Inflation: stress test or opportunity for sustainable consumption?

Does the inflation lead to a decline in sustainable development? Modern values and business models argue against it

inflation money
Source & Copyright Freepik

Author: Julia

It is clear that crises have an impact on people's consumer behavior. They lead to insecurities - socially, emotionally and financially. Especially when one crisis follows the next. First Corona, now the energy crisis, the shattering war in Ukraine and the resulting inflation. Even a looming recession.

In parallel to all these challenges, a change influencing consumer behavior was happening anyway: sustainability has advanced to become a decisive purchasing criterion and has developed from a niche phenomenon to a competitive advantage in the mainstream. However, sustainable products are simply more expensive. Better materials, environmentally friendly production and fairness along the value chain have their price.

And it is precisely this circumstance that leads us to ask, in light of the current crisis: What role can sustainability play in a consumer world dominated by inflation? After all, prices are rising continuously, while financial opportunities and consumer confidence are declining. The future topic of sustainability and the current situation seem to be at odds. But does that also mean they are mutually exclusive?

Are existential fears replacing the desire for a sustainable lifestyle?

The Bundesbank's monthly report for October confirms fears: persistently high inflation and uncertainties about energy supplies and their costs are clearly weighing on the economy. And Germany is on the brink of recession. More precisely, Germany's gross domestic product has not grown since the summer quarter and is instead stagnating. The logical consequence is that economic output is expected to fall in the winter half-year that has just begun. This would mean a recession - which is when GDP shrinks for at least two quarters in a row.

Inflation

According to the report, the inflation rate will remain in double digits in the coming months. Not for sure, but at least with a high probability. And that is despite new relief measures. To put this forecast into perspective, it is worth taking a look at the past: At 10% in September 2022, the inflation rate today is as high as it was last in 1951. Driven by rising prices for energy and food, the poor consumer mood and the reduced purchasing power are the drivers of this development.

The effect: experts are increasingly talking about when, rather than if, the downturn in the economy will begin. The last recession took place between 2007 and 2009 and manifested the effects of the global financial and world economic crisis. At that time, the sustainability revolution was still in its infancy and therefore did not have enough clout to survive such challenges. Thus, the discourse on sustainability and responsibility was replaced by conversations about livelihoods. Survival instead of green recovery and investment in sustainable initiatives or products.

Sustainability in the current context of the economy

So what structures need to exist or still be created so that people can consume sustainably despite price increases? In the Vogue Next panel talk, activist Arizona Muse addressed this question. For her, social responsibility comes from financial prosperity: Since the financially better off are in a position to pay premium prices for sustainable products, it would be their responsibility to exert pressure on the market with their demand.

In addition, the current context in which the economy is operating indicates that a regression in sustainable development does not necessarily have to be repeated, despite the recession. Meanwhile, the effects of climate change are visible worldwide. This creates an urgent need for action, which is why sustainable development has become the focus of public discussion in business and politics. Moreover, crises not only raise uncertainties, but also awareness. More and more consumers are demanding sustainability in various sectors. To be precise 80%, according to Bain & Company.

Ergo: The demand for sustainable products and services is increasing, regulatory authorities are promoting this development through restrictions, and companies must adapt to the change in order to remain resilient. It seems, then, that sustainability has now taken on such a relevant status that even inflation or recession could no longer cause disruptive regression.

A study proves: Consumer behavior is changing - but remains sustainable

According to the latest GfK Sustainability Index, sustainability remains important to Germans despite current world events. It has only fallen minimally since April, which shows: sustainable consumer behavior remains relatively stable. So does the willingness to pay more money for sustainable products (68% approval). Nevertheless, it is clear that more and more people are confronted with diminishing financial leeway. Particularly with regard to different population groups, some are more and others less crisis-resistant.

However, this has no influence on the desire to consume sustainably: Consumers are changing their buying behavior, switching from health food stores and organic supermarkets to discounters in order to continue to consume in an environmentally friendly way. According to GfK, organic products have even gained market share as a result. This new mindset also manifests itself in the planning of future purchases.

inflation organic

In April, 24% of respondents planned their purchases for the next 12 months with sustainability in mind. Currently, this figure has risen to 27%. One reason for this could be the energy crisis. After all, energy-efficient appliances promise savings on electricity, while sustainable solutions such as solar energy reduce energy costs. And at the same time, they help protect the environment.

Here, the crisis can provide impetus for sustainable development. The pandemic has already proven that unintended changes can teach us valuable lessons for climate change: For example, we learned to work differently, thus flying less and drastically minimizing CO2 emissions.

