On February 23, 2023, McCarthy Tétrault hosted our 13th Annual National Retail and Consumer Markets Summit – our annual client-focused event that canvasses a selection of the most timely and relevant developments facing the retail and consumer markets (“RCM”) industry.

Themes that emerged from the Summit included disruption in the market, adaptability, and strategic opportunities for building resilience in the industry. Speakers provided practical and insightful guidance relating to digitization and investments in technology, greenwashing and equity, diversity and inclusion (“EDI”) programs.

The following is Part 1 of a three-part series highlighting key takeaways and trends from this year’s Summit.

Disruptive Retail

This year we were fortunate to welcome keynote speaker, Sonia Lapinsky, Partner & Managing Director of AlixPartners. Sonia unpacked the era of disruptive retail and the tools that business leaders will require in order to meet disruptive headwinds in the coming year.

AlixPartners’ annual Disruption Index and the data underlying it indicate that disruption is the new economic driver in the retail industry, and it is here to stay. “Disruption” refers to macro forces that displace businesses, markets and value networks as the result of economic, societal, environmental, political, regulatory or technological changes.

The disruption the retail industry is currently experiencing is different from disruption experienced in the past. Past disruption the industry experienced was, for the most part, only economic disruption in isolation. Today we have several contributors adding layers of complexity: the largest disruptive forces now also include changes in consumer behavior, technology, supply chain shortages, inflation and the environmental, social and governance pressures.

Disruption will inevitably impact businesses in the RCM industry. The ability to respond to disruption is a critical and strategic challenge both businesses, and business leaders, ought to be prepared to confront.

Forward-thinking leaders and businesses who prioritize and take action prove to be the actors who continue to see growth in the face of disruption. They have greater abilities to survive disruptive forces.

Proactive businesses have started to contemplate how to confront disruption by implementing changes to their existing business models. The three key strategic focal points businesses and executives are prioritizing when implementing business model changes are:

1. The Economy – businesses should plan for economic disruption via recession readiness and inflation management.
2. Digitization – by embracing a digital-first approach, businesses can respond better to changing consumer behaviour and growing market competition.
3. Investments in technology – businesses and retailers can use investments in technology to drive efficiency and improved decision-making.

When compared against other industries, AlixPartners’ statistics suggest that retailers have taken fewer steps in these three priority areas.

Less than 25% of retail and consumer product players are investing in the data and technology sectors and retailers are investing, on average, 1.9-2% of revenue to investments in technology.[1]

These figures demonstrate that while there is work to be done, there is ample opportunity for players in this industry to adapt and respond to disruption – and there is a profitable business case for doing so.

Cost of Being Green - Greenwashing & Environmental Claims Under the Competition Act

McCarthy’s own Nikiforos Iatrou shed light on recent and significant amendments to the Competition Act including, among other changes, reform to deceptive marketing practices.

Greenwashing is generally understood as the practice of making unsupported, false or misleading environmental ads or claims[2]. Greenwashing can take a variety of forms including claims, adjectives, colours and/or symbols that create the impression that the product or service is “green” or “greener” than it factually is.[3] Businesses that engage in civil deceptive marketing – such as greenwashing – may now attract significantly larger administrative monetary penalties if found liable for engaging in such practices. Previously, the maximum penalty for any deceptive marking was C$10 million. Now, amendments contemplate penalties of up to three times the value of the benefit derived from the deceptive conduct or, if this amount cannot be reasonably determined, up to 3% of a company’s annual worldwide gross revenues.

Businesses may become the subject of an allegation of greenwashing through different avenues, including:

1. Competition Bureau-initiated investigation,
2. Customer or competitor complaints and/or
3. Six-resident complaints made to the Competition Bureau.

If found liable, additional risks such as class-action lawsuits also emerge.

Examples of Bureau Inquiries:

• Dynasty Spas and EcoSmart Spas (2010): made misleading representations suggesting that their hot tubs were eligible for ENERGY STAR certification. The targets agreed to pay a monetary penalty, change all advertising, publish corrective notices, and implement internal compliance programs.
• Keurig (2022): more recently, Keurig was the subject of two allegedly misleading claims regarding recyclability of K-Cup pods. Keurig Canada agreed to pay C$3.9 million in penalties, donations, and investigation costs; change advertising; publish corrective notices; and enhance its internal compliance program.

