Walmart: Save Money. Live Worse?

Is Walmart doing enough when it comes to sustainability?

Is Walmart doing enough when it comes to sustainability?

Nowadays it seems as though every management team out there is desperately trying to prove to environmentally conscious customers that their business is ecologically friendly. As the largest retailer in North America, does Walmart’s claim of sustainability in its annual Global Responsibility Report really live up to its self-proclaimed billing?

Climate change’s impact on Walmart’s business model

As the issues of climate change exacerbate, Walmart will have to face major challenges in order to sustain its business model. As rising temperatures threaten the supply of key commodities in the agricultural sector, Walmart will be severely challenged to maintain its grocery business. This is a material threat as Walmart’s grocery segment represents 56% of the company’s net sales as of FY 2016 [1]. Some of the selected major items in Walmart’s Grocery segment include: meat, produce, natural & organics, dairy, etc. – categories that will clearly be impacted by the reduced agricultural output. As temperatures rise, crop yields in US Midwest and Southern regions will be at significant risk without farming innovation. Some of these areas could see a decline in yield of more than 10% over the next 5 to 25 years in corn, wheat, soy and cotton [2]. Further compounding the issue is the threat of water availability. Agriculture takes up far more of the world’s water supply than any other industry with 70% of global freshwater usage [3]. Water scarcity results in further reduced agricultural output and increased input costs.

water
Water Withdrawals by region and by sector, source: http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf

The coupled impact of reduced agriculture yield and decreased worldwide water supply will drive up prices of crops and related industries such as meat and dairy. This will force companies like Walmart to face unpredictable supply of agriculture/produce products as well as increased costs from key suppliers. It will be very difficult for Walmart to maintain its strategy of “everyday low price” and will either have to cut into profit margins or pass the increased commodity prices along to the consumer.

Walmart and sustainability

In 2005, after facing increasing external pressure, Walmart’s then-CEO Lee Scott launched the company’s sustainability program, pledging to shift to 100% renewable power and become a leader on sustainability [4]. In order to address these issues of increasing commodity costs, as per its Global Responsibility Report, Walmart is implementing the following initiatives to address the sustainability of its global supply chain in figure 1 [5]:

walmart
Source: Walmart Global Responsibility Report, 2016

It is difficult to see any real benefits or opportunities for Walmart to take advantage of when it comes to the issue of sustainability. Although it is possible for Walmart to generate some positive public relations buzz by appearing to lead in sustainability efforts amongst its peers, it would likely have to come at the detriment of the company’s business model and profitability. Furthermore, one can be skeptical of the retail giant’s true commitment to these virtues as it relates to profit (i.e. will they really follow through buying produce from organic/sustainable growers at the expense of margin).

According to the Institute for Local Self Reliance (ILSR), Walmart has fallen short of its sustainability claims in key areas. Despite a decade years of promoting its renewable energy initiatives, in 2016, Walmart derived only 25% of the electricity it used from its renewable power purchases and solar power projects [6]. Meanwhile some of Walmart’s competitors such as Kohl’s and Whole Foods have already fully converted to renewable power. And although Walmart claims that it has significantly reduced carbon emissions by 20 million metric tons in 2015, its figures of greenhouse gas emissions exclude the pollution generated by its massive shipping operations [7]. With that said, Walmart should receive some credit for the initiatives it has followed through with. For instance, Walmart has made significant progress in its zero-waste initiative by successfully diverting from landfills 82% of materials previously considered waste from Walmart US, and Walmart also achieved its goal of doubling its US fleet efficiency by 2015 resulting in $1 billion in annual savings and avoiding 650,000 metric tons of C02 [8].

Bottom Line

Walmart probably can do more to help the environment and better position itself in a world of climate related rising costs, but it should receive some credit for setting goals to build a sustainable model. But what Walmart should do is remain vigilant in its quest to become sustainable (it should try to be 100% supplied by renewable energy by 2022) and continue to use its power as a global leader to support the reduction of emissions in its product supply chain. As a global business leader, Walmart can have a huge impact and should therefore be held to high standards of sustainability.

