaller spaces. n Ikea is developing alternative methods of transportation, like buses and water ferries, to its stores to attract urban consumers. Questions n What goods and services would appeal to urban dwellers n How might retail stores adapt to a growing urban population n How might changing densities of settlement affect store formats and siting 7Signals of change g lobal n “Severe income disparity” ranked fourth in the top 10 global risks in the World Economic Forum’s “Global Risks 2014” report. It also ranked as the risk most likely to occur for the third year in a row. economic shifts n According to a recent report by Oxfam, almost half of the world’s wealth is now owned by only one percent of the population, and seven out of ten people live in The global economy is changing, with sustained countries where economic inequality has increased over the past three decades. Wealth disparity in the United States has been rising steadily since the 1970s. economic growth in emerging economies, such as n The Brookings Institution estimates that there are 1.8 billion in the global middle China, India, and Brazil. The economic center of class (as of 2013), which will grow to 3.2 billion by the end of the decade. the world is moving South and East—with middle n According to PwC, the demographics and wealth gaps between shopper class growth in those economies. Meanwhile, segments are expected to widen by 2020. This may create shopper segments with different expectations for product offerings and shopping experiences. global economic inequality is rising—the United States has the greatest wealth disparity out of all the developed economies in the world. Business responses n In February 2014, clothing retailer Gap, Inc., announced that it would unilaterally raise its hourly minimum wage to 10, impacting 65,000 employees. n As of 2012, 55 percent of Unilever’s total global business comes from developing markets. n New business models are being developed to sell a variety of products in African and Asian countries through microfranchisees. Companies like Solar Sister (which sells solar lamps) and Living Goods (which sells a variety of products) are using those models to distribute goods to otherwise difficulttoreach communities. Questions n What are the implications of wealth fragmentation for your customers and employees How will this affect your marketing and human resources strategies n There may be hidden risks and opportunities to your business from the growth of the global middle class. How can you uncover these and address them 8Signals of change n ew approaches to n The cost of healthcare and a greater understanding of the determinants of poor health are placing a greater emphasis on prevention in addition to treatment. As a result, there has been an explosion in digital healthcare innovation and health and wellbeing changes in lifestyle approaches. n Medical spending on obesity in the U.S. now accounts for 20.6 of U.S. Medical spending on obesity in the United States healthcare expenditures; at 190 billion per year this figure exceeds costs related to smoking. now accounts for 20.6 percent of U.S. health care n According to the Pew Internet Research Project, seven out of ten Americans expenditures; at 190 billion per year, this figure track a health indicator for themselves or a loved one. exceeds costs related to smoking. n Governments are more and more interested in introducing taxes and other measures to nudge behavior to improve health. The Prevention and Public Health Fund under the Affordable Care Act provides funds for local governments that want to experiment with obesity prevention. n Although the fate of New York City’s soda ban sits with the State Court of Appeals, Mexico launched a similar scheme in January 2014 in an effort to curb sugar consumption and address its obesity crisis. Business responses n Nike’s FuelBand tracks wholebody movement and intensity and provides feedback and reminders via a smartphone app. n Retailers like Walgreens and CVS are investing in instore clinics to provide cost effective and convenient health services. n Safeway provides its employees with a variety of healthcare options including its CareConnect program, discounts at national fitness centers, online healthcare decision tools, and more. Its healthcare programs were so successful that it spun off a new venture, Safeway Health, to help other organizations apply the same programs. Questions n Health delivery is moving out of the doctor’s office and into everyday life. How can your business help promote the health and nutrition of your employees and customers 9Signals of change The ubiquity of data n In 2012 alone, humans generated more data than over the course of our entire history up to 2011. The rate of production of data from internet and mobile phone use, digital sensors, and the digitization of public and commercial data The accumulation of vast amounts of data, more than doubles every two years. combined with an exponential increase in computing n The International Data Corporation and International Institute for Analytics power, has enabled the use of new and powerful estimate the global market value of Big Data at 16.1 billion (as