Wal-Mart: An Unexpected Leader in Sustainability
Is the class evil corporation just a misunderstood treehugger?
Introduction
In 2005, the CEO of Wal-Mart Lee Scott announced an ambitious plan to make Wal-Mart a sustainable business[1]. At the time, Wal-Mart was the arch-typical big corporation: it had 6,600 stores, 1.8 million employees, and $312 billion dollars of revenue. In terms of environmental impact, Wal-Mart used more electricity than Namibia and had America’s second largest fleet of trucks which traveled 1 billion miles annually[2]. Wal-Mart’s environmental impact had not gone unnoticed, as up to 8% of former shoppers had stopped shopping at Wal-Mart partly due to its environmental reputation. With same-store sales lagging behind competitors, Lee hoped that by fighting climate-change, he could make an eco-friendly decision that also made business sense[3].
What Changes Has Wal-Mart Made to Fight Climate Change?
Burn Less Fuel
The lowest hanging fruit was finding areas to cut fuel usage for Wal-Mart’s fleet of trucks to lower carbon emissions and also lower fuel costs. One way Wal-Mart accomplished this was through best practices, such as turn-loading pallets, which increased the number of pallets that Wal-Mart could load in a truck from 24 to 26[4]. Another way was to re-route trucks to (a) encourage more multi-stop routes, (b) route trucks to distribution centers that minimized distances, (c) reducing miles where the truck was traveling empty or half-full, and (d) route trucks to minimize hills and congested areas, which used more fuel[5].
Wal-Mart overshot their goal of eliminating 20 million metric tons of greenhouse gases by 2015 and eliminated 28.2 million metric tons, which is the equivalent of taking 5.9 million cars off the road[6]. While the company continues to look for improvements, Wal-Mart already saves over $1 billion per year[7].
Prepare Supply Chain for Extreme Weather
For Wal-Mart, a company with a global supply chain and a global network of stores, extreme weather such as hurricanes could cause major disruptions in their supply chain. For example, to prepare for disruption from Hurricane Katrina, Wal-Mart had their own private staff meteorologist tracking the hurricane and stocked up nearby distribution centers outside the path of the hurricane to quickly resupply stores after the hurricane. As soon as Katrina passed, Wal-Mart was able to bring supplies to their stores faster than FEMA could[8].
Furthermore, Wal-Mart shortened their lengthy global supply chain network that heavily relied on heavily polluting cargo ships and was vulnerable to extreme global weather events. One example of this was a t-shirt manufactured under Wal-Mart’s private line. Whereas previously the cotton for the shirt was grown in Turkey, the cotton was spun into yarn and woven in China, and the cloth was cut and sewn in Guatemala, Wal-Mart changed the supply chain so that the raw cotton shipped directly to Guatemala, where it was made into a shirt. In another instance, Wal-Mart eliminated the brokers in their fish supply chain, which reduced not only the number of miles the fish had to be transported by boat and truck, but also reduced the number of hours that the fish had to be stored in energy intensive refrigerated trucks[9].
Influence Suppliers
Wal-Mart used their leverage over their 66,000 suppliers to encourage sustainable practices. For example, Wal-Mart asked Unilever to reformulate their All brand of laundry detergent to a highly concentrated, smaller package to save on shipping costs and packaging. When Unilever showed Wal-Mart data that showed customers preferred larger containers which made customers feel like they were getting better value, Wal-Mart decided to heavily promote the All detergent to help boost sales. Eventually P&G followed suit with their detergent brands to compete, and by September 2007, Wal-Mart announced plans to require all detergent to be concentrated, which in addition to the shipping costs, also saved 400 million gallons of water, 95 million pounds of plastic, and 125 million pounds of cardboard[10].
What else can Wal-Mart do?
The Original Sin of Wal-Mart
By 2010, the number of people who viewed Wal-Mart unfavorably dropped to 20% from a peak of 38% in 2005.[11] But is Wal-Mart doing all it can do? Arguably, Wal-Mart’s biggest contribution to carbon emissions is their fundamental business model itself. Wal-Mart’s business model depends on building large “big box” locations on the outskirts of town which often put smaller businesses that are within “walkable” neighborhoods out of business, forcing all residents to drive to a Wal-Mart to shop. To further help fight climate change, Wal-Mart could move their stores near public transport or into city centers. Again, it seems these eco-friendly decisions may soon make business sense due to recent urbanization trends.
Overall, I believe that, despite public perception, Wal-Mart continues to be a leader in sustainable practices in large retailers. It has used its scale to its advantage to enact change within as well as outside the organization, and I am excited to see what further improvements are up ahead.
