Quality-Oriented Consumer as the Driving Force of the Economy

Quality-Oriented Consumer as the Driving Force of the Economy

The nature of consumer behavior during and after the crisis determines which products and services will be available in Estonia in the future. But not only that. Consumer choices affect innovation. This applies to fashion and every other industry.

Every crisis is both a threat and an opportunity. One thing is clear, something will change. In the last three decades, our society has emerged victorious from all the crises affecting Estonia. As a result of the last crisis, the Estonian economy focused heavily on the ICT sector, but this time the key could be to concentrate our efforts on the production and consumption of sustainable, high-quality products.

The Estonian people exited from the world’s largest empire during its governing crisis and restored their independent state and developed important political and trade relations on the world’s most prosperous markets in the European Union. Which wasn’t what the leaders of the world had perceived.

The last economic crisis in Estonia resulted in an optimized government apparatus, a restructured economy, and the Euro, all without increasing the state debt. Which again didn’t match with the crystal ball visions of the financial and political experts at the time.

Successfully navigating the previous crises was possible thanks to enterprising leaders but also ordinary people. The prudent state economy, hard-working people, and the smart consolidation of production to the field of technology have created a situation where an Estonian takes home higher monthly net salary than that of Portuguese, Greek, or Slovenian citizen.

How will the economy recover?

Scenarios vary on how the global economy might recover. One proposed recovery scenario is the V-shape, aka a quick fall and rise, the U-shape, which slows the recovery a bit, and the L-shape, which is the harbinger of difficult or impossible recovery.

We should note that not all business areas and their sub-sectors do not recover equally.  The L-shape of one area may mean a V or a U scenario to the other. One falls to give rise to others. A redistribution will happen.

We will see a rise in influence for companies whose products are being empowered by consumers and their wallets. Companies need the votes of consumer wallets, for without they will perish. Our local brands and price competitiveness is determined purely by the consumer and how strongly the local consumer chooses to support said brands.

Such voting results have glocal implications, especially in fields that were struggling long before the crisis at hand. This is the case, for example, with the global fashion industry.

Last autumn, one of the world’s leading fast fashion brands Forever 21 filed for bankruptcy. The company is for sale, but despite there being an initially interested buyer, the deal is yet to close. The reason probably stems from the complication of the global healthcare and economic crisis, which is the monkey wrench in the fast fashion sales and supply chain. The aforementioned puts fast fashion under even more pressure.

For example, in the UK, clothing retail sales in March fell 34 percent. H&M’s fashion house announced a 46 percent drop in global sales in March.  It is worth noting that during mid-March, sales were fully operational in most developed markets in Europe and both in South and North America.

The key issue will be the post-crisis consumer behavior. Your banknotes, mobile purchases, and credit cards will shape the future of the world. In every consumer, there are two wolves to listen to and whose pack to follow. One of them is the good wolf, the caretaker, the other a monster, a destroyer.

The consumer can signal that a fast-fashion brand is valued. In which case, there is a possibility for a V-shape recovery. When you buy a pair of 25 euro jeans, it is worth considering that this price is 25€+X The X in the formula is not paid for by the consumer, but rather the producer. What is X?

Producing a pair of fast fashion jeans requires 10,000 liters of water. If said jeans were produced in Estonian conditions, the price of water alone according to Tallinn’s waterworks (Tallinna Vesi) would be 21 euros. Added to this are the costs of energy (in the context of the world’s leading fast fashion manufacturing center, Bangladesh, this means coal), transport, chemical, labor, administration, marketing, sales, and waste management. These costs are not covered by the sales price.

25-euro jeans are only so affordable because they are cheaply produced on the backs of children, water can be bought for nothing, energy is produced from coal, and waste can be chucked anywhere. The world we live in accepts all of this with no questions asked.

The consumer has a de facto and de jure opportunity to turn a blind eye and let the world burn. The question is, which wolf do we listen to - the caretaker or the monster?

A store in a great logistical location

“We launched an experiment, where we refrain from working with wholesalers.”

As was said, the consumer can choose to be the caretaker. We launched an experiment, where we refrain from working with wholesalers. This is not a hostile action towards wholesalers. We just want to find out, whether this unprecedented step can give new impetus to our business, making us more competitive compared to fast fashion.

Namely, we can offer prices on average 30% cheaper without bearing the price pressure from wholesalers. The strategy is to own one store and e-sales channel per market. In the past, the lowering of prices was hindered by the price pressure of wholesalers, who set a threshold for all prices. This pressure is no more.

A new innovative sales model of the fashion industry could be where a brand has one store for every market with strong demand in an excellent logistical location. There, the consumer can try things on or pick up the goods. This would reduce costs on logistics, retail space, staff, retail space maintenance, and upkeep. The consumer gets to pay a fairer price.