The potential of inflation: Driving fair price developments

However, GfK provides insights into products that are relevant to everyday life, if not essential for survival. For luxury products, for example fashion or cosmetics, a different trend could therefore emerge. According to the market research institute Kantar, the rising cost of living would cause more and more consumers to change their buying habits when it comes to cosmetics. Conventional cheap goods instead of sustainable branding. And this despite the fact that beauty is considered a relatively recession-proof industry.

So how do brands that operate sustainably and thus in the mid-range or higher price segment react to this? They, too, pay extra prices for producers or suppliers who act responsibly. But simply turning away from them is not an option. Today, sustainability commitments are so high-profile that turning away from them is associated with negative consequences. There is a threat of backlash, shitstorms and image damage - especially in the age of social media.

Means: Brands benefit neither from a dramatic price reduction, nor from distancing themselves from their sustainable agenda. The key is to strike a balance between accessible price points and sustainable commitments; to communicate compromises on their implementation transparently. To do this, brands can first identify the areas in which sustainability is particularly worthwhile. In this way, consumers are supported in using their tight budgets as effectively as possible.

Also productive: adjust pricing concepts. For example, switching to regional production or more efficient fleets that could improve the cost structure. Those who succeed in doing so can position themselves as resilient as well as competitive in the future. And contribute to making sustainable products more accessible and thus democratized.

Why circularity becomes more important in times of crisis - demand and resilience

Another positive side effect: inflation is intensifying the boom in the already growing resale and rental market. Driven by the pandemic, the value of the secondhand fashion market is expected to more than triple in the next 10 years - from $28 billion in 2019 to $80 billion in 2029, according to ThredUp. The reason: as in the case of organic food consumption, consumers do not want to sacrifice their sustainable lifestyle despite financial uncertainties. They are therefore looking for alternatives that combine their financial means, sustainability and - in the case of fashion - the desire to always be in vogue.

Circular business models such as resale and rental have found their way into the high-profile area of the fashion industry, especially through dedicated platforms such as Vestiaire Collective or Rebelle. High-end products, quality, individualized services and sustainability instead of eco-image and supposedly damaged B-goods. In this way, a cultural shift has been initiated that defines sustainability and circularity as the new rules of the sector. Now that resale is on the radar anyway and the crisis limits financial opportunities, brands could also be encouraged to adopt such business models themselves.

inflation: vestiaire collective

Source & Copyright by Vestiaire Collective

Brands without circular business models miss the opportunity to retain both the revenue and the positive consumer feedback that comes with sustainable initiatives. Thus, the introduction of resale and rental, but also of repair services or take-back schemes can mean future-relevant gains - monetary and non-material - for their crisis resilience.

Incidentally, this is not just about models that involve products at the end of their life cycle and thus the end of their value chains. For example, LVMH has launched Nona Source, a circular repurpose model that offers unprocessed deadstock from the Maison at competitive prices. This combines sustainability and affordable price points, allowing emerging designers or brands to work with high-quality materials despite the crisis.

Revival of the buzztheme consumption restraint - Implications for inflation

In general, the shrinking of financial margins can also lead to a sensitization of society. Sensitized to the fact that it has been consuming excessively and carelessly for a long time. Impulse shopping, microtrend orientation, throwaway mentality and fast fashion are no longer compatible with the current situation. Consumers have higher expectations of the durability, timelessness and quality of the products they purchase.

This development is reminiscent of a buzzword that entered the sustainable discourse even before the pandemic: Consumption restraint. At that time, however, the approach was based on a healthy economy. To be more precise, on a society of abundance. Today, it's about more than making more conscious choices. It's also about identifying attainable as well as accessible alternatives and prioritizing product attributes such as longevity.

In the best case, this new mindset can put pressure on the fashion industry to produce differently - to analyze what people really want and need. This could lead to a slowdown in the production of fast fashion and a reduction in waste and environmental impact.

What's next: Sustainable alternatives instead of sustainable brakes

Just as certain as the uncertainties created by inflation: The certainty that it does not necessarily mean a decline in sustainable consumption. Circular models and the increasing pressure on companies indicate that sustainability can also be offered at an affordable price point. And must.

It is now necessary to create more awareness for alternatives to conventional products as well as established purchasing behavior. This development can be promoted by the industries in particular through new offerings and adapted pricing policies. Ultimately, both companies and society can strengthen their resilience during the crisis in this way. Without putting sustainability on the back burner or doing without it altogether.

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