of 2014), and see it growing six times faster than the overall information technology market. insights in every aspect of society. Companies n Regulations around what data is truly private are shifting; Google search that successfully leverage Big Data can provide histories and tweets, for instance, are both admissible as evidence in court. In highly targeted products and services. At the same 2009, Google searches were used to convict a hitandrun driver when it was found he was searching for the phrase “hit and run” after the crime. time, the proliferation of individuals’ data and the n In May 2014, the European Court of Justice ruled against Google in a landmark increasing sophistication of analytic algorithms “right to be forgotten” ruling that would strip Google of a large amount of private threatens to undermine individual privacy. data on individuals. Business responses n Amazon filed a patent for anticipatory shipping in January 2014, a system that can predict purchases and prepare products for shipping before a consumer has purchased them. n In 2013, personal genomic analysis company 23 and Me came under fire from the U.S. Food and Drug Administration for offering users a profile of their health risks based on an analysis of their genomic data. n Technology companies like Google and Facebook are using knowledge of their users to customize the users’ experiences and advertise to those users. Questions n How can your business leverage the insights that are now becoming possible through Big Data to improve operations or enhance customer experience n What sorts of data privacy issues do you anticipate for your business How will you deal with them 10Signals of change Radical n According to Deloitte, future consumers will “expect and demand transparency in product and service quality, pricing, and company policies, and procedures.” transparency n Customer demand for supply chain transparency has led to the proliferation of certification standards for commodities. The number of certified goods increases every year according to Fair Trade USA. Threequarters of consumers surveyed The rapid increase in access to data and said Fair Trade made them feel “positive” or “very positive.” n information – mainly through the internet – Regulations, such as the U.S. Securities and Exchange Commission’s conflict minerals rules, are increasingly requiring companies to be transparent about the combined with shifts in consumer expectations sourcing and composition of their products. Similar regulatory mechanisms are is creating significant change in organizational already being proposed to tackle other supply chain issues. and individual transparency. Technological developments mean that in the nottoodistant Business responses future, every detailed aspect of a business could be n Whole Foods Market has committed to full GMO transparency by 2018 for its fully in the public eye. grocery stores. By that date, all products that contain GMOs will be clearly marked. n Fashion company Everlane seeks to introduce radical transparency to high fashion and challenge the high premiums associated with it. Everlane’s website features an interactive map where consumers can view the factories where products are made and read stories about the production process. n Consumer products companies like Clorox, S.C. Johnson, and Seventh Generation are listing their product ingredients on their public websites. Questions n How would greater public scrutiny of your operations and supply chain impact your business n What measures can you take to make your business operations more transparent and build trust with all of your stakeholders, from consumers to communities to activists n Would greater transparency about the challenges you face around operating more sustainably have a positive or negative impact on relationships with your customers 11Signals of change s elf and n The number of Maker Faires around the country has grown more than twentyfold in the past seven years, from 22,000 in 2006 to 530,000 in 2013. President Obama hosted the first White House Maker Faire on June 17, 2014. communityreliance n Some have called ‘the IKEA Effect’ one in which people cherish the things they build more than the things they buy. New models of self and communityreliance may n The number of farmer’s markets in the United States increased 9.6 percent flourish as a result of greater access to digital from 2012 to 2013, maintaining the trend of steady increases since the U.S. Department of Agriculture began monitoring them in 1994. platforms, growth in distributed manufacturing, and the rise of the sharing economy, with the potential to distance people from brands. How this trend will Business responses unfold is uncertain, but its impact will be fundamental n Etsy, an online marketplace for buying and selling unique goods, sold more than 1.35 billion worth of creative goods in 2013 – the biggest year for the Etsy to retail’s health over the next two decades. community since it was founded in 2005. n Threadless is an online community of artists who create designs, which are then evaluated via their ecommerce website. The community votes on submitted designs each week, which are then printed