It would be naive to expect that consumer choices be driven only by environmental sustainability, but I also consider a good solution for Estonian consumers to make their choices based on value and quality. This could, for example in five years, give way to a different Ülemiste mall, which pillars would then not be the fast fashion brands, but rather responsible fashion brands that can offer competitive prices on the Estonian market.

After all, the supply is not determined by the head office in London or New York, but by consumer behavior. If Estonia only buys 300 Stella Soomlais’ bags a year, the price remains high. If that number is 3,000, the price can be reduced. Should that not work, then Ülemiste would soon feature brands like Veja, Patagonia, etc.

The same goes for responsible luxury brands. Would it be possible for Ralph Lauren, which adopted a radical green strategy last year, to have a store in Tallinn? Global fashion houses do careful market analyses.

If the market analysis shows that the market prefers 25-euro jeans, costs of producing which remain in Bangladesh, then Estonians are not rewarded with a store. If there is an urgent demand for environmentally friendly brands, Tallinn will be analyzed and considered, whether to open a local store without using wholesalers.

Quality deserves more emphasis

The nature of consumer behavior during and after the crisis determines which products and services will be available in Estonia in the future. But not only that. Consumer choices affect innovation. This is true in every area.

When the Estonian consumer accepts that every eatery offers nothing but hot-dogs, Estonia would at some point have the best hot-dogs in the world, but that would severely limit innovation.

If the local consumer is satisfied with low-quality cheap fashion, then only global fast fashion brands can offer it at competitive prices, and that only at the expense of third-world countries. But should the Estonian consumer be ready to make quality-oriented choices, international chains would have the motivation to sell here and local designers would have a larger home market.

“In general, every consumer could emphasize quality and even better if that product is Estonian.”

“Prefer Estonian” is undoubtedly a great solution to give consumers, but in general, every consumer should emphasize quality and even better if that product is also Estonian. If it is not, then pity should go towards Estonian companies, but it is also a sign that quality deserves another look.

The added benefit of quality-based consumer choices to a circular economy is the use time of clothes, which are no longer discarded so quickly and if that does eventually happen, there would be an aftermarket for quality clothes. This principle also applies to every field, be it clothing, a car, or a washing machine.

The Estonian market is small, but if it consisted of sustainability-oriented consumers, Estonia’s way out of the crisis could lead to local consumers gaining access better products and services, local businesses would be motivated to offer better products and services, which would result in local companies that are internationally competitive.

Of course, the side bonus would be that Estonian consumers would no longer subsidize the environmentally destructive business models at the expense of poorer societies, the world’s seas, water resources, and ecosystems. That would mean that Estonians listen to the good wolf, the caretaker.

Even better if the product is designed according to the principles of circular economy and the consumer supports that with their purchasing decisions. These days it is no longer a question of environment, but rather a question of the country’s economy.

Moving from the consumer to state level, it is worth considering that the state also has the option of choosing which wolf to listen - whether to empower entrepreneurship and market or to hinder it.  This decade will see taxpayer money flowing towards the goal to create an innovative, climate-neutral, and circular economic model.

According to the Green Deal, the EU will invest one trillion euros in green projects over the next decade. This order of magnitude is about a hundred times the Estonian state budget. There is food for thought on the Estonian state level on how to empower Estonian companies in this new investment climate.

A great example is France where the government has banned fashion brands and wholesalers from 2020 and onwards from destroying unsold or returned goods. What are the results? One the one hand, there is an emerging textile waste problem, on the other hand, companies operating on the French market are being given the impetus to develop a relevant business model. Estonia should not miss the innovation train.

The bright future of Estonia

The Estonian state should similarly enable innovation both in the fashion industry and in other areas. The conditions of competition are not presently equal. In the context of the fashion industry, the Estonian tax model does not take into account waste recycling or products thereof.

Figuratively speaking, the state charges everyone to enter the park but equates tidy and nature-loving guests with a trash dumping egotist. This kind of behavior is not fair to nature and is not accepted by mainstream European politics.

Instead of waiting for binding directives from Brussels, it would serve Estonia better to develop a model that is a step ahead from the rest of Europe and which would also have an applicable use somewhere else in the EU. After all, the winners are the countries that act fast, for they are the ones receiving the better part of the trillion dollars that are earmarked for green projects. The ones not going with the flow will miss out on the trillion and have to operate in a dated business environment with market actors who lack the export capacity to meet new demands.

I realize that expecting political decision-makers to listen to their good wolf is a slippery slope. If even one government party vetoes good policies, the results will be a big fat zero.

Should even half of the Estonian consumers listen to their good wolf, the caretaker, and make consumption choices based on quality or even better, choices based on resource circulation, Estonian future would be bright and with better products and services, more innovation-oriented, fairer to the rest of the world and to be completely honest - we would have more euros circulating the domestic economy.

* This article was originally published on the Estonian Public Broadcasting (Eesti Rahvusringhääling) website in Estonian. The original article can be found here.

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