Sustainable retail. Can big box stores really go green

Laboratory for Sustainable Business Wal-Mart Wal-Mart • • • • • • • • Market Cap: ≈ $200 Billion Sales: ≈ $375 Billion (FY ending 1/31/08) Net Income: ≈ $13 Billion/Year Sales Q1 08: > $106 Billion Number of Stores: 4141 (US only) Operations in 15 countries Customers/week: 127 million (US only) Employees: 1.3 Million (US only); 1.9 Million worldwide • Average hourly wage (full time): $10.83 1 Wal-Mart Stores Courtesy of Thomas J. Holmes. Used with permission. US Population Living Within 5 miles of a Wal-Mart: 15 miles: 25 miles: 53% 90% 97% 93% of Americans shop at Wal-Mart at least 1/year. 2 #1 in the Fortune 500 (2007) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Name Sales ($B/Yr) Wal-Mart Stores 351 Exxon Mobil 347 General Motors 207 Chevron 200 ConocoPhillips 172 General Electric 168 Ford Motor 160 Citigroup 147 Bank of America 117 AIG 113 17 26 32 33 38 Competitors Name Sales ($B/Yr) Home Depot 91 Kroger 66 Costco 60 Target 59 Sears 53 Total 329 Buyer Power Wal-Mart and Procter & Gamble • Prior to Gillette acquisition, Wal-Mart was 16% of P&G’s sales • Equal to the total sales of P&Gs next 9 largest customers Wal-Mart Growth Engine: Supply Chain Efficiencies, Scale Economies + Wal-Mart Sales - Wal-Mart Buyer Power + R1 Supply Chain Efficiency Efficiency & Wal-Mart Scale Economies Prices + Wal-Mart Unit Cost of Goods Benefits of Buyer Power • Wal-Mart passes lower unit costs of goods on to customers • Tradition of keeping margins low • Creating huge consumer surplus and benefits to customers • But, lower prices lead to more consumption and material impact on the environment. • And, what happens after inefficiencies in supplier operations and the supply chain are eliminated as pressure for lower prices continues? Product Redesign to Lower Costs + Wal-Mart Sales - Wal-Mart Buyer Power R1 Supply Chain Efficiency Efficiency & Wal-Mart Scale Economies Prices + - + R2 Quality Erosion Product Quality Wal-Mart Unit Cost of Goods + Externalities from product redesign • Decline in product durability • Decline in product reparability • Increased discard rate, material impact of consumption Wages • Average wage $10.83/hr (2007) • Assume full time (40 paid hrs/week, 52 wks/yr) ≈ $22,526/year (many are part time) • Federal poverty level, family of 4 (2007) $20,650/year Health Insurance • As of 2005, associates eligible only after 2 yrs service & only for themselves (not family members). Now 1 year; children eligible. • 2005: in Georgia, 10,261 children of WM employees were enrolled in the state health insurance program for the indigent (1 child/4 WM employees in GA) (Fishman, p. 240-241) • WM opposed 2005 bill in MN legislature requiring employers to disclose how many employees were on public assistance • “There are government assistance programs out there that are so lucrative, it’s hard to be competitive, and it’s expensive to be competitive” —CEO Lee Scott, April 2005 Labor Practices Under Fire • Militantly anti-union (closed Quebec store that certified a union) • By 2005, > 40 lawsuits alleging abusive/illegal labor practices: – – – – – Forcing employees to punch out and keep working Forcing employees to through scheduled breaks Using illegal immigrants to clean stores Locking employees in stores overnight Systematic discrimination against women (class action suit with 1.6 million current/former female associates) – Etc. Large settlements paid to plaintiffs and US Gov’t Employer Power Over Wages and Benefits + Wal-Mart Sales - Wal-Mart Buyer Power R1 Supply Chain Efficiency Efficiency & Wal-Mart Scale Economies Prices + - + R2 Quality Erosion Product Quality R3 Wal-Mart Unit Cost of Goods + + Wal-Mart & Supplier Wages Wage Erosion Offshoring + Offshoring R4 + Race to the Bottom: Wages Wal-Mart Buyer Power Wal-Mart Sales - - + Supply Chain Efficiency R1 Efficiency & Wal-Mart