on clothing and sold worldwide through Threadless’s online store. Winning designers receive an award upfront and a commission when one of their designs is sold. Questions n How would a move toward self or community reliance impact your business n Are there are any new opportunities for your business model that support self or communityreliance 12Signals of change The rise of the n According to Fast Company, the U.S. sharing economy was worth 26 billion in 2013 and is predicted to increase. sharing economy n Havas Worldwide, one of the largest integrated marketing communications agencies, reported in its 2014 “New Consumer and the Sharing Economy” study that more than a third of Millennials already belong to a sharing service or expect Rather than buying new products to consume, to join one within the next year. n people are increasingly sharing or renting things Regulatory uncertainty is an important factor shaping the future of the sharing economy and may impact its ability to grow, and the rate at which it can, in like cars, bikes, power tools, clothes, housing, different industries. For example, peertopeer taxi services have been banned in and even leftover food. This trend could grow some cities after strong lobbying against them by traditional taxi organizations. and continue to create a new form of consumer n The gig economy, a segment of the sharing economy in which people compete to offer services at low prices, has been criticized recently. In a recent Fast economy in which experiences and access to items Company article, “Pixel and Dimed: On (Not) Getting by in the Gig Economy”, are more desirable than ownership. However, it editor Sarah Kessler highlighted the lack of benefits and struggle to earn is uncertain whether the barriers to the sharing minimum wage that many of these workers face. economy will grow as well. Business responses n Companies like Zipcar, Rent the Runway, and Airbnb are using technology to enable people to share on a large scale. Recognizing the size of the opportunity, car rental company Avis acquired Zipcar for 500 million in March 2013. n Instacart, a peertopeer grocery delivery service, connects people who have money, but no time to go shopping with people who have time, but would like to make extra money. It’s notable in that it does not intrude on a regulated industry, provides competitive wages, and is leveraging human labor rather than technology to drive value. TaskRabbit is another such example. Questions n Where do opportunities for your business exist in the sharing economy Could you develop a new business model around products or services you already offer, develop new partnerships, or acquire new businesses n Is there a risk that consumers will be less inclined to purchase your products because they can simply share items owned by other consumers n How can your business help address the potential downsides of the sharing economy such as the gig economy 13Signals of change Empowered n Havas Media’s 2014 “Meaningful Brands” report found that 71 percent of U.S. consumers think companies and brands should play a role in improving their quality of life and wellbeing, while only “36” think that brands work hard at consumers improving their quality of life and wellbeing. n One of the three major findings of IBM’s 2013 global chief marketing officer Empowered by social media and easier access (CMO) survey found that CMOs believe an organization’s character (i.e., how it behaves) is as important as the products and services that it sells. to more data, consumers are more and more n According to the World Economic Forum’s “Engaging Tomorrow’s Consumer” informed about the ecological and social impacts report, trust (78 percent), environmental friendliness and ethical practices (71 of their buying habits and have greater means to percent), and alignment with a cause or social issue (61 percent) are among the top buying concerns for Millennials. 86 percent of Millennials are willing to share create pressure for change. This evolution of power their brand preferences online. is transforming the nature of the relationships between retailers and consumers. Business responses n Chipotle’s annual Cultivate Festival inspires consumers to discover family farmers, local products, fresh ingredients, and more around its Food with Integrity platform. n My Starbucks Idea seeks to crowdsource ideas from consumers. More than 150,000 ideas have been submitted and two million votes have been cast over five years (more than the last mayoral election in Chicago). n GoodGuide, a smartphone app, enables consumers to review various health, sustainability and other criteria by scanning the product’s barcode. It currently catalogues information about over 210,000 products. Questions n How will you build trust with consumers of the future n What will you do to ensure that your brands continue to engage with consumers on the issues they care about 14Signals of change Circular economy n Highly beneficial from a materials and costs point of view, a circular economy is likely to continue to emerge over the next two decades. Its development is at an early stage, and barriers to scale include the need for regulatory change, new