Word Count: 772

[1] Walmart. FY 2016 Annual Report, p 8. [http://d1lge852tjjqow.cloudfront.net/CIK-0000104169/46c5c2e3-666c-4865-b437-eb351ae5dbfe.pdf], accessed November 2016.

[2] Riskybusiness.org, “National Report: The Economic Risks of Climate Change in the United States,” [http://riskybusiness.org/report/national/], accessed November 2016.

[3] UNEP, “GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” [http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf], accessed November 2016.

[4] Stacy Mitchell, “The Truth Behind Walmart’s Green Claims,” The Huffington Post Blog, April 1, 2014, [http://www.huffingtonpost.com/stacy-mitchell/walmart-climate-change_b_5063035.html], accessed November 2016.

[5] Walmart, FY 2016 Global Responsibility Report, p. 12, [http://corporate.walmart.com/2016grr], accessed November 2016.

[6] Institute for Local Self-Reliance, “Top 10 Ways Walmart Fails on Sustainability,” [http://ilsr.org/wp-content/uploads/2012/04/topten-walmartsustainability.pdf], accessed November 2016.

[7] Stacy Mitchell and Walter Wuthmann, “Walmart Spews a Huge Amount of Climate Pollution with Its Shipping, but Doesn’t Report Any of It,” Institute for Local Self-Reliance Blog, June 3, 2015, [https://ilsr.org/walmart-shipping-climate-pollution/], accessed November 2016.

[8] Walmart, FY 2016 Global Responsibility Report, p. 59, [http://cdn.corporate.walmart.com/9c/73/3f9abcef444397f2c771e081e095/2016-global-responsibility-report.pdf], accessed November 2016.

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10 thoughts on “Walmart: Save Money. Live Worse?

  1. Petey S- I think you brought up an excellent point about how Walmart’s brand positioning and customer promise (every-day low pricing) are in jeopardy with the risks posed by climate change. The company is probably hesitant to increase prices despite rising costs, so climate change could cause a direct hit to Walmart’s margin. As you mentioned, grocery is an enormous portion of Walmart’s business; while other competitors would be impacted by cost increases caused by climate change, Walmart would be particularly at risk given grocery’s high penetration to its total business.

    Having worked in the grocery industry, I know that this category has been a focal area for retailers. Grocery gets the customer visiting and making repeat/regular shopping trips, thereby driving customer loyalties. Keeping the freshest quality and the lowest prices will be important to remain an industry leader in the grocery business. Unfortunately, climate change poses a direct threat to this goal.

    I think it’s interesting to compare retailers against other retailers in their sustainability efforts, but I don’t know if it’s fair to compare Walmart (a behemoth!) to places like Whole Foods and Kohls. Yes, Walmart has fallen behind Whole Foods and Kohls in its efforts to convert to renewable power. However, Whole Foods and Kohls only operate 462 and 1162 stores respectively, as compared to Walmart’s 6273 stores. Furthermore, the average Whole foods is 38,000 square feet, the average Kohls is 90,000 square feet, and the average Walmart store is 104,000 square feet. I think Walmart deserves a bit of leeway in terms of its current progress, as I would anticipate it would be logistically easier for smaller retailers to convert to renewable power.

  2. Pete,
    Great piece, thanks. I wonder how substitution to online shopping from Walmart (either direct or via Instacart) or from online competitors (Amazon) will impact these green initiatives? I feel like Walmart was in a better position to do this back when the skies were clear and they were the undisputed market leader with nary a sign of disruptive threats on the horizon – i.e. 20 years ago. Now their cashflows are under pressure as is – harder to make long-term investments.

  3. Pete,
    Really interesting and though-provoking piece. I completely agree with your conclusion that “Walmart can have a huge impact and should therefore be held to high standards of sustainability”. On the other hand, I wanted to push back on the following view: “It is difficult to see any real benefits or opportunities for Walmart to take advantage of when it comes to the issue of sustainability.” If, as you claim, Walmart’s business is at material risk in light of climate change, are there really no opportunities for the firm to protect itself? I would think that the more material the challenges facing the company are, the more beneficial and important it is to convert these into opportunities. This made me think back to the IKEA case, where the firm ultimately had no option but to innovate and put pressure on suppliers to adopt more sustainable practices – otherwise they might run out of trees to build furniture with down the road. Maybe Walmart could train its suppliers to be more efficient, setting a higher standard which other firms might eventually replicate if significant cost-savings are achievable, helping the industry as a whole. On the supply chain side, could you envision initiatives similar to that of the US fleet that you mentioned resulted in “$1 billion in annual savings”? While this may prove expensive in the short-term it may be the only way to ensure the long-term viability of Walmart’s business. My hunch is that the answer depends on Walmart’s ability to influence supplier and consumer behavior effectively.