(797 words)
[1] http://news.walmart.com/news-archive/2015/11/17/walmart-marks-fulfillment-of-key-global-responsibility-commitments
[2] http://archive.fortune.com/magazines/fortune/fortune_archive/2006/08/07/8382593/index.htm
[3] Ibid, 2.
[4] http://business.edf.org/blog/2015/05/19/freight-sustainability-strategies-how-to-get-the-most-from-every-truck-move/#sthash.8BA5lHTw.dpuf
[5] http://business.edf.org/blog/2015/11/18/walmart-vaults-past-fleet-efficiency-goals-ahead-of-schedule/
[6] Ibid, 1.
[7] Ibid, 5.
[8] http://www.cio.com/article/2448237/supply-chain-management/how-wal-mart-beat-feds-to-new-orleans.html
[9] Plambeck, E.L. 2012. Reducing Greenhouse Gas Emissions Through Operations and Supply Chain Management, Stanford Graduate School of Business.
http://web.stanford.edu/group/peec/cgibin/docs/buildings/research/
[10] http://corporate.walmart.com/_news_/news-archive/2007/09/26/wal-mart-to-sell-only-concentrated-products-in-liquid-laundry-detergent-category-by-may-2008
[11] http://grist.org/series/2011-11-07-walmart-greenwash-retail-giant-still-unsustainable/
Great insights into how a large retail giant is addressing its climate impact! I was especially surprised to find out that Walmart has its own meteorologists tracking natural disasters in order to act quickly and how it has been able to leverage its scale to drive product changes from its suppliers. These product changes can affect other retailers as well and force them to be more eco-friendly without having to ask for it.
An area to consider is Walmart’s affect on climate due to its imports supply chain. In 2012, Walmart was the biggest importer in the US, bringing in 720k cargo containers [1]. As we learned in the Ocean Carriers case study, these cargo containers are extremely heavy and require large amounts of energy to be consumed to ship product from overseas. It would be great for Walmart to not only think of its ground transportation but of its overall global transportation system to make larger strides in its impact on the world.
[1] http://www.huffingtonpost.com/2013/11/13/walmart-sustainability_n_4263032.html
DK- thank you for opening the conversation about Walmart and its sustainability efforts to date. I have to disagree with you that Walmart is a leader in sustainable practices amongst large retailers, but I suppose I commend them for at least some effort in working with suppliers to impact packaging size.
The average size of a Walmart Supercenter is 179,000 square feet. They have about 3288 of these supercenters in the US and almost all of them are open 24 hours a day. [1] While it is true that Walmart is looking into opening smaller footprint “express” stores, I personally do not believe this comes from a place of caring about the environment, rather a necessity for them to penetrate the urban market. Walmart’s US President Bill Simon even described the company as wanting to capture a larger share of the $415B “quick-trip” convenience market.
Additionally, the average Home Depot is about 100,000 square feet [2], but The Home Depot is taking, in my opinion, far greater measures to impact climate change. For example, Walmart could look at the following opportunities:
1. Replace all lighting with LED which is far more sustainable
2. Put up solar panels both in the parking lot and on their building and become self-sufficient
3. Higher efficiency HVAC units
4. Implement a fuel cell program
I would also be curious to know what initiatives Walmart has in place to deal with waste. 56% of Walmart’s business in 2014 came from the grocery department [1], and this industry is notorious for not having a proper way to deal with food which has expired or fruit and vegetables that are no longer at peak freshness. Does Walmart have a composting system for these fruits and vegetables? Do they have a system set up whereby food goes to homeless shelters?
Finally, while not related directly to climate change, I thought this article about crime rates at Walmart was fascinating – not only is Walmart wasting environmental resources, they are wasting our tax dollars!
https://www.bloomberg.com/features/2016-walmart-crime/
“More than 200 violent crimes, including attempted kidnappings and multiple stabbings, shootings, and murders, have occurred at the nation’s 4,500 Walmarts this year, or about one a day, according to an analysis of media reports.”[3]
I would argue that we should question what kind of economic and environmental value is Walmart truly adding to this country.
Sources:
[1] 24/7 Wall St “Walmart Now Has Six Types of Stores” http://247wallst.com/retail/2014/03/22/walmart-now-has-six-types-of-stores/, 3/22/14, accessed November 2016.
[2] Time Magazine “The Bigger Box Store: Home Improvement Stores That Are Double the Size of Home Depot,” http://business.time.com/2013/03/19/the-bigger-box-store-home-improvement-stores-that-are-double-the-size-of-home-depot/, 3/19/13, accessed November 2016.
[3] Bloomberg Business Week “Walmart’s Out of Control Crime Problem is Driving Police Crazy” https://www.bloomberg.com/features/2016-walmart-crime/, 8/17/16, accessed November 2016.