The circular economy is an integrated industrial technology, crossindustry collaboration, and changes in consumer behavior. system inspired by the natural world, in which n According to the Ellen MacArthur Foundation, the circular economy has waste from one process provides the input for the potential to generate more than 1 trillion in GDP globally. Currently, only 20 percent of material goods are recovered, primarily to be reused or another process. In that way, nothing is discarded. decomposed. In addition, the report expects this economy’s expansion to lead For retail, applying this system typically means to such benefits as innovation, land productivity, soil health, and job creation. finding new uses for products and materials that n Thirtyone U.S. states have extended producer responsibility (also known as product stewardship) laws for specific products. Connecticut, Massachusetts, would otherwise be discarded. As resources and Vermont have become the first states to ban the disposal of organic matter become scarcer and more expensive, interest in in landfills, forcing significant improvements in food waste reduction. developing a circular economy is growing. Business responses n Launched in May 2014, the businessled Closed Loop Fund aims to provide low interest loans to U.S. municipalities to advance projects that improve recycling infrastructure from a 100 million fund. Initial investors include Walmart, The CocaCola Company, PepsiCo, Procter Gamble, Unilever, Johnson Johnson and Goldman Sachs. n Foss Manufacturing produces a highquality polyester fiber from 100 recycled plastic bottles that are used as fiber in clothing, carpeting, furniture, and other applications. n Patagonia provides product repairs, helps host a marketplace for reselling used clothing, and recycles all of its products. Questions n How could your business help build a circular economy Do you or your consumers produce waste products that could be valuable inputs for another part of your supply chain or another sector n Which businesses, within or outside of your sector, are potential collaborators in building circular material systems n What is the role of your business in addressing the barriers to creating a circular economy, including regulatory, technological, infrastructural, or behavioral barriers 15Signals of change d ecline in n A study by the The Economics of Ecosystems and Biodiversity (TEEB) found that environmental externalities—including loss of natural resources and nature based services—are costing the global economy 4.7 trillion per year. The study ecosystem services estimates that conserving forests would eliminate 3.7 trillion in damage related to climate change by 2030 and that mismanagement of the world’ s fisheries costs 50 billion each year. Ecosystems provide essential goods and n The 2005 Millennium Ecosystem Assessment found that approximately 60 services that sustain life – from the purification percent of global ecosystem services are degraded or used unsustainably, of air and water to the provision of food, fuel, and resulting in nonlinear changes (i.e., accelerating, abrupt, and potentially irreversible) that have important implications on human wellbeing and are fiber. Although generally not valued or factored affecting the poor disproportionately. into investment decisions, industries such as n Emerging complementary approaches to traditional conservation include agriculture, pharmaceuticals, or cosmetics could restoration and rewilding, where targeted interventions aim to increase not exist without them. biodiversity in degraded ecosystems. Examples include reintroducing native plant and animal species back into the White River National Forest in Colorado to address disturbed areas and reintroducing trout into the River Wandle in London, England to restore river health in a polluted area. Business responses n A few companies are exploring monetary valuation of ecosystem services and, in some cases, are even integrating these financial values into their corporate accounting. PUMA’s Environmental Profit and Loss Account (EPL), for instance, evaluates “environmental impact for greenhouse gas emissions, water use, land use, air pollution and waste generated through the operations and supply chain” and has received considerable media attention and a few prominent supporters. Questions n In what ways does your business depend, directly or indirectly, on ecosystem services n How would your investment decisions change if you or your stakeholders incorporated the costs of ecosystem services 16Signals of change w ater insecurity n According to the Organisation for Economic Cooperation and Development (OECD), almost half the world’s population will be living under severe water stress by 2030 under a businessasusual scenario. More water is being used for agriculture, industry, n Although the United States is classified as medium risk for water stress overall, energy generation, and inhome uses as population large areas are already suffering: Arizona, California, Kansas, Nebraska, New grows and globalization increases. Freshwater Mexico, and Texas are all classified as being at high or extreme risk. n is becoming scarcer and increasingly