  4. MSaggioro, I particularly enjoyed the contradiction that you raised in your article. In fact, its seems interesting that Syngenta is trying to increase sustainability by promoting its own products and therefore driving their sales and revenue. Historically sustainability has been seen as something that costs the company a lot of money to invest in and that, at the best, could potentially save them some money on energy and water bills. However nowadays companies are seeing sustainability as a driver for profit. So, the question that relies is whether it is ok, or morally correct, to leverage on sustainability. Althought Syngenta is going in the right direction, trying to drive its revenue by their sustainable practices I agree with you that they shouldn’t do that by promoting their own products. Instead, they could adopt some alternative practices that could be more morally correct, like (i) procure more renewable energy for their operations, (ii) put an internal price on carbon for their products so that their customers could be more conscious about it, (iii) implement some land-use practices that conserve natural resources and at the same time can make crops more efficient.

    Walmart: Save Money. Live Worse?

    Dear Petey-S I agree with Erica that you brought up an excellent debate to the table. I am just not sure if sustainability necessarily need to come at the cost of profitability. As I mentioned in another post, historically sustainability has been seen as something that costs the company a lot of money to invest in and that, at the best, could potentially save them some money on energy and water bills. However nowadays companies are seeing sustainability as a driver for profit. In that context, I agree with you that Walmart initiatives maybe questionable in terms of their motivations, but I think the company is actually making good improvements to convert sustainable practices into profit. To give you one example, Erica Plambeck mentions is her article that Walmart is profiting from its actions to reduce greenhouse gas emissions in its operations and supply chain. As she pointed out, the company’s efforts to reduce emissions have opened up many sources of new revenue. For example, improved public relations stemming from its environmental stewardship initiatives helped the company to open stores in communities where they would otherwise face greater resistance, and also helped Walmart to attract more customers to its existing stores.

    Also, by selling more energy-efficient products Walmart helps its customers (who have little disposable income and shop almost exclusively at Walmart) to save money on water and energy bills which therefore leaves more money to them that can be used again at Walmart (driving revenue increase).

    Finally, even in product categories where Walmart cannot charge a premium for “green,” it may gain market share (and create buzz) by labeling products with environmental impact information. That results in increased market share and the trust of consumers, which is a driver for profit.

  5. Fairly or not, large successful corporations bear a larger burden for solving issues effecting society as a whole. It seems like Walmart in particular is always in the cross-hairs for not doing enough for corporate responsibility. The gains for others will be significant and Walmart is not likely to be subsidized for its efforts.

    If Walmart continues down the path to 100% sustainability and starts to stumble, perhaps suffering from paying increased wages and competition with Amazon, will society apply less pressure on the company to lead change? In other words, if Walmart finds itself in a fight for survival and is struggling to stay profitable, would society allow the company to abandon its initiative and do whatever it takes to survive? We assume that these companies will stay on top forever, but there have been so many big companies that fell from the top over time.

  6. My former employer is a supplier of Walmart indirectly, given that many of the clothes sold at Walmart had labels that were manufactured by us. Given that we where in their supply chain, Walmart dictated many rigorous set of criteria that we needed to satisfy, such as working conditions, GHG emissions and other sustainability metrics. When I first saw Walmart auditors come into our plant, I founded extremely interesting to see how rigorous they were of our compliance. This gave me a very positive image of the company, which cared not only on the sustainability of their operation, but that of the suppliers upstream and downstream their supply chain.

    I think that as companies such as Walmart lead the way in creating sustainable processes, other smaller companies will follow. I think that there is a great social responsibility from such firms given their purchasing power and their potential having a significant impact on the environment is enormous.

  7. Given its leadership, scale, and experience implementing sustainability initiatives throughout its global operations Walmart can do more and has recently announced updated goals for sustainability.

