Wal-Mart's 'Green' Ripples Through Marketplace

by Arkansas Business Staff  on Monday, Jan. 29, 2007 12:00 am  

After Hurricane Katrina struck in August 2005, Wal-Mart Stores CEO Lee Scott said he realized the world's largest retailer had to do something about the environment.
"Frankly, I thought the environment was the least relevant," Scott said in an October 2005 speech to employees. "We were recycling responsibly and we are not wasteful — so a Wal-Mart environment program sounded more like a public relations campaign than substance to me. But we kept talking, and as I learned more, a light bulb came on for me ... and that's a compact fluorescent light bulb."
Scott then announced three sweeping environmental goals for the company: To be supplied 100 percent by renewable energy, to create zero waste and to sell products that sustain resources and the environment.
"These goals are both ambitious and inspirational, and I'm not sure how to achieve them ... at least not yet," Scott said. "This obviously will take some time."
Since Scott's speech, Wal-Mart has unveiled several environmental initiatives, including everything from pushing the sale of compact fluorescent light bulbs to doubling the miles per gallon Wal-Mart's fleet of trucks achieves by 2015.
Wal-Mart also has opened three prototype efficient stores — the most recent on Jan. 19 — that use 20 percent less energy than the typical Wal-Mart Super-centers.
Wal-Mart's environmental moves are getting praise even from its toughest critics.
"We applaud Wal-Mart's efforts towards being more environmentally responsible," said Joy Bernstein, press secretary for Wal-Mart Watch, a union-backed organization. "We also recognize that they have a long way to go."
The Sierra Club also has given Wal-Mart's efforts a mixed review.
"They have made some very impressive commitments in the area of energy, and some of the commitments could be world-changing," said Eric Antebi, a spokesman for the Sierra Club. "At the same time, Wal-Mart is still very problematic of how and where they locate their stores."
Antebi said Wal-Mart stores create traffic and other environmental problems in the cities they're located. In 2004 and 2005, Wal-Mart paid $3.25 million in fines and settlements in connection with violating environmental regulations, Wal-Mart Watch said.
"It's great that you have eco-friendly stores, but they don't do that much to offset their poor environmental legacy," Bernstein said.
Still, others see no drawbacks to a strategy of improving the environment by the company that uses the most energy in the country.
"So if the largest consumer of energy can cut its energy consumption by 20 percent, what's the bad part?" said Charles Fishman, author of "The Wal-Mart Effect." The new paperback edition of Fishman's 2006 book includes a chapter on the company's environmental efforts.
"And then if you can teach everybody else to do that ... well, that's good news. So I think companies that start doing the right thing ought to be encouraged."
Let There Be Light
Wal-Mart has flirted with green strategies before. Between 1993 and 1996, Wal-Mart opened three environmentally friendly stores in Kansas, Oklahoma and California.
"And here's what [then Wal-Mart CEO] David Glass said when he opened them: 'This project won't change the world or the environment in and of itself. But we are hopeful that it will serve as a model and inspire others to help solve perhaps the greatest problem facing us in the 90s: the environment,'" Fishman said.
But Wal-Mart didn't open another energy-efficient store until July 2005.
Wal-Mart spokesman David Tovar said Wal-Mart shelved the idea for environmentally friendly stores in the 1990s because they weren't cost-effective.
"The Wal-Mart business model is, 'How can we do business in the most efficient manner?' And those cost savings we pass on to our customers," Tovar said.
But energy economics have changed.
Tovar declined to release the cost to build the new high-efficiency stores, but he said Wal-Mart will have recouped the additional costs in two years.
In addition to the new prototype store that opened Jan. 19 in Kansas City, other stores are taking on a greenish tint. Wal-Mart will have opened 70 new stores across the country this month, and some of the new stores have sensor lights in the refrigerated case that only come on when someone is shopping in that aisle. The refrigerated sections also have doors rather than the open shelves that allowed the chilled air to escape.
Fishman said he recently visited a Wal-Mart with skylights.
"You walk into one and the lights aren't on; none of the lights are on," he said. "And the place is flooded with light."
Good Business
Wal-Mart could save millions annually by cutting its electric bill.
"So it makes perfect sense for any business ... especially a company with Wal-Mart's distribution size and needs, to start looking at this just as a matter of course," said Marc Brammer, director of research for the New York office of Innovest Strategic Value Advisors. "I would say it's quite smart. In retail, there's a pretty thin profit margin. So if you can reduce even small costs, by a couple of percentages, ... that can have a major impact on quarterly earnings."
Environmentally friendly policies can cause other ripples that flow straight to the bottom line. Energy-efficient store designs could help open up new markets by making Wal-Mart welcome in communities that had been resistant to the usual big box design. Wal-Mart can sell its plastic waste on the open market rather than pay a waste management company to haul it away.
And green products are already proving that they can attract new customers: Wal-Mart's Sam's Club division introduced a yoga outfit made of organic cotton and sold 190,000 outfits in 290 clubs in 10 weeks. Now Wal-Mart is the largest buyer of organic cotton in the world.
And then there's the less tangible but incredibly valuable effect that the waves of positive publicity can have on Wal-Mart's corporate image.
"Wal-Mart has a PR problem, but it's not a PR problem that can be solved with PR," Fishman said. "It has to be solved with real changes in how Wal-Mart does business."
The Wal-Mart Effect
Wal-Mart's size can quickly drive changes through the supply chain, said Frank Dixon, a senior adviser to Innovest Strategic Value Advisors and a sustainability consultant who is advising Wal-Mart and other companies.
Wal-Mart will release in May its first sustainability report, which will detail a lot more of their efforts, Dixon said.
Wal-Mart has asked its vendors to use less packaging, which will save the suppliers money and reduce shipping costs, he said. And less packaging means lower waste disposal costs, too. (As Fishman's book describes in detail, Wal-Mart and other retailers successfully eliminated the cardboard boxes that used to surround antiperspirant containers about 15 years ago.)
Another Wal-Mart effort that could have far-reaching effects is its goal of doubling the fuel-efficiency of its truck fleet, which is the largest in the country.
"If you double the gas mileage, that's the same as saying you're taking half the trucks off the road," Fishman said. "And they said once we double the mileage of our long-haul trucks, we will share the technology so that everybody can double the gas mileage of their trucks."
Wal-Mart also announced new standards for the shrimp farms that it buys from. It will no longer buy from shrimp farms that pollute their communities.
Wal-Mart will buy wild fish that are certified as environmentally sustainable.
"Then every other grocery chain in America is going to have to follow suit because they are competing with Wal-Mart," Fishman said. "This is how you multiply the good Wal-Mart effect."
Brammer also said Wal-Mart could set the standard for energy management. But it's going to take time to fill Wal-Mart's shelves with environmentally conscious products.
"You don't go right from not thinking about it to fixing all 140,000 products in a year," Fishman said.
Still, Wal-Mart has been very specific about its goals.
"Lee Scott said every new store is going to use 20 percent less energy than the current footprint," Fishman said. "So it's a little harder to wiggle out of it."

For a list of Wal-Mart's "green" initiatives, click here.



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