expensive, Concern over embedded water in food and other products is also expected to increase in the next five years. Trade in embedded water has steadily increased which will necessitate changes in usage and over the last four decades. Approximately 15 percent of domestic water is conservation in both industrial and household exported via trade. contexts. n According to the Water Research Foundation, water rates increased in over 1,961 utilities in six U.S. states over the last decade – at a rate faster than Consumer Price Index (CPI) inflation. Business responses n The CocaCola Company has committed to becoming “water neutral” by 2020. It needs 333 ounces of water to generate one dollar of revenue and is highly dependent on efficient water use. n According to the U.S. Department of Agriculture, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices beyond forecasted CPI increases; drought conditions in Texas and Oklahoma could drive beef prices up further. Questions n What is the water footprint of your current products, services, and operations n What are the implications for your business if relatively inexpensive and/or adequate water supplies are no longer guaranteed n What steps can you take to minimize your reliance on fresh water n How can your business help people use water more efficiently 17Signals of change Resource scarcity n Humanity currently uses resources at a rate 50 percent faster than they can be regenerated by nature. By the early 2030s, we are projected to need more than two planets to meet resource demand, compared to half a planet’s worth in the Many key natural resources are becoming more 1960s. scarce and expensive. An increase in global n Resource demand from emerging markets, particularly in Asia, in the past interconnectedness means that shocks can decade has reversed the price declines of the 20th century. For example, metal prices have jumped 176 percent since 2000 after declining throughout the 20th quickly ripple throughout supply chains, causing century, according to McKinsey. price spikes and volatility. Governments and n In 2014, 80 percent of countries consume more biocapacity (e.g., cropland, businesses will likely continue to struggle to fisheries, forests, etc.) than is available within their borders. Copper, zinc, tin, and nickel have seen a near exponential rise in production. There is not enough secure continuous supplies of key resources and copper to meet the demands of the future global population at the same levels are developing alternatives where possible. used in Western lifestyles today. Business responses n Pronutria, a biotech company, has developed a process that converts algae to protein necessary for human nutrition. The company claims it can feed a billion people on an area of land the size of Rhode Island. n In June 2014, BlueOak, a leader in sustainable sourcing, received 35 million from the Arkansas Teachers’ Retirement Fund (a consortium of European and domestic investors) and the Arkansas Development Finance Authority to build the first urban mining refinery in the United States capable of retrieving valuable metals, including gold, silver, copper and palladium, from ewaste. Production at the Arkansas facility is scheduled to begin by the end of 2015. Questions n What natural resources does your business depend on for its products, and what are the medium and longterm prognoses for these resources n How could resource scarcity affect your business indirectly (e.g., through regulation, consumer demand, resource conflict, or protectionism) n What actions can you take to secure resources or find alternatives 18Signals of change Time poverty n The average American worked 1,800 hours in 2013, significantly more than workers in countries like France (1,490 hours) and Germany (1,430 hours). People in East Asian countries, including Korea, Hong Kong, and Singapore, Time poverty is a growing concern for Americans, work even more hours than Americans. who work longer hours than citizens of many other n On average, a U.S. worker spends 60 percent of the day (14.3 hours) on countries. This influences many other retailrelated personal care and leisure (including eating and sleeping). This is less than the average (15 hours) for the 34 Organization for Economic Cooperation and trends such as pressure for greater convenience, Development (OECD) member countries. online shopping, deliveryondemand, and retail n According to the Anxiety and Depression Association of America, anxiety everywhere. Time poverty also contributes to disorders are the most common mental illness in the U.S. and affect 40 million Americans. Lack of time, or stress, can exacerbate an anxiety disorder. Anxiety increased stress and mental health problems. disorders cost the U.S. 42 billion per year, almost onethird of the nation’s yearly mental health bill. Business responses n More employers are experimenting with ways to ensure their employees are healthy and happy—from offering fourday workweeks to nutritious food on the job. In a 2012 New York Times article, tech CEO Jason Fried described the productivity gains that came from shifting his company to a fourday workweek. n Meditation training is becoming widespread