From EDLP to EDLT

Climate Change at Walmart

EDLT = Every Day Low Temperatures

I stepped out of my car and onto Arkansan soil for the first time in 2013.  One thing was certain – I wasn’t in Kansas anymore… but I was close!  I came to Arkansas to work with the largest retailer in the world, Walmart.  I’d just driven to the local Walmart supercenter to purchase some groceries.  When I looked around I noticed a wind turbine sitting in the parking lot.  What was going on here, wasn’t Walmart supposed to be the enemy of all things green?  During the 3 years I worked in Arkansas, I saw a side of Walmart that I never noticed before.  Walmart cared about sustainability, but why?

Walmart owns and operates over 11,500 retail locations throughout the world.  It provides a convenient place to purchase food and basic goods to over 260 million people each week [1]. Given its large global footprint, Walmart is highly susceptible to impacts from global climate change.  Analyzing its business model there are 3 key areas where I see Walmart being particularly vulnerable to changes in the climate; Sourcing, Energy Consumption, and Branding.

Sourcing

Sourcing is the engine of Walmart’s business model.  As a retailer, Walmart finds products from around the globe to bring into its stores and sell.  Put simply, if Walmart gets cut off from sourcing product, either because of climate change regulation (e.g. can no longer sell products packaged in plastic because of environmental impact) or because of the actual impact of climate change (e.g. certain foods no longer grow because of climate change) then it suffers revenue loss.

To combat this risk, Walmart began working with suppliers across its supply chain to make changes to both product packaging and ingredient sourcing.  One key example of this was partnering with laundry detergent suppliers to switch from regular formulas to concentrated formulas.  By doing this Walmart helped reduce the number of plastic bottles that were produced and eventually thrown into landfills.  Walmart began working with suppliers to make this change during the 2000’s [2], and by its own measures the initiative was a success. [3]

From an ingredient sourcing perspective Walmart has transitioned 27% of its private label food products to use only sustainably sourced palm oil [4].  Non-sustainable Palm oil harvesting contributes to deforestation [5] so making this change should have a positive impact on the environment.

While I applaud the changes that Walmart has made, I think there is more they can do.  For example, why stop with just reducing the number of detergent bottles that end up in landfills – why not work to eliminate the problem altogether by championing a fully compostable bottle?  As far as its palm oil initiative, 27% is a good start, but that still means that 73% of its oil is coming from non-sustainable sources.

Energy Consumption

Walmart is estimated to consume over 29,000 gigawatt hours of energy each year [6].  Rising energy costs, either from more expensive energy sources or higher regulatory costs, could have a big impact on how it keeps the lights on at each of its 11,500 retail locations.  Walmart has made two big moves to start reducing the amount of non-renewable energy it consumes.  The first is switching to LED lights in its new and remodeled stores.  LED lights consume less electricity per hour than more traditional fluorescent lights [7].  A second initiative is installing solar panels in some of its stores to help offset its dependence on non-renewable sources of energy [6].

While these are moves in the right direction they have been done on a small scale, the LED’s for example were only done in 150 stores out of 11,500 (as of the press release).  Why hasn’t Walmart moved to do anything with its other 11,350 stores yet?

Branding

One of the largest drivers for retail sales is foot traffic.  The more consumers that walk through a Walmart store, the more revenue Walmart generates.  Intuitively then, to attract customers Walmart is concerned about creating a brand that shares the values of its target customers.  A recent poll done by Statista showed that millennials do care about shopping at retailers that share their values (e.g. sustainability); however, it was only number 12 on a list of 14 reasons.  Carrying affordable products was the most important thing for millennials.  Maybe this explains why some of Walmart’s improvements in sustainability seem half hearted?

What matters most to Millennials when choosing where to shop?

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[8]

Walmart has done much more in the sustainability space than I gave it credit for my first day in Arkansas.  As the largest corporation in the world though, its work is not over and there is more that can be done to set the pace on sustainability for everyone else.  What else do you think Wal-mart should do?

[790 words]

 

 

Citations

[1] “Our Story.” Walmart Corporate, 3 Nov. 2016, http://corporate.walmart.com/our-story

[2] Rosenbloom, Stephanie.  “Environmental sustainability, now at Wal-mart.” The New York Times, 5 Feb. 2009, http://www.nytimes.com/2009/01/25/business/worldbusiness/25iht-25walmart.19647095.html

[3] “Wal-Mart Completes Goal To Sell Only Concentrated Liquid Laundry Detergent.” Walmart Corporate, 29 May 2008, http://corporate.walmart.com/_news_/news-archive/2008/05/29/wal-mart-completes-goal-to-sell-only-concentrated-liquid-laundry-detergent

[4] “Sustainable Food.” Walmart Corporate, 3 Nov. 2016, http://corporate.walmart.com/global-responsibility/environment-sustainability/sustainable-agriculture

[5] Moulds, Josephine.  “Palm oil risk to Africa as prospectors eye swaths of land.” The Guardian, 15 Jan. 2015, https://www.theguardian.com/sustainable-business/2015/jan/15/palm-oil-risk-to-africa-forest

[6] Helmann, Christopher.  “How Walmart Became A Green Energy Giant, Using Other People’s Money.”  Forbes. 23 Nov. 2014, http://www.forbes.com/sites/christopherhelman/2015/11/04/walmarts-everyday-renewable-energy/#5ca4a28e4894

[7] “Walmart and GE Transforming Retail Lighting with Energy-Efficient LEDs Globally” Walmart Corporate, 9 Apr. 2014 http://corporate.walmart.com/_news_/news-archive/2014/04/09/walmart-and-ge-transforming-retail-lighting-with-energy-efficient-leds-globally

