Over the past few years, e-commerce has become an essential component of the global retail system. Looking back to 10 years ago, you will realize how quickly this industry has grown and changed the daily lives of billions of consumers. E-commerce is a revolution in the sales space and also fuels major innovations in many other related fields. Take for example the study of customer behavior in sociology; 1-day deliveries in logistics or target advertising in machine learning. Only to name a few.
While e-retail “only” accounted for 13.8% of total retail sales worldwide in 2020, 21% of sales are done online in 2022. This rate will continue to rise and is expected to reach almost 25% in 2025. Given the global impact of e-commerce, it is important to examine its impact on sustainability, what can be done to make it more climate-friendly, and how. However, despite the growth of e-commerce, traditional retail isn’t going anywhere. In 2022, brick-and-mortar stores still account for 87 percent of U.S. sales, and store-based retail remains the nation's largest employer, with 53 million jobs tied to it.
Understanding the ecological impacts of e-commerce and traditional retail is therefore critical to designing and achieving a more sustainable future in the global retail sector.
This Academy article will compare the two and try to understand their ecological footprints.
Retail can be carried out in brick and mortar establishments like supermarkets and shopping malls. On the other hand, e-commerce describes business dealings that are primarily conducted electronically over the Internet.
Is e-commerce more sustainable or traditional retail? As with all things related to sustainability, we want simple answers and simple solutions to implement. Unfortunately, it's often more complicated than it seems, and like everything else in society, it's not black and white.
There is no clear winner between in-store retail and e-commerce. In fact, in some studies, e-commerce will have a larger carbon footprint than its retail competitor. Instead of asking which alternative is more sustainable, we can look at different consumption scenarios and determine which one to prefer. In doing so, we can identify the right actions for retailers to implement to reduce their carbon footprint and educate consumers to make the right choice according to their needs.
As the global retail space grows, many innovations are blurring the line between in-store and online shopping. Supermarket chains are offering online shopping and in-store pickup, and consumers are visiting brick-and-mortar stores to view products before ordering them online. It is therefore important to understand what causes CO2 emissions, and to what extent, in the retail and e-commerce supply chains. Thanks to the booming carbon accounting industry, we now have a clearer understanding of carbon emissions hotspots.
Before exploring the impact of numerous scenarios combining online and in-store shopping, let’s understand the average e-commerce and traditional retail carbon footprint.
As explained in our Coolset Knowledge Base, the term “carbon footprint” refers to all direct and indirect greenhouse gas emissions linked with a particular product or activity. This means all emissions caused by this product or activity, in scopes 1, 2, and 3.
According to this MIT Real Estate Innovation Lab study, nearly half of the average e-commerce emissions come from packaging. This includes all packaging used in the supply chain when purchasing an item online. Nevertheless, most of the packaging accounted for in this carbon footprint analysis comes from the end of the supply chain, when products are shipped to customers. Some statistics are important to remember:
With the expansion of "try-on and return" policies in the apparel e-commerce sector, and the increase in the number of retailers offering free returns (49%), this sector has taken a significant share of the global industry's carbon footprint.
According to Hubspot, the average return rate in e-commerce is about 18%, compared to 8% for traditional retail. Considering that nearly 20% of returns end up in landfills, this becomes a critical sustainability challenge for the e-commerce industry.
Surprisingly, transport-level emissions account for less than 15% of average e-commerce emissions. With the rise of same-day shipping in the e-commerce sector, retailers now rely more and more on carbon-intensive transportation methods such as air transport and truck freight.
Property-level emissions mainly refer to emissions from warehouses and logistics and are more challenging to reduce directly, but have a direct link to transport-related emissions.
The average U.S. consumer makes at least 300 shopping trips per annum, according to the same MIT Lab. The emissions caused by these trips are indirectly attributed to the traditional retail carbon footprint, of which transportation-related emissions account for 70%. However, these emissions can vary a lot depending on the means of transportation used by consumers and their shopping habits. For instance, 28% of all trips in the Netherlands are made by bike, which is considered carbon neutral.
Traditional retail has one more link to the property chain than e-commerce: the retail store. This results in a slightly higher building-related carbon footprint than e-commerce. However, technologies that can be used to reduce retail stores’ carbon footprint are widely available and more and more affordable.
The return rate of traditional retail is 2-3 times lower than the average return rate of e-commerce, making its accountability much lower. And while there is still a lot of work to be done on packaging, there is almost no additional packaging in traditional retail compared to e-commerce (cardboard boxes).
We are now more aware of the carbon footprint of e-commerce and traditional retail. This is crucial to taking the right steps to reduce their emissions. In the following section, we will explore the impacts of multiple ways and scenarios to reduce carbon emissions.
Our base case comes from the MIT Lab study, which provides two average carbon emissions factors:
Let’s now explore reduction scenarios.
In this scenario, researchers considered that all the individuals studied used an electric car to do their shopping. The result is a huge decrease in overall emissions from brick-and-mortar shopping: -38%. According to the study, in areas where electricity comes from a low-carbon source, traditional retail would be far more sustainable than online shopping.
If suppliers’ vehicles were to become also less carbon-intensive, then e-commerce couldn’t compete with traditional retail.
If traditional retailers' stores were located in walkable (or bikeable) areas, in-store shopping would be 100% more sustainable than e-commerce. In fact, it would reduce traditional retailers' emissions by a staggering 52%.
E-commerce won't seriously challenge brick-and-mortar stores in terms of carbon emissions unless fulfillment can also be done from within the same urban area and employing effective EVs for delivery.
Given that nearly 50% of e-commerce carbon emissions come from packaging, taking action on packaging should have a significant impact. In fact, when online shoppers choose to purchase at least two products that fit in the same box per order, it reduces emissions by 30%. Bringing the average carbon footprint of an item to 0.528 kgCO2e.
But it also turns out that grouping items together in a physical store has a considerably bigger impact than doing it online. When buying ten or more items in one automobile trip, emissions are decreased by 50% overall.
The "no boxes" scenario applies to online retailers who choose to significantly reduce the amount of packaging they use to ship orders. New shipping technologies also allow online retailers to offer their customers packaging-free delivery. Overall, this scenario results in a 38% reduction in the carbon footprint of e-commerce.
In this scenario, online shoppers are more aware of product size and details before ordering. Technologies like augmented reality can help customers better understand products before they buy. The result would be a decrease in return rates and a 13 percent decrease in e-commerce emissions.
E-commerce is skyrocketing and its emissions are following suit. Amazon, which is committed to being carbon neutral by 2040, saw its emissions increase by 18% in 2021. While it offers enormous benefits, e-commerce has also increased unnecessary purchases and the production of poor-quality products, which combined have a significant impact on our environment.
Brick-and-mortar stores, in their modern versions (shopping malls), brick-and-mortar stores are also pioneers of impulse buying and heavy car use.
So it is vital to keep this in mind when considering reduction scenarios. As this article shows, the most effective actions to reduce emissions do not require disruptive and expansive technologies, if at all.
However, we can only understand this because we were able to analyze the carbon footprint of e-commerce and traditional retail. Fortunately, this is not just a tool for researchers and large companies. Any company can start measuring its carbon footprint today and see the results tomorrow.
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