How much do Chinese consumers care about sustainability? Are sustainability concerns translating into purchasing decisions? How can brands prepare for the future of sustainable consumption? Insights on the apparel industry from KPMG shed light on how brands in all industries can maximise sustainability to meet the needs of Chinese consumers
Like people in countries all over the world, Chinese consumers are concerned about pollution, waste products, and the environment. To varying degrees, these concerns are now translating into greater awareness of the sustainability credentials of brands and, ultimately, purchasing intentions.
Pressure to change is coming from more than just the consumers themselves. Governments around the world are introducing new regulations regarding how products are produced and what materials can be used. At the same time, Environmental, Social and Corporate Governance (ESG) factors have become a key focus for the investment community.
Given the well-documented need of young people to have as much information as possible about their purchases, companies will not only have to take full responsibility for how their products are made and the conditions under which they are made, but also to tell the story of how all this happens in a transparent way
“Walking the talk on sustainability issues is something that [brands] can no longer afford to ignore. Consumers nowadays have so much more information on the sustainability credentials of products, as well as the companies behind them and their impact on the wider community,” says Anson Bailey, Head of Consumer & Retail, ASPAC, KPMG China, commenting on a recent research report by KPMG and Serai on sustainability in the apparel industry. The report, entitled ‘Moving the needle: Threading a sustainable future for apparel,’ offers insights that can be applied to a wide range of industries.
How much do Chinese consumers care about sustainability?
Changing consumer attitudes are a major reason why sustainability has risen up the agenda in China for many businesses in the apparel industry and beyond.
When thinking about what defines sustainable products, Chinese consumers point to factors such as high-quality, durable materials that require little after-care, chemical and pollutant-free products and processes, the use of resource-saving technologies, and the use of recycled materials.
Consumers are increasingly willing to pay more for sustainable products, so it can be potentially lucrative for brands to differentiate themselves in this way. This trend appears to have accelerated during the Covid-19 pandemic, with consumers having taken the opportunity of closed stores and more time at home to reassess their consumption habits. For example, a KPMG study in 2021 found that since the beginning of the pandemic, 68% of Hong Kong consumers and 65% of those from Greater Bay Area cities in mainland China have become more conscious of a product’s origins. According to a 2019 survey by Fashion Summit and KPMG, consumers in Shanghai ranked a brand’s environmental friendliness message higher than any of the other cities surveyed.
Walking the talk on sustainability issues is something that brands can no longer afford to ignore.
– Anson Bailey, Head of Consumer & Retail, ASPAC, KPMG China
However, there are still differences between the environmental considerations and the actual behaviour of consumers. Cost can be a key obstacle to consumer adoption of sustainable products. The Fashion Summit and KPMG survey found that worldwide, only 13% of people are willing to pay more for sustainable fashion (the figure was slightly higher for consumers in Shanghai at 22%). Nevertheless, research indicates that businesses with higher sustainability scores have a lower cost of capital — savings that can then be passed on to consumers — and according to analysis by KPMG, a sustainable apparel business can expect to have an average increase in their net profit of 1-1.5% for brands, and 1.5-2.5% for suppliers.
How to create supply chain transparency to build consumer trust in sustainability
Supply chain transparency is increasingly becoming a key part of any industry’s efforts to become more sustainable. It is therefore not surprising that KPMG and Serai’s survey found that executives ranked achieving end-to-end supply chain transparency as the single biggest issue that their company needs to solve in the short to medium-term.
“Consumers are asking more questions about not just where the product was manufactured, but also the raw materials that were used and where these came from. Being 100% transparent will lead to more orders for suppliers,” says Edgar Tung, COO, Esquel Group, quoted in the KPMG/Serai Report. Indeed, a 2021 survey by The Silk Initiative found that ‘supply chain transparency’ was one of the sustainability claims that resonated best with Chinese consumers, ranking far above ‘fair-trade products’ or ‘safe working conditions.’
To start moving towards a sustainable future, companies need to adopt a comprehensive, structured and systematic approach to change. KPMG and Serai’s report suggests that companies take into account five key considerations:
1. Make sure all stakeholders are on the same page
To actually achieve sustainable growth, every relevant process, function and relationship in the business should be aligned towards the same clear goal. Business stakeholders across the entire organisation need to be involved in setting enterprise-wide aligned transparency targets.
2. Create an achievable framework
Once an overall vision for supply chain transparency has been defined, a strategic framework needs to be designed. A detailed and practical approach to how to achieve the desired goals is also key. For example, data structures and formats need to be drawn up and minimum data requirements set, the type of solutions needed should also be agreed on and potential partnership or outsourcing requirements laid out.
3. Construct a fact-based supply chain
Companies should start by gathering information on the origins and network flows of all materials, as well as map out supply chain trading partners and how they work together, to create a detailed picture of the supply chain. Connecting with related parties can be highly impactful in building trust and strengthening relationships across the supply chain, which in turn will facilitate the willingness of stakeholders to share information.
4. Collect and consolidate key information
The gap between intent and achieving transparency is driven by a lack of access to quality and consistent data. Companies need to identify where and how data is collected – both internally and externally – and create rules for storage/sharing rules so that data can be accessed by all participants of the supply chain. This process should be supported by relevant technologies and tools.
5. Use data to identify and manage risks
Consolidated data and clear protocols should give companies the information they need to take concrete actions and manage any risks arising during the process of supply chain transparency. This can be achieved with tools from third-party solution providers or in-house systems.
The future of sustainable consumption in China
“The COP26 climate summit has highlighted the need for change. Greater transparency means that brands will be held accountable, however, it also opens up opportunities to better manage inventories, introduce more agility, and achieve greater collaboration across the entire supply chain,” says Bailey.
Like many consumer segments in China, young people are driving increased interest in sustainable products and brands. As Fashion Summit/KPMG’s report ‘Sustainable Fashion: A Survey on Global Perspectives’ concludes, “Given the well-documented need of young people to have as much information as possible about their purchases, companies will not only have to take full responsibility for how their products are made and the conditions under which they are made, but also to tell the story of how all this happens in a transparent way.”
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Portions of this article were adapted from KPMG and Serai’s 2021 report, Moving the Needle: Threading a Sustainable Future for Apparel