Strategy

How Walmart is saving the world

The earth's largest company is now its top corporate eco–warrior. No, really. It's not doing it solely for the environment — which is why it may just succeed.

The story of Walmart is largely a story about size. Every scrap of data about the retailer speaks of hugeness: a billion dollars in sales per day. A global workforce of more than two million. A supply chain that circles the globe and connects to more than 100,000 other business enterprises.

All of which makes it surprising to find Andy Ellis, Walmart Canada’s senior vice-president for logistics, obsessing over the fine details as he shows off the company’s new food distribution centre. The lights high above, he notes, are tight little racks of LED bulbs, emitting no heat and lasting much longer than incandescents or fluorescents. The ones that light the cavernous spaces between towering shelves of cheddar cheese and crescent-roll dough stay off until someone walks up the aisle. The doors between the cooler and the freezer are specially designed “air curtains” — a pair of flexible roll-down sheets that open independently to form a buffer, akin to the airlock on a submarine, that keeps the -23?C air on one side from rushing out into the just-above-freezing air on the other.

The building itself is more in keeping with Walmart’s traditional scale: a great slab of white concrete that sprawls across the bald prairie in Balzac, just north of the Calgary International Airport. The facility, which opened its doors earlier this month, is essentially a giant refrigerator-freezer for the fresh produce and deli meats bound for the chain’s 44 grocery-selling Supercentres from Winnipeg to Vancouver Island. And its boldest promise is to move those goods while keeping its energy use 60% below the norm.

A marquee green building bearing a big brand name tends to inspire broad skepticism. The natural assumption is that it’s the centrepiece in a cynical marketing campaign, an outsized example of inflating token stewardship gestures into heroically scaled self-congratulation exercises — the odious practice called greenwashing. For the past five years, however, Walmart has pursued possibly the most thorough sustainability push of any company in the upper ranks of the Fortune 500 — culminating, for its Canadian arm, in this showpiece warehouse on the prairie. The world’s largest company, long renowned for selling cheap Chinese merchandise out of locations defying any transportation other than exhaust-spewing private vehicles, has become the biggest name in green retail.

Perhaps because its ambitions are so grand and the scrutiny they inspire so intense, Andy Ellis is keen on showing off the fine-grained stuff. A series of loading doors runs along the wall of a chilled storage space the size of a soccer field, and he’s had an infrared camera set up and pointed at one of the bays, which opens on a parked truck’s empty trailer. The image on the adjacent monitor is a study in deep purple, attesting to the fact that the temperature is pretty much constant as you pass from warehouse to truck. Ellis’s team had the docking bays custom-designed to leak as little of the building’s chill as possible.

He points to the closed door at the next bay, noting a detail conspicuous by its absence: the door has no windows. “As long as I can remember,” he says, “there’s always been windows in dock doors. If you put a window on there, shine that camera on it, you’ll immediately see there’s heat coming in or going out.”

There’s more of this miserly minutiae at every turn. The waste heat from the five massive compressors that power the refrigeration plant is piped through the floor of the building to reduce the chill that radiates in during the icy prairie winter. The pallets of produce are shuttled around by a fleet of handling vehicles powered by hydrogen fuel cells. (To reduce greenhouse-gas emissions, the hydrogen is being generated by renewable-power plants in Quebec and trucked in, which turned out to be significantly less polluting than making it using coal-fired electricity in Alberta.) Two 30-kilowatt wind turbines stand sentry over the parking lot, a bank of solar thermal panels covers the south wall of the warehouse to heat its hot water, and the broad roof has been painted white to reduce heat gain. The bulletin boards are made from recycled tires, and there are signs out front reading “Garbage Free Parking Lot.”

Ellis estimates the building will save nearly $5 million in energy costs over its first five years — no small part of the rationale for the added expense. But the loftier goal is to be a “test lab,” a model for hyper-efficient, climate-friendly distribution centres around the retail world. It’s a whole new take on the Walmart rollback. “Everything we’ve tried to do in here,” says Ellis, “is with a sustainability slant to it.”

The genesis of that slant is a speech made by the company’s former CEO, Lee Scott, back in 2005, which began by acknowledging Walmart’s singular girth. “We are in uncharted territory as a business,” Scott told the staff in an address broadcast live to all 6,000-plus stores worldwide. “If we were a country, we would be the 20th-largest in the world. … People expect a lot of us, and they have a right to. Due to our size and scope, we are uniquely positioned to have great success and impact in the world, perhaps like no company before us.”