Both cases serve as a reminder to businesses of the cost associated with making claims of being ‘green’ absent sufficient support – whether based on recyclability or improper use of ‘certification’ stamps.

Best Practices to avoid claims of greenwashing:

1. Specificity – be precise about how your product or service is environmentally friendly
2. Substantiated and Verifiable Claims – performance claims must be based on adequate and proper testing
3. Avoid exaggeration – be careful not to overstate the environmental benefits of your product/service
4. Environmental Endorsements – don’t imply your product/service is endorsed or compliant if it isn’t
5. Qualifications – any qualifications used should be clear and easy to understand

During the second half of this panel, Erin Andrews (Executive Director, Impact Zero) discussed how businesses can, and are, reimagining goods and services that align with the notion of a circular economy.

In the past, the RCM industry has traditionally dealt with a flawed incentive structure to produce more and sell more, in turn depleting finite resources and pushing the planetary bounds on disposal options. Leveraging the circular economy allows producers and retailers to realign incentives in a way that lightens the environmental burden. Erin presented the “do’s” to the greenwashing “do nots”: real examples of how businesses could implement green initiatives in their business models. Re-purposing and redirecting waste into secondary profit streams, instituting subscription services that grow brand stickiness while reusing product packaging, and re-deploying recycled parts at the end of a product’s lifecycle are all initiatives that can effectively divert the linear economy. Ultimately, those at the vanguard of the RCM industry are recognizing that the circular economy presents opportunities to materially improve a brand’s environmental impact while realizing new revenue sources and strengthening customer loyalty.

Advancing the Equity, Diversity and Inclusion Conversation: Three Years Later – The EDI Inflection Point

Guest panelists included Shannon Higginson (lululemon, General Counsel) and Junior Sirivar (McCarthy Tétrault, Partner and Co-Chair of the firm’s International Arbitration Group). The panel was moderated by Lara Nathans (McCarthy Tétrault, Partner and Industry Strategy Leader).

Shannon Higginson has been driving change in the EDI space at lululemon throughout her career, but in 2020 she reflected on how the company could be making more material strides internally. In conversation with Junior Sirivar, who discussed McCarthy Tétrault’s Inclusion Now program and other EDI initiatives at McCarthy Tétrault, they provided several examples of means to achieve measurable progress. Businesses considering how to strengthen their own EDI programs might find some inspiration from these examples:

• Talent management – Strategic approach should be tailored to each equity-seeking group and integrated into the hiring process. McCarthy’s Black and Indigenous 1L recruitment program is an example. Consider issues such as whether your hiring panel is diverse, whether training is provided to help lift up diverse employees to continually increase scores of inclusion.
• Reevaluate terminology – lululemon has changed their hiring model from “cultural fit” to “cultural additive” in their recruitment materials, and has undertaken a corresponding shift in actively seeking out candidates who bring diverse identities and perspectives to the organization.
• Leadership support – McCarthy’s has appointed a Chief Inclusion Officer to oversee the firm’s EDI strategy. Shannon is the executive sponsor of lululemon’s Indigenous People Network. Advisory committees and employee resource groups (women in STEM, size inclusivity, etc.) report to Senior Leadership and the board on a regular basis across a wide range of topics, to ensure accountability and institute verifiable metrics. The performance of leaders across both organizations is evaluated against EDI success measures.
• Employee participation – lululemon holds ‘listening sessions’ so leadership can hear from members of an equity-seeking group within their organization.

The panel agreed that the key to successful and effective EDI strategy implementation – like the success seen at lululemon – requires setting tangible goals and targets and conducting regular performance reviews to measure progress and identify opportunities for improvement. Business leaders can expect that stakeholders will make inquiries into their existing EDI strategy. The use of demographic metrics serves a dual-purpose in that it also allow businesses to readily answer to stakeholder inquiries and highlight their successes.

[1] AlixPartners. Disruption Index A bias for action sets growth leaders apart. (2023) https://disruption.alixpartners.com/

[2]  Competition Bureau Canada. Be on the lookout for greenwashing. (January 1, 2022) https://www.canada.ca/en/competition-bureau/news/2022/01/be-on-the-lookout-for-greenwashing.html

[3] Ibid.