Wal-Mart’s support for the anti-free market agenda of the environmental movement is not silencing its liberal critics and may be undermining the company’s financial future.
Wal-Mart CEO H. Lee Scott began pushing a so-called sustainability campaign in October 2005 as part of an ill-conceived attempt to deflect union criticism of its business practices. The campaign includes spending $500 million a year to cut greenhouse gas emissions to combat the unproven global warming threat, selling more sustainable products, using more renewable energy, and generating less waste.
In addition, Wal-Mart is donating large sums of money to environmental organizations. Since 2003, the Walton Family Foundation has donated $1.7 million to Environmental Defense. The retailer is showering largesse on other liberal activist groups as well, most notably the National Council of La Raza which received $1,027,900 in 2005.
Wal-Mart’s environmental campaign is especially unfair to small business.
The company is forcing its 60,000 suppliers to bear most of the cost of its sustainability efforts or risk losing their lucrative contracts. In September, Wal-Mart instituted a policy of asking suppliers to disclose their carbon dioxide emissions. Although ostensibly voluntary, Wal-Mart has made it clear that its goal is to establish a program “that would show preference to suppliers who set their own goals and aggressively reduce their own emissions.”
On October 11, Lee Scott announced that the company is introducing a supplier index that will give credit to vendors who help Wal-Mart reduce its carbon footprint. Scott says Wal-Mart will reward companies with good scores by aggressively promoting their products through advantageous placement and other advertising. Conversely, companies with poor scores will not get favorable advertising.
It will be interesting to see how well this plays with consumers, most of whom could care less about a product’s environmental score. Some shoppers might find it annoying trying to find their favored items that have been penalized with bad scores.
Likewise, this year Wal-Mart introduced a packaging scorecard that evaluates suppliers according to the environmental impact of their packaging such as the amount of fuel used to ship packaged materials and whether they use recycled components.
Starting next year, Wal-Mart will begin using the scorecard to coerce suppliers into changing their packaging. “If after several years they don’t improve their score,” says Wal-Mart sustainability director Amy Zettlemoyer, “then they’re probably not going to be able to compete in the future.”
These onerous environmental mandates, besides hurting small business, contradict Wal-Mart’s sound business philosophy of cutting costs to achieve “everyday low prices.”
This should be especially troubling to shareholders given that the company’s stock has declined from $60 a share in 2000 to $43 a share in October 2007. Its sales growth this decade has been lackluster compared to the more robust growth of rivals such as Target. Competitors are increasingly able to lure away Wal-Mart customers by offering more selection, higher quality, and better service.
Wal-Mart needs to devise new strategies to improve its competitiveness and profitability. But it is not going to achieve that by saddling its suppliers with ridiculous environmental scorecards.
FOR INSTANCE, WAL-MART INTRODUCED this year an environmental scorecard for electronics companies. This scorecard rates televisions, computers and other electronics on their energy usage and hazardous waste content. Yet, Wal-Mart is struggling to compete with companies like Best Buy which offer better installation and other services for its products. Last year, Best Buy sales rose 16 percent while analysts estimate Wal-Mart’s electronic sales rose only 7.6 percent.
Rather than wasting time evaluating the “Greenness” of its electronics suppliers, Wal-Mart should be concentrating on how to match Best Buy’s superior customer service.
And there could be a limit to how much bullying suppliers will take from Wal-Mart in its drive to appeal to environmentalists. In 2003, the company mandated that its large suppliers use a new radio-frequency identification system to track products. However, Wal-Mart dropped the mandate earlier this year after suppliers complained about the high costs and poor return on their investment in the technology.
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