Barclays : Retailers terminate contracts worth over £7bn as part of supply chain clean-up

• One in five UK retailers cancelled contracts last year with suppliers who fell foul of ethical and sustainable standards
• The cumulative value of these contracts is £7.1bn, new research from Barclays Corporate Banking shows
• Four in five (79%) retailers think long-term improvement to sustainable and ethical credentials is more important than overcoming short-term supply chain disruption
• Two thirds of younger shoppers will abandon their favourite retailers if they don't show strong commitment to ethics and sustainability

UK retailers have cancelled £7.1bn in contracts across the last 12 months with suppliers that don't meet stringent ethical and sustainable standards, new research¹ reveals.

The report out today from Barclays Corporate Banking - Reshaping retail: how ethics and sustainability are changing retail's ecosystem - shows that the pandemic and an increasing focus on Environment, Sustainability and Governance (ESG) are shifting business priorities. In a study of more than 300 retail decision makers, the majority (51%) say sustainability is more important now than it was two years ago and 49% say the same about ethical standards.

Additionally, almost four in five (79%) retailers think that a long-term strategy to improve their ethical and sustainable credentials 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 footprints.

However, the imperative to be more sustainable and ethical is now being felt financially across the supply chain. Over a fifth of retailers (21%) that Barclays surveyed have cut ties with suppliers in the last year because they're not meeting required standards. Among this group, the average is six contracts cancelled per retailer, with an average value of £306,000 per contract. Cumulatively, £7.1bn² worth of contracts have been cancelled across the industry over the last 12 months.

The most common reasons for cancelling contracts with suppliers were:

1. Use of unsustainable materials (39%)

2. Unfair working hours (37%)

3. Lack of membership to trade body that monitors ethical and sustainable standards (32%)

The importance of monitoring standards throughout the supply chain is reflected in the £179m³ 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.

Karen Johnson, Head of Retail and Wholesale, Barclays Corporate Banking, said: "We are seeing a marked acceleration and shift among retailers towards prioritising sustainable and ethical standards in every part of their business operations. That is now starting to take its toll on retail suppliers with billions of pounds worth of contracts being cancelled every year.

"It's being driven by increasing consumer demand and will rise even further as Gen Z enter the workplace and begin to earn their own money. Retailers must continue to monitor and improve their ethical and sustainability standards if they are to appeal strongly to younger demographics."

The 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 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 nearly two thirds (63%) wanting to see retailers make more ethical and sustainable upgrades in future.

Notes to editors:

¹This report is based on bespoke market research conducted by Censuswide among senior executives of 302 UK-based retail businesses and 2,002 UK consumers. The retailer sample covered businesses with 10 or more employees operating in a range of sub-sectors. The research was conducted between 30 November and 8 December 2021

²May 2021 parliamentary briefing paper states there are 310,000 retail businesses in the UK. 6% have more than 10 employees. 6% of 310,000 is 18,600 retailers. 21% of those have cancelled contracts due to ethical/sustainability concerns in the past 12 months, which is 3,906 retailers. This means 23,436 contracts have been cancelled. The average value of each contract is £306, 452, which leads us to: £7,181,376,300 total value of contracts cancelled in last 12 months because of concerns around ethics and sustainability

³28% ofretail manages signed up to industry bodies that monitor supply chain standards last year. Each business spends an average of £34,500 on membership. 34,500 * 18,600 (number of retail businesses with more than 10 employees) * 0.28 = £179,676,000 spent on new membership