Online Retailers: Leading in Innovation, but Lagging in Corporate Responsibility?

Online retailers and brands are making beautiful, unique products more available than ever, and both consumers and investors have flocked to show their support. But are we holding them to the same standards that we’ve come to demand of industry-leading brick and mortar retailers?

In 2015, U.S. retail sales were $2.9 billion, and online retail made up just over 9% of that, at $271 million. While that may look like a small part of a large market, just five years prior, online retail was only 5% of total U.S. retail sales value. By 2020, Euromonitor International projects that online retail sales will nearly double, up to 15% of total U.S. retail sales. Notable growth in the online retail category is projected for every region in the world, which means it deserves the same consumer and investor scrutiny as the rest of the industry.

Through media attention, consumer boycotts, and shareholder resolutions, many established retailers and brands have realized that human rights and environmental abuses in international supply chains are bad for business. As a result, most apparel companies with strong brand recognition have since undertaken corporate responsibility or sustainability strategies as a matter of course.

While individual budgets and headcount for such practices will vary by companies’ scope and scale, in the Retail Industry Leaders Association’s (RILA) 2015 Retail Sustainability Report, nearly 80% of 42 responding companies had at least one employee with full time responsibilities related to sustainability, and more than 85% of respondents said sustainability was a source of innovation for their companies.

Forward-looking companies like Nike, Gap Inc., Levi Strauss & Co., and even home furnishings giant Ikea have now been investing in social and environmental responsibility for over a decade, building (or rebuilding) consumer trust all the while. And for good reason – in 2015, 85% of millennials surveyed said they were likely to switch brands to one that is associated with a good cause, given similar price and quality; 87% said they will be more loyal to a company that supports a social or environmental issue.

Yet, one segment of innovative, progressive retailers has remained quiet about corporate responsibility. Some of the most exciting American online retailers, in the heady rush of business growth, investor interest, and media hype, have been slow to address the impacts of their businesses. Companies like Warby Parker, Bonobos, and Wayfair haven’t had their crisis moments yet, but history tells us that without forethought, they will come. And given the retail industry’s progress on sustainable supply chains, impending social and environmental issues are unnecessary dangers to the brand value and reputations that online retailers’ expert marketers have built.

Up to now, it’s possible that online shoppers haven’t asked where products are made. In a brick-and-mortar store, a teetering stack of sweaters or a bin full of inexpensive toys is a reminder that items are manufactured at scale in factories. But when a single item arrives on your doorstep, is it obvious that it, too, was mass-produced?

Online shopping is still relatively novel, but the structure and opacity of international supply chains is the same, and the same human rights abuses and negative environmental impacts are lurking. In a recent Ethical Corporation whitepaper, 34% of executives said they were pursuing sustainable supply chains to eliminate supply chain risks. Of those risks, human rights, at 47%, were the leading concern.

When we shop online and have products delivered to our doorsteps, do we think about where the products came from and how they were made?

Bonobos, a men’s clothing start-up, sells products comparable to those offered by the apparel companies that have suffered reputation impacts due to crises, and which are now leading in supply chain sustainability. But Bonobos is not yet a member of any major apparel consortium, and offers no information about its suppliers or even basic social compliance standards.

Warby Parker, the popular and highly-valued “try before you buy” mail-order glasses company, is a certified B-Corp and has always maintained an admirable partnership with VisionSpring to make glasses more available in low-income communities. But affordable pricing aside, the company isn’t so different from its brick-and-mortar competitor, Luxottica, in that it provides little information about the suppliers making acetate glasses frames or the tiny screws that hold its frames together. Project JUST confirmed that as of March 2016, Warby Parker does not publicly disclose its suppliers, and has not shared any goals for improving the social or environmental impacts of its supply chain.

So far, both of these companies are privately held, and thus may not be facing the investor pressure that can sometimes push companies to better examine and report on their supply chain impacts. But it’s easy to imagine that online retailers that integrate sustainable supply chain practices early will be better positioned to execute them in the future, and also better able to account for inherent social and environmental risks, should they ever issue a public offering.

Of course, public trading doesn’t ensure companies will pursue transparency in supply chain standards. Wayfair, which raised about $319 million when it went public in 2014, has yet to report on corporate responsibility. The company, which ships furniture and home goods from thousands of vendors directly to customers’ doors, is missing an opportunity to both build its reputation and mitigate business risk.

Ikea remains the leader in corporate responsibility in home furnishings. Its goals are extensive, like aiming to source 100% of wood, paper, and cardboard from more sustainable sources by August 2020. Meanwhile, online leader Amazon has recently ramped up its sustainability team, and direct Wayfair competitor Williams-Sonoma Inc. – with subsidiaries West Elm and Pottery Barn – has outlined the alignment of its business strategy and corporate responsibility efforts.

Consumers aren’t demanding transparency of online retailers yet, but if – or when – there is a crisis, such demands will come. In 2015, 90% of survey respondents told Cone Communications and Ebiquity that they would stop buying a company’s products if they learned of irresponsible or deceptive business practices.

In fact, as online retailers expand to traditional storefronts, consumer expectations may grow even faster than these companies realize. Warby Parker now has 37 physical shops, and Bonobos has 25. Even Amazon has begun dabbling in offline sales through its bookstores. As consumers have new hands-on experiences with online retailers, they may also have new and tough questions about their products and operations.

E-commerce companies are not today, but must eventually be held to the same standards as traditional retailers, and those who want to maintain their competitive edge would be wise to begin addressing corporate responsibility issues early and intentionally.

Chelsey Evans is a 2016 graduate of the Master of International Business program at The Fletcher School. Find her on LinkedIn and Twitter.