[8] “What matters most to millennials when choosing where to shop.” Statista, May, 2014 https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/317798/us-millennials–most-important-aspects-when-choosing-where-to-shop/

[9] Walmart logo taken from Walmart Corporate website

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5 thoughts on “From EDLP to EDLT

  1. Hi Craig! Thanks so much for your post. I agree that Walmart seems to be far more advanced in moving towards sustainability than I would have initially given it credit for (although, as you bring up, there’s a long way to go). I have a couple questions about your post – primarily as regards your sources: did most of your information come from Walmart Corporate documents (as it appears in the citations)? If so, do you trust the information Walmart is providing directly or do you think they may be “greenwashing”? What do you think about Walmart pleading guilty to Federal environmental crimes in 2013? [https://archives.fbi.gov/archives/sanfrancisco/press-releases/2013/walmart-pleads-guilty-to-federal-environmental-crimes-admits-civil-violations-and-will-pay-more-than-81-million]

  2. Great post – love the mental image of a wind turbine in an Arkansas Wal-Mart parking lot.

    I had some questions on the rooftop solar panel initiative. Wal-Mart justifies the solar panels because it’s a great value proposition for the company. SolarCity pays them to use Wal-Mart’s rooftop space and then provides power at costs cheaper than the local utilities. As Ozment, the Wal-Mart electricity executive says in the Forbes article, “The value proposition is really obvious…Why put up our own capital?” [1].

    However, what happens if SolarCity goes out of business? You can make the argument that SolarCity can afford to put up the capital that Wal-Mart can’t because it is being propped up by tax subsidies and Elon Musk’s other companies. SolarCity’s most recent bond offering was met with tepid investor response – Elon Musk and his family and friends bought up most of that debt [2]. If SolarCity goes down, should Wal-Mart seek out ways to deploy its own capital to keep those solar panels on its roofs? Do they just drop out of solar energy altogether? If Wal-Mart stops using solar energy and switches back to regular electricity, will that damage their reputation? On the other hand, since millennials seem to care more about affordable products than a company’s values, perhaps it won’t actually make much difference to them [3]. Thoughts?

    [1] Forbes. 2014. How Walmart Became A Green Energy Giant, Using Other People’s Money. [ONLINE] Available at: http://www.forbes.com/sites/christopherhelman/2015/11/04/walmarts-everyday-renewable-energy/#2eff4e674894. [Accessed 6 November 2016].

    [2] Market Watch. 2016. Elon Musk, SolarCity execs to buy most of SolarCity bond offering. [ONLINE] Available at: http://www.marketwatch.com/story/elon-musk-solarcity-execs-to-buy-most-of-solarcity-bond-offering-2016-08-23. [Accessed 6 November 2016].

    [3] Statista. 2014. What matters most to Millennials when choosing where to shop?. [ONLINE] Available at: https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/317798/us-millennials–most-important-aspects-when-choosing-where-to-shop/. [Accessed 6 November 2016].

  3. A retailer of Walmart’s size could definitely do more if it was truly concerned with the environment (and not concerned with customer’s perception of environmental issues).

    For example, why don’t they reduce number of plastic bags? In Brazil, as there is no regulations on plastic bags, Walmart offers free (and unlimited) plastic bags for all consumers. Why not shift towards re-usable or compost bags in every single store?

    Having LED in only a few store also sounded like a business decision (cost-related).

    These evidences made me wonder even if the detergent initiative was truly drive by environmental issues or by shelf-space and warehouse optimizations.

  4. Thank you for an insightful – and to some extent controversial – post. I like the comments to your posts, in essence asking Walmart to do more and questioning the intentions behind the change. While I agree that yes, Walmart could do more, and yes, Walmart might be doing this for cool business, I think we should acknowledge that the business has indeed taken steps towards more sustainability.

    Craig, one thing that keeps getting back to me is whether it would be a good idea to invent a “sustainability label”? Certainly, a retailer the size of Walmart could drive this initiative if interested. On the “pro”-side, the sustainability of different products is incredibly hard for the consumer to research and hence take into consideration when choosing between the 8 different brands on the pasta aisle. On the “con” side, Walmart might not be too interested in the product mix effects and how do you come up with a label that is truly reflective of reality?

    Regardless of the challenges of such a label, I think the conversation is interesting: How do we ensure that the consumers become more informed so that we can create a true pull, and not just rely on the companies themselves to take sustainability initiatives.

  5. Craig, I’m very glad you pointed out the tension between millenials’ stated sustainability desires and what really drives millennial shopping habits. And Nicklas asks a great question about trying to inform customers better so that we can create true pull. Both points get to one of the questions at the heart of our Nike case in marketing from a couple weeks ago: Companies might prioritize sustainability, but it can have harmful effects, especially in the short term. In Nike, it was the assumption that a sustainable product was by definition lower quality. Here, it’s the idea that a sustainable product might be higher cost, and thus that Walmart won’t be meeting customers’ most important needs by stocking it.

    That tension could be an issue with Nicklas’s suggestion. Might a sustainable label actually dissuade many shoppers, who interpret it as a sign of needless expense?

    For that reason, I see initiatives like the LEDs in new stores as a more immediately doable piece of the puzzle. But, as you point out, progress has been slow. Do you think millennials are likely to notice that and avoid Walmart? Or does the fact that the #1 millennial focus is affordability mean that Walmart can avoid those concerns, at least for a while?

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