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.
Wal-Mart frequently touts its new lines of allegedly "Green" products as innovative ways to promote environmentalism among existing customers and attract new ecologically-minded ones.
But there are economic and even environmental problems with some of these products. Wal-Mart is especially pushing sales of compact fluorescent bulbs (CFLs) because they use one-third the energy of traditional incandescent bulbs and last longer.
Consumers, though, are likely to be put off by the fact that a single CFL bulb at Wal-Mart costs $1.65 compared to just 24 cents for the incandescent bulb. Other CFLs can cost as much as $5 per bulb.
In addition, CFLs raise safety concerns because they contain mercury which can potentially pose health risks. The mercury level in a CFL is very low when compared to a thermometer. Nevertheless, a broken CFL can release mercury vapors that can affect a person's brain, spinal chord, kidneys and liver. The Environmental Protection Agency recommends that if a CLF bulb breaks, an individual should immediately open a window to disperse vapors, not touch the area where the bulb was broken, carefully clean the area, and remove all glass fragments.
If a bulb burns out, it is considered hazardous waste and must be sealed in a safe container before disposal.
Wal-Mart is making a huge mistake by pushing products like CFL bulbs just because environmentalists deem them ecologically safe. Environmentalists are notorious for pushing "Green-friendly" products that turn out to have their own ecological baggage. And in the case of CFLs, environmentalists are sure to eventually reject them because the mercury content will cause serious hazardous waste disposal problems.
The company will then find itself scrambling to get rid of CFLs to embrace yet another allegedly "Green-friendly" product.
EVEN THOUGH WAL-MART HAS INVESTED so much money and effort into being ecologically correct, the environmental movement dismisses its initiatives as insufficient.
On September 6, 2007, a coalition of 23 environmental, labor and human rights groups released a report, "Wal-Mart's Sustainability Initiative: A Civil Society Critique," denouncing Wal-Mart's environmental campaign. Coalition members include the Sierra Club, Friends of the Earth, ACORN, Global Exchange, and the United Methodist Church.
The report concluded "that even if Wal-Mart achieved all of its stated goals, the company's business model is inherently unsustainable."
For instance, the report dismisses Wal-Mart's pledge to spend millions of dollars to cut greenhouse gas emissions. Although the company is taking steps to cut 20 million tons of gases each year, it is still creating 220 million tons of greenhouse gases each year, "more than 40 times the emissions the company" plans to eliminate.
The report also repeat's organized labor's long-time charge that Wal-Mart mistreats its employees. Trina Tocco of the International Labor Right's Forum says "the company continues to squeeze workers and suppliers in a global 'race to the bottom' in wages, benefits and working conditions."
This should put to rest any illusion Wal-Mart may have had that "Going Green" would mute criticism of its labor practices.
In January 2007, eleven environmental and corporate accountability organizations, including Greenpeace USA, sent a letter to Lee Scott demanding that Wal-Mart "end its political contributions to anti-environmental candidates."
They called Wal-Mart's environmental initiatives a sham because most of the company's political donations go to Republican or pro-free-market lawmakers and candidates. The groups demanded that Wal-Mart "end its contributions to anti-environmental candidates and bring its stated intentions and actions in line."
The environmental movement's ostracism of some fellow activists who are working for Wal-Mart is further proof that the company's sustainability campaign is doomed to failure.
In 2006, former Sierra Club president Adam Werbach entered into a contract with Wal-Mart to help burnish its "Green" image. His consulting firm Act Now is developing a Personal Sustainability Project which purports to teach the company's employees how to practice environmentally responsible behavior in their daily lives.
However, liberal activists are bitterly denouncing Werbach as a traitor. The Sierra Club reportedly asked him to reconsider working for Wal-Mart. John Sellers of the Ruckus Society wrote an open letter, headlined "The Death of Integrity," accusing Werbach of abandoning his principles. And ACORN chief Wade Rathke says, "I have no idea what Adam believes anymore."
Indeed, activist anger is so deep over Werbach's alliance with the hated Wal-Mart that he can no longer speak in public without special security.
WAL-MART'S MARKETING OF ORGANIC FOOD has also proved disappointing. Wal-Mart hopes that by offering more organic food, it will improve its appeal to urban, upscale consumers that tend to buy organic goods.
However, organic activists emphatically reject Wal-Mart's claims to be organic-friendly. Advocacy groups, such as the Organic Consumers Association and the Cornucopia Institute, believe that large companies like Wal-Mart must rely upon factory farms, increased imports and other mass marketing strategies that undermine the organic ethos of small, traditional farming.
In November 2006, the Cornucopia Institute filed a complaint with the U.S. Department of Agriculture charging that Wal-Mart was incorrectly labeling several products as organic. Although the department did not act on the request, the Cornucopia Institute maintains that Wal-Mart continues to mislead consumers by advertising non-organic products as organic.
In August 2007, the U.S. Department of Agriculture threatened to revoke the organic status of the dairy company that supplies Wal-Mart with its organic milk, charging the company with using conventional farming methods in its dairy operations.
This year, the Organic Consumers Association called on consumers to boycott Wal-Mart, labeling it "the nation's largest and most ethically-challenged retailer."
Stacy Mitchell of the Institute for Self-Reliance concludes there is no hope for Wal-Mart to redeem itself because "big-box retailing is as intrinsically unsustainable as clear-cut logging." She says by building big-box stores that displace smaller neighborhood businesses, Wal-Mart forces consumers to drive farther, use more fuel and emit more greenhouse gases.
She also castigates environmentalists, like Werbach, who embrace Wal-Mart. They "are not only absolving the company of the consequences of its business model," they spread the lie "that this method of retailing goods canâ€¦be made sustainable."
Wal-Mart should have known better.
THE ACTIVIST RESPONSE TO WAL-MART'S sustainability efforts as insincere is hardly a surprise. Environmentalists are die-hard ideologues committed to an anti-free market agenda and there is no way Wal-Mart can reconcile its rational pursuit of profit with these zealots' radical objectives.
Wal-Mart became one of the world's most successful corporations by pursuing an innovative, low cost strategy that revolutionized the U.S. economy. By trying to curry favor with the environmental movement, Wal-Mart is playing "Russian Roulette" with its future.
Lee Scott's sustainability campaign is not only doing a grave disservice to shareholders, it is betraying the legacy of Sam Walton. The founder of Wal-Mart didn't believe in spending money on glitzy public relations campaigns. He certainly would be aghast at the idea of spending millions of dollars to build alliances with liberal activists. Walton rightly understood that the only opinion Wal-Mart needed to respect was the consumer's. Lee Scott should stop wasting time courting activists and start listening, once again, to the consumers.