in innovative business communities in Silicon Valley. Companies, such as Google, are hiring Zen masters to lead mindfulness exercises. Questions n How will time poverty impact the way customers interact with your products and stores n How can your products or services enhance customer wellbeing and minimize time poverty n What can you do to ensure the productivity and wellbeing of your employees 19Signals of change g eopolitical n Geopolitical instability indirectly contributes to fluctuations in commodity prices and impacts the supply of raw materials. Experts believe we are likely to see more systemlevel disruptions (e.g., attacks on oil pipes, power grids, instability IT networks, and the food supply) as a highimpact way of expressing dissent. Approximately 60 to 70 of historical commodity price movements are associated with noncommodity shocks, such as political insecurity, rather than Climate change, resource scarcity, poverty, and direct shocks to commodity markets. ideological conflicts all threaten to continue or n According to a study conducted by the Millennium Project in 2012, half of the deepen geopolitical instability. Today’s retail world is vulnerable to social instability and violence due to growing global and local inequalities, falling water tables, increasing energy demands, outdated supply chains are global in nature; meaning that institutional structures, inadequate legal systems, and increasing costs of food, even localized natural, humanitarian, and political water, and energy. disasters can influence the raw material extraction, n A September 2013 McKinsey survey found that 47 percent of executives production, and transportation of products around considered geopolitical instability the biggest threat to domestic growth in the next year; 69 percent of respondents (up from 51 percent in June) cited the world.  geopolitical instability as a threat to global growth. Business responses n In May 2014, the Financial Times reported that China and Vietnam’s political standoff in the South China Sea is causing significant disruption to global supply chains. For example, Taiwanese electronics manufacturer Foxconn, which produces iPhones and iPads for Apple, halted work for three days as a precaution. Yue Yuen, the world’s biggest manufacturer of sports shoes and supplier to Nike and Adidas, also shut down its operations. Questions n In what regions would conflict disrupt your supply chains n How resilient are your supply chains to changes in global trade relations n Have you conducted a risk assessment of your critical supply chains taking into account indirect threats such as resource scarcity, poverty, and climate change What mitigating actions could you take now 20Signals of change Energy n A resurgence of fossil fuel production is underway in the United States, driven by the use of hydraulic fracturing (‘fracking’) to extract “tight oil” and natural gas. Advocates see the shale boom lasting for 100 years; however, skeptics say it transformation could collapse within five to ten years. n Although natural gas emits fewer GHGs than coal, fracking is associated with The U.S. energy system is transitioning in response environmental degradation, especially of water sources, and has attracted much public scrutiny. to multiple factors, including energy security, n The cost of solar panels has dropped 75 percent since 2008. increasing demand, cost, safety, advances in n In June 2014, the U.S. Environmental Protection Agency (EPA) announced technology, and the need to lower greenhouse gas regulations to cut GHG emissions from coalfired power plants by 30 percent by (GHG) emissions. Volatile energy costs will have 2030 (from 2005 levels). The regulations will face years of legal challenges and it remains to be seen whether they will be implemented. profound impacts on business, both directly and n On May 11, 2014, Germany set a new record by producing 74 percent of its indirectly. energy from renewables. This record production occurred midday and solar and wind energy filled in a large portion of the power. The country is aiming for 80 percent of power to come from renewables by 2050. Business responses n The solar portfolios of many leading U.S. retailers are growing as the overall commercial market continues to develop. Apple, Costco, IKEA, Kohl’s, Macy’s, Staples, and Walmart were among the top 10 on the 2013 Solar Capacity Rankings for installing more than 445 megawatts (MW) of solar photovoltaic capacity (up from 300 MW in 2012). This investment in solar has allowed companies to reduce energy costs and better plan for the future. n Retailers like Ahold, Cabela’s, Macy’s, Safeway, Staples, Walmart, and Whole Foods are testing fuel cells at their stores to generate energy onsite. Questions n How exposed are your business and supply chains to unexpected increases in the cost of energy, including electricity and fuels n How exposed is your customer base to increases in energy costs How could increases change their lifestyle and purchasing behavior n Are there steps your business should take to hedge against possible cost increases and a change in the energy mix, for example, through onsite power generation 21Signals of