Hi David. Great article on how a retailer can help with reducing carbon footprint. Do you think that Walmart will invest in specific capabilities that will help fight climate change – capabilities that don’t necessary deliver short term benefits for Walmart? Most of the initiatives the Walmart has done – truck optimization, supply chain optimization give immediate benefits to Walmart in terms of cost savings. I don’t see Walmart taking initiatives that might give a long term (but much more significant impact). Do you think the company will be able to justify its investments in ‘Sustainability’ without looking at short term profit gains?
Interesting perspective.
A more cynical eye may see Wal-Mart’s sustainability efforts as only thinly veiled attempts to re-brand their tireless march towards cost savings. However, sustainability pursued for the sake of cost savings is better than nothing.
Another important aspect of Wal-Mart’s sustainability is how that will translate into the flex fulfillment and online fulfillment strategies. In order to compete with Amazon, last year alone Wal-Mart poured over $10 billion into their digital business. [1] With this ever-expanding digital strategy, companies should also turn their cost saving wands towards packaging and delivery as these challenges will be the puzzle of the future.
[1] Thinking Outside the Box” The Economist http://www.economist.com/news/business/21699961-american-shoppers-move-online-walmart-fights-defend-its-dominance-thinking-outside, accessed November 2016.
Interesting post, David. I think the idea that financial incentive for corporations can drive sustainable operations changes is fantastic. I think highlighting areas where giant corporations can drive overarching changes in industry is important, and utilizing their market leader position to do so is great. Chad’s point about the digitization opportunity is also intriguing. I too wonder what steps they will take to sustainably adapt to this new model.
While I applaud Wal-Mart for its sustainability measures, I fear that what they are doing is more for optics and baseline corporate social accountability than for true advocacy of more environmentally sustainable practices. This is, after all, the organization that was bottling water in California during the drought and only stopped after huge amounts of negative publicity and a public petition. [1]
And maybe this is okay – maybe we shouldn’t expect Wal-Mart to be able to be environmentally friendly, given (as you correctly articulated) the true nature of their business as a low-cost, big-box retailer. If not Wal-Mart, would it be another organization we are demonizing? Perhaps it is up to us as consumers to make the environmentally conscious stances through our purchasing decisions, as opposed to vilifying organizations like Wal-Mart for flourishing from our collective demand.
[1] http://fortune.com/2015/05/12/walmart-drought-water/
I was surprised to hear all of Walmart’s efforts on the sustainability front. I agree with some of the cynical points of view that lots of these measures seem more like cost savings for Walmart. However, I did do some digging after reading your post and it looks like they are starting to work a lot more on the sustainability front.
To Yarden’s question, yes, they are working on food waste solutions and to donate it to the highest and best use and if it can’t be used, then to compost or turn it into animal feed. They’ve reduced food waste by 15.3% in their emerging market stores over the past 6 years.
However, I am not fully convinced they have sorted out the digital piece of their business that is aiming to compete with Amazon. I actually signed up for their 30 day trial while moving to HBS and I placed one (large) order a couple days before moving. Much to my surprise/embarrassment, about 10-15 boxes showed up, some with 1 little container of soap, etc. It seemed really wasteful and inefficient even though the boxes are recyclable.
http://corporate.walmart.com/2016grr/enhancing-sustainability/moving-toward-a-zero-waste-future
@TCG
Thanks for following up on the food waste questions, that is really great to know! I think something like that is really hard to implement perfectly or uniformly across so many stores because of compliance and each city having different regulations around food donations and waste, but overall I am glad they are making significant efforts in the right direction.
Regarding your packaging concern- it looks like they heard that feedback from clients and are already taking action – in the corporate responsibility report you cited they also talk about the fact that they have new box sizes and are implementing best practices which may reduce cardboard consumption by 7.2 million cubic feet annually [1]. However they are still working on rolling this out across more of their online distribution centers so it’s likely they hadn’t yet implemented it in the warehouse closest to Boston at the time you ordered your goods!
[1] http://blog.walmart.com/sustainability/20160418/in-ecommerce-packaging-sometimes-more-equals-less
Thanks DK for bringing up the issue of Walmart. My takeaway is that what Walmart is doing now makes 100% sense, not just for sustainability, but also for cost optimization in its business model. But what I am not so sure is whether that will help reserve its current business decline as, with the rise of new business model in retail, the old large scale bricks and mortar will continue to lose its advantage, especially in the cost/sustainability perspective. One rising competing model is E-commerce. In China, E-commerce, with drive from 2-3 big giant players such as Alibaba, has changed the way people shop. When you go to Walmart stores, even in the CBD of big cities, you don’t see many people. That’s why Walmart has continued to close stores in China for the past several years. So with continuous decline in top-line, I am not sure whether those sustainability/cost saving initiatives will be able to save the retail giant from failure.