    “Specifically, the world’s largest retailer is committing to, by 2025:
    – achieve zero waste to landfill in Canada, Japan, U.K and the U.S.
    – be powered by 50 percent renewable energy sources under a plan designed to achieve science-based targets
    – double sales of locally grown produce
    – expand sustainable sourcing to cover 20 key commodities, including bananas, grapes, coffee and tea
    – use 100 percent recyclable packaging for all private-label brands”
    Source: https://www.greenbiz.com/article/inside-walmarts-2025-sustainability-goals

    These goals are more specific and measurable than their original aspirational goals in 2005. The company from its first 10 years of sustainability programs now is more focused on where the major impact are in its supply chains and where it is positioned to move the needle. Initially the company took this high level approach to motivate the entire organization to ask what they could each do to drive improvement, efficiency and model 21st leadership. This approach which launched 14 sustainable value networks with internal and external NGOs was effective and led to significant improvement in internal efficiencies and new innovations. They essentially invited their biggest critics to the table to ask for help.

    Given the impacts on agriculture Walmart changed it’s produce and agriculture sourcing strategies to remove intermediaries and go direct to build partnerships with farmers in major growing regions around the world. This was a critical step to ensuring supply and also building multi-year buying commitments that allowed farmers to invest in improvements on the ground. Furthermore, they have committed to supporting the development and diversification of local farming to reduce their risk and improve freshness.

    We should continue to expect high standards from this company even as their leadership team changes and it competes to catch up online.
    Millennials care more than previous generations about these standards and thus to stay relevant Walmart must continue to evolve and lead in this arena.

    Additional resources:
    Local Produce Commitment: http://www.reuters.com/article/us-walmart-idUSTRE69C09V20101014
    Original Sustainability Value Networks to drive change across organization – https://ssir.org/articles/entry/the_greening_of_wal_mart

  8. Thanks Petey S. for this piece! As we talked in class about the IKEA case, even though I think the sustainability targets that these large organizations make are in part, a marketing campaign, it really does matter since they have a big affect on the environment, both directly and indirectly as leaders of their organization.
    Walmart should definitely continue to pursue their aggressive targets, but as the largest retailer in the world, is there anything they can do to fundamentally change change the end-consumer so they will become less wasteful? Living in both Japan and the US, I can say that US retail stores sell more things in bulk (because it’s cheaper), and each bottle or package of goods tend to be much larger – which can relate to more waste. Now this may be because the average American simply consumes more, but what if they provided more things in smaller portions? If Walmart can come out with an strategy to influence more responsible purchasing by the individual, without seriously damaging their P&L, they could take credit for this reduction in waste and dramatically improve the situation in the US.

  9. It is actually interesting to see how many pieces of “sustainability”-related news are published everyday about Walmart. Daily updates (almost) makes me wonder if such corporate “sustainability” initiatives will very soon become part of our government legislation. As a matter of fact, in Massachusetts, forced sustainability legislation has ensured that we are given no bags after shopping; if you go shopping at any H&M store in the country, you will notice how much more a t-shirt made with cotton from sustainable plant costs than a normal t-shirt. Increasingly, I am afraid that with monopolization creating mega corporations such as Walmart, “market efficiency” will be a thing of the past with constrained natural resources and that government relations may even kick in in certain regions of the world to play a key role in market competitiveness, as we have already witnessed this through the high cable and internet fees. Further consequences can also include reduced transparency in market competition. After reading this post, what Im actually afraid of is if the world of corporate America is increasingly about to ensure business entities to maintain through forced sustainability initiatives even at the price of market efficiencies.

  10. Thank you for this post! I had gone into this article thinking that it would be simple for Wal-mart to address its sustainability goals, given that it is such a large company and that it has control over it supply chain in ways that other business do not. However, I have come to understand the difficulty in trying to address these issues and how this titanic company has much to consider when thinking through sustainability.

    I do think that Wal-Mart benefits from the increase in its sophistication of technology and supply chain: water salination, technologies to improve crop yield, and automation. I believe as Wal-Mart better understands how to implement tech solutions into its day-to-day operations, there will be exponential improvements in sustainable metrics.

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