- The Specialised Retail (SR) sector contains companies that focus on specific product/service categories retailed to consumers (mainly B2C), such as stationary, apparel or software. The list of Specialised Retail subsectors can hardly be exhaustive due to the multitude of products/services in which companies can specialise; however, the main distinction between companies composing the sector is made on the following basis:
- Companies with “Own Brand Products” (OBP) which manufacture and retail
- Sole retailers with NO OBP
This distinction impacts the scope of the companies’ responsibilities in terms of:
- Product/service safety
- Supply chain issues
- Environmental responsibilities
- Apparel & Footwear companies represent 30% of the Specialised Retail sector, constituting the biggest share compared to other subsectors.
- Vigeo Eiris awarded an average overall score of 24.9 to companies in the Specialised Retail sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis.
- The sector ranks last out of Vigeo Eiris’ 39 sectors, which cover a research universe of 4,850 companies. Previously, the sector still ranked last.
- Sector leaders are concentrated in Europe, whilst laggards are mostly listed in Asia Pacific and Emerging Markets.
- The Specialised Retail sector reporting rate is 50%, slightly below the universe average (58%), with North American companies being more exhaustive in communicating on their ESG policies, practices and performances. This is mainly due to the concentration of many big retailers in this region which are under a stronger scrutiny from stakeholders.
- ESG risk mitigation scores are weak and below universe average in relation to reputation (28/100), operational efficiency (25/100), human capital (20/100) and legal security (28/100).
- The capacity of the sector to tackle climate change and support the transition to a low-carbon economy remains weak (16/100). European companies lead the sector in efforts to integrate climate risk management into their underwriting. 78% of companies within the sector have shown a weak energy transition performance while only 1% have shown an advanced performance. The best performer here is ……
- The sector faces 241 controversies, affecting 32% of the companies: 16% are involved in high severity cases, 11% in significant cases, 5% in minor cases and none is involved in critical cases. The most recurrent controversies concern product safety, information to customers and social standards in the supply chain.
- Six years after the Rana Plaza scandal, is the lesson learnt?
Six years have passed since the horrendous collapse of Bangladeshi factories supplying some of the biggest fashion retailers in the world. That disaster shed light on social issues in the supply chain in less regulated countries. In 2013 a group of retailers and NGOs have signed a five-year legally binding Accord on Factory and Building Safety in Bangladesh. In 2018, the Accord was renewed, however, only 22% of the companies rated under the apparel & footwear subsector in Vigeo Eiris’ universe are signatories. Moreover, this subsector’s average performance in terms of social standards in the supply chain remains limited (42/100) and relatively unchanged over the past three years. Furthermore, despite companies’ efforts, 30 controversies have been registered concerning this issue, with Hennes & Mauritz (H&M) alone facing 7 of them. Nonetheless, 16% of apparel & footwear retailers in the universe achieve advanced performances in terms of integration of labour standards in the supply chain, demonstrating comprehensive commitments and means, however, disclosure on results is still lacking.
- Data protection and costs reductions are key challenges faced by online retailers
Online retailers have changed the retail business and consumer’s shopping habits by providing easier and faster access to products and services; however, new issues have also risen with them. Indeed, some giant online retailers, such as Amazon, are subject to occasional controversies related to anti-competitive practices and data privacy, which increases their exposes to legal and reputational risks. In addition, weak (27.3/100) and limited (30.5/100) scores are respectively registered by online retailers regarding the prevention of anti-trust practices and information to customers. Moreover, in order to meet the promised delivery schedules, employees are reportedly put under significant pressure and in particular working conditions which threatens their overall wellbeing and translates into an overall weak (19.5/100) subsector performance in terms of health and safety.
- Circularity could help the sector to better manage the environmental impacts of products at the disposal phase
Some retailers are strongly criticised for to the management of products end of life. Indeed, some companies would rather burn or throw to waste perfectly new items instead of selling them at a discount or giving them to charity to make room for new products and keep a certain brand image. These practices can come from all types of retailers regardless of the products they sell, and this issue is receiving a growing attention from governments but current legislations are still not framed to properly tackle this problem. There are currently no laws that bans companies from disposing of brand new products, and companies do not seem to be taking part in the shaping of these policies. Very few companies in the sector (2.6%) such as Kingfisher, Best Buy Company, and Rexel, are demonstrating robust and advanced performances regarding this issue, while the sector average remains weak (14.1/100).
- Despite initiatives promoted by the industry and stakeholders, the sector’s average performance on sustainable sourcing still shows margins for improvement
Retailers that are involved in the manufacturing of their products are bound to source raw materials. However, sometimes the criteria taken into account in the selection of suppliers appears to neglect the bottom the environmental and social line framework. In order to ensure sustainable procurement, there are some initiatives, such as Better Cotton and Fair Trade, aimed at improving trading conditions and traceability along the supply chain of some products. 7.4% of the companies assessed on the integration of environmental standards in the supply chain in the sector and 12.7% of companies assessed on social factors are part of such initiatives. The sector has also noted a slight improvement regarding both environmental and social standards in the supply chain, however, the overall performances remain respectively weak (25.3/100) and limited (34.3/100).
Best performing areas:
- Audit and Internal Controls
- Board of Directors
Worst performing areas:
- Working hours
Top Performing Companies:
- Europe: Rexel (61/100)
- North America: Hasbro (43/100)
- Asia Pacific: Wesfarmers; Asics Corporation (36/100)
- Emerging Markets: Lojas Renner; Sodimac (35/100)
Companies making best progress since 2017:
- Europe: Motorpoint Group (+16)
- North America: Foot Locker; Hasbro; QVC (+7)
- Asia Pacific: Marui Group (+15)
- Emerging Markets: Hotai Motor Company (+18)
To view an excerpt of our 2019 Specialised Retail sector report, download the document below.
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ESG, Specialised retail