change Education n In recent years, thousands of students who cannot access elite universities have been enrolling in online courses. At Stanford University in 2011, 160,000 students in 190 countries registered for an online artificial intelligence course. revolution n Educational models are being questioned as employers identify a gap between degrees and the skills that jobs require. According to McKinsey, 45 percent of The educational model that prevailed in the United U.S. employers say lack of skills is the main reason for entrylevel vacancies, and only 42 percent of worldwide employers believe new graduates are States for decades is rapidly changing. There is adequately prepared for work. a widespread feeling that education is no longer n The rising cost of U.S. college education has left many questioning its value and preparing students adequately for the world, but many others graduating from college with a heavy debt burden. According to the New York Times, student debt topped 1 trillion in May 2014. A record number little agreement on how it should change. At the of college students in America graduate deep in debt. Former U.S. Treasury same time, technology is enabling new forms of Secretary Lawrence Summers said that student loan debt was taking the “life teaching delivery, such as massive open online out of the housing recovery.” n courses (MOOCs), that are making education more Net Impact, a leading nonprofit that supports a new generation to work within and beyond business for a sustainable future, reported in its 2013 “Business widely accessible and affordable. as UNusual: The Student Guide to Graduate Programs” that social and environmental issues are becoming a standard feature in leading MBA programs, in part driven by overwhelming student demand. Business responses n Companies like Apple, Ford, LEGO, and Disney are members of the Partnership for 21st Century Skills, an organization that builds partnerships among educators, businesses, communities, and governments to promote the teaching of 21st century skills. n In partnership with handset makers Nokia, Samsung, and Ericsson, and network infrastructure manufacturers Qualcomm and MediaTek, Facebook CEO Mark Zuckerberg launched Internet.org to connect the world’s poor to basic internet services. It aims to alleviate poverty and provide education by allowing more people to participate in the knowledge economy. Questions n What skills will be needed for the future jobs in your industry n Is there a role for your business to work with those innovating in the educational system n What will it mean for the workforce and consumers if people leave college with a high debt burden 22Signals of change Coping with n The Intergovernmental Panel on Climate Change’s “Fifth Assessment Report” warns that carbon emissions grew twice as fast during the past decade as they did over the previous three decades. climate change n The World Bank estimates that adapting to climate change will cost the world 70 to 100 billion per year by 2050—the same order of magnitude as the In addition to the direct environmental impacts of foreign aid that developed countries now give each year. n climate change (e.g., increases in floods, droughts, The 2014 U.S. National Climate Assessment declared that climate change is no longer a future possibility, but a current reality. extreme temperatures, sea level rise, etc.), societal n Regional capandtrade initiatives have cropped up in the United States and responses like regulations will shape the future of Canada and are considered more efficient and effective than actions taken retail. Governments and organizations are likely by individual states because they cover a broader geographic area (and more emissions), eliminate duplication of work among states, and help businesses by to focus even more on reducing carbon emissions bringing greater uniformity and predictability to state rules and regulations. and to place a greater emphasis on adapting and n San Francisco recently hired the world’s first Chief Resilience Officer to plan the developing climate resilient models. city’s longterm adaptive response to climate change. Business responses n Two dozen major U.S. corporations (including ConAgra Foods, Delta Airlines, DuPont, Duke Energy, General Electric, Google, Microsoft, Walt Disney, Wells Fargo, and five major oil companies) are factoring the price of carbon into their strategic planning. n Chipotle recently warned investors that extreme weather “associated with global climate change” might force it to stop serving menu items such as guacamole. n According to Ceres’s 2014 “Power Forward” report, 60 percent of the Fortune 100 have goals for shifting to more renewable energy or reducing greenhouse gas emissions. Questions n Are your supply chains and operations resilient to climate change impacts, such as increased flooding, drought, and extreme storms Do you have a climate change adaptation strategy n How might action by others to address climate change affect your supply chains and products n How could you improve business performance while lowering carbon emissions and preparing for climate risks 23
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