Big box retailers and climate change
Impact of climate change on energy consumption pattern from big box retailers and their role in changing the industry standards
Traditionally the retail industry has focused in giving the best possible experience to their customers by making the shopping experience as comfortable as possible. Two of the main factor that affect the comfort inside a big box retailer are light and temperature[1], which are energy consuming intensives and make energy one of the main costs of operating a store (in addition to rent and labor).
In recent years the growth of ecommerce has put a lot of pressure into brick and mortar retailers, who see how their sales are shifting to the online channel while most of the costs remain at the same level. This pressure over margins has forced them to look for new ways of cutting costs, and as explained before, energy is one of the biggest components of the cost structure so efforts were placed there. This cost reduction approach matched in timing with climate change concerns and pressure from authorities to reduce energy consumption and change to cleaner energies.
Walmart, one of the companies with the largest footprint among retailers, is probably the most remarkable example of a retail company that has made serious efforts and a true commitment to reduce energy intensity and emissions. The company, with other 153 companies, signed the White House’s American Business Act on Climate Pledge[2] and auto imposed themselves specific goals[3]:
| Commitment | Progress (as of Fiscal Year End 2016) |
| To be supplied by 100 percent renewable energy | Supplied by 25 percent |
| Drive the production or procurement of 7 billion kilowatt hours renewable energy globally by the end of 2020. | Installed or contracted for more than 2 billion kWh from more than 470 projects worldwide |
| By end of 2020, reduce kWh-per-sqft energy intensity of Walmart facilities by 20 percent versus 2010 baseline. | Reduced kWh-per-sqft energy intensity by 19 percent, which represents a 1 percent absolute reduction since the end of 2014 |
| Begin phasing out HFC refrigerants as of 2015 in favor of non-HFC where these are legally allowed and available for new purchases of point of-sale units and large refrigeration installations. | Continued incorporating refrigeration and store and store designs that enable transition to less HFC-reliant systems, while also testing HFC-free systems in several markets |
| Double U.S. fleet efficiency by the end of 2015. | Achieved in October 2015, savings nearly 1 billion in FY16 and avoiding C02 emissions of nearly 650,000 metric tons of C02. |
The last commitment shows what seems most remarkable to me, it is the fact that making an effort to reduce the energy intensity and emissions can be beneficial not only for the environment but can also be a source of higher returns of the equity owners by creating efficiencies. This contrast with the traditional vision that sustainability actions only generate costs for the company and benefits for the society.
Another remarkable point of the Walmart experience is how they have gone a step further and have pushed their supply chain to adopt some of this best practices around the world³:
| Commitment | Progress (as of Fiscal Year End 2016) |
| Engage 70 percent of our China-sourced business in a factory energy efficiency program by 2017 | Trained more than 500 factories in China on RedE tool |
| Eliminate 20 million metric tons (MMT) of GHG emissions from Walmart’s global supply chain by the end of 2015. | Surpassed; reported reduction of 35.6 million metric tons. |
| Increase transparency into our supplier ability to track and report Climate Smart Agriculture impacts through the Sustainability Index. | Received Index responses covering 77 percent of Walmart food business, with suppliers reporting GHG emissions for46 percent of their supply. |
The question that remains open form me is how could Walmart use its leading role to set the auto impossed standards as industry standards that can be applied all over the world.
[1] Raimondo Daniela, Bassu Anna, Corgnati Stefano Paolo, Trifirò Alena, “Energy consumption and thermal comfort assessment in retail stores: monitoring and dynamic simulation applied to a case study in Turin” in 6th International Building Physics Conference, IBPC 2015
[2] https://www.whitehouse.gov/climate-change/pledge
[3] Walmart, 2016 Global Responsibility Report, pg. 59, http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx, accessed Nov. 2016
Fascinating read on Walmart’s efforts towards sustainability! In addition to lighting and heating, refrigeration is another key energy cost for big box retailers. Especially as Walmart expands its footprint of Neighborhood Market Stores with large grocery departments, Walmart will need to continue exploring energy-efficient refrigerated display cases. According to ACEE studies, open refrigerator cases consume three to four times as much energy as closed-door refrigerators. Walmart should test installing more closed-door refrigerators to see how it impacts sales of frozen products, customer time in the store, and levels of customer satisfaction.
Joanna Mauer, “New Refrigeration Efficiency Standards To Take a Bite out of Supermarket and Restaurant Energy Costs,” American Council for an Energy-Efficient Economy. 28 February 2014, Accessed on 7 November 2016.
http://aceee.org/blog/2014/02/new-refrigeration-efficiency-standard
Very interesting perspective on how the evolution of retail towards e-commerce is making retailers more conscious of their use of energy. Do you think that the impact on ROE is large enough that it will force other comparable companies to reduce their energy consumption in order to compete with Walmart? If that’s not the case, how could Walmart set these standards?