Scale Economies Prices + R2 Quality Erosion Product Quality - Wal-Mart & Wage Supplier Wages R3 Wal-Mart Unit Cost of Goods + + Erosion Race to the Bottom + Offshoring - R4 + Wal-Mart Sales - Race to the Bottom: Wages Wal-Mart Buyer Power Supply Chain Efficiency Efficiency & Wal-Mart Scale Economies Prices + R2 Quality Erosion Product Quality - Race to the Bottom: Health and Safety - Wal-Mart & Wage Supplier Wages R3 Wal-Mart Unit Cost of Goods + + + R5 - + R1 Working Conditions and Worker Rights Erosion Race to the Bottom: Environment + Offshoring - R4 + Wal-Mart Sales - Race to the Bottom: Wages Wal-Mart Buyer Power Supply Chain Efficiency Efficiency & Wal-Mart Scale Economies Prices + R5 - + R1 Working Conditions and Worker Rights R2 Quality Erosion Product Quality - Race to the Bottom: Health and Safety Wal-Mart & Wage Supplier Wages R6 R3 Wal-Mart Unit Cost of Goods + + + + Erosion Race to the Bottom: Environment + Environmental Standards for Production Environmental issues, 2005 Wal-Mart had paid millions of dollars in fines to state and federal regulators for violating air and water pollution laws [Gunther, 2006. “The Green Machine,” Fortune, July 31] • • • • Wal-Mart had huge environmental impacts simply because of the scale of its operations: biggest private user of electricity in the U.S. emitted more than 19.1 million metric tons of carbon dioxide annually (equals roughly 2.8 million households) Including emissions of Wal-Mart’s suppliers, the quantity was estimated to be more than 10 times greater Above underestimates WM impact: e.g., – increased customer driving to get to WM rather than local stores – increased sourcing from China rather than more local suppliers – increased consumption and waste from lower prices, larger quantities & accelerated product discards Lee Scott, October 24, 2005 New sustainability strategy: to become “the most competitive and innovative company in the world” via dramatic changes in: – Environment • • • • products waste stores trucks – Product sourcing – Healthcare – Wages – Community involvement – Diversity Three goals “Our environmental goals at Wal-Mart are simple and straightforward: 1. To be supplied 100 percent by renewable energy. 2. To create zero waste. 3. To sell products that sustain our resources and environment. “These goals are both ambitious and aspirational, and I’m not sure how to achieve them.....at least not yet. This obviously will take some time.” Capability Investments in Capability Capability Erosion + DELAY R1 Reinvestment Time Spent Working + Time Spent on Improvement + + Actual Performance B1 Work Harder - + Pressure to Do Work + B2 Work Smarter Pressure to + Improve Capability - Performance Gap + Desired Performance Resources for Change? • WM decided to make sustainability a new responsibility for people in their existing positions rather than creating new jobs or building a separate sustainability-related organization. • Aside from a small core team of five dedicated staff members, which included Ruben and Elm, no Wal-Mart associates were assigned to work on sustainability on a fulltime basis (with only a few exceptions in textiles and global logistics). • Elm explained the approach: “Business sustainability isn't something you're doing in addition to your job. It is a new way of approaching your job.” • Ruben concurred: “People are absolutely stretched thin, but there’s incredible power that comes from keeping sustainability within the business.” —Plambeck and Denend 2007 Challenges • Recognizing Worse-Before-Better dynamic in process improvement • Who provides initial resources to implement sustainability? Walmart? Suppliers? • Harvest or reinvest savings? Is reinvestment of savings from “quick wins” consistent with Wal-Mart culture, routines? • Conflict between business imperative and community, environment • Wal-Mart as enabler, not perpetrator, of overconsumption