The part that came next surprised Walmart shoppers and hard-core environmentalists alike, as Scott vowed to turn the world’s largest retailer into one of its greenest. Walmart would, in time, power its operations entirely by renewable energy, produce no waste, and sell only products that “sustain our resources and environment.”

“These goals are both ambitious and aspirational,” Scott concluded, “and I’m not sure how to achieve them — at least not yet. This obviously will take some time.” It sounded a bit like a qualification, and many jaundiced big-box watchers filed the speech away in the thickening file of well-meaning but ultimately hollow corporate sustainability rhetoric.

The response on the ground in Bentonville, Ark., however, suggested something more substantial had been put in motion. In the wake of Scott’s speech, the company began convening brainstorming sessions to determine what sustainability might mean in the context of a $400-billion retail empire.

Marc Major, then of Blu Skye Sustainability Consultants, was at several of those first meetings, and like most attendees, he was immediately struck by the depth of the retailer’s commitment. “They talked about this as a potential business strategy,” he says. “Not just as a nice-to-do thing, not just as a bolt-on accessory to the business, but as a central part of the business moving forward.”

To improve the efficiency of its U.S. trucking fleet, Walmart brought in the Rocky Mountain Institute — the first name in radical eco-efficiency. To train staff on the promise and principles of sustainability, it engaged Adam Werbach, whose previous job had been president of the Sierra Club. (He had refused the company’s initial overtures and only agreed to come to Bentonville if Walmart swore to keep his name out of its marketing materials.) Executives from hyper-green niche brands like Patagonia and Seventh Generation were recruited to help Walmart figure out how to procure genuinely sustainable wares for its shelves. Jeffery Hollender, Seventh Generation’s founder, had long boasted that hell would freeze over before you’d find his green household-cleaning products at Walmart, yet within a few years, he was working with the company on its efforts to establish industry-wide sustainable-product guidelines.

Because so few such standards existed, Walmart had to lead by example. Major remembers the enormity of the task seemed taxing even for Walmart’s resources. “First, Walmart has to figure out what works for them. Then they need to start spreading the word to suppliers. Then they need to figure out exactly how they’re going to measure this. Then they need to actually measure it and test those measurements. Then they can actually roll out performance standards for their own employees. Then suppliers will finally start to take it seriously.” The process, in other words, would take many years.

In 2009, Walmart sent questionnaires to its tens of thousands of suppliers, quizzing them on every aspect of their operations, from energy use to waste. The answers will be codified into a “sustainable product index” — a scorecard that puts a green ranking on everything Walmart sells. Major, meanwhile, has formed his own consulting business, ClearGreen Advisers — one of several boutique firms founded exclusively to tutor Walmart’s suppliers on how to adapt to the giant’s emerging sustainability guidelines. “Walmart has become sort of a stone in the water,” Major says. “But now a lot of other people are throwing similar stones, and the collective ripple effect is pretty staggering.”

Consider the case of Spin Master, a Toronto-based toy maker that has gone from three business school pals to No. 3 in North American toy sales in just over a decade. Spin Master had been pursuing sustainability initiatives of its own prior to Walmart’s big push, looking in particular at ways to reduce its packaging volume, make that waste easier to recycle and eliminate harmful chemicals.

“As Walmart came out with their initiative, it actually lined up with what we were doing,” says Iain Kennedy, Spin Master’s chief operating officer. “It gave us even more incentive to get on, faster, with the implementation we had in the works.” Spin Master has since completely eliminated toxic polyvinyl chloride (PVC) from its toy packages and boasts a compliance rate of more than 90% with Walmart U.S.A.’s packaging scorecard, which aims to reduce packaging volume by 5% across the board within three years.

Walmart Canada, meanwhile, has em????barked on a range of its own initiatives. Its Mississauga headquarters verges on waste-free, through such measures as a Styrofoam recycling program and designated chewing-gum composting bins. A hyper-efficient test store opened in Burlington, Ont., in January 2009, using geothermal heating and other efficiency tricks to reduce its energy draw to 60% below the big-box average. Over the next 12 months, all existing Canadian stores are in line for efficiency retrofits to reduce energy use by at least 20%. And just before the Vancouver Olympics, Walmart Canada hosted a Green Business Summit, gathering not just its suppliers but many of its big-box competitors to trade sustainability practices.

That summit, argues Andrew Pelletier, Walmart Canada’s sustainability VP, was a high-profile way to make the “business case” for going green. Every eco-friendly gewgaw in those fancy new digs in Balzac, for example, was included only after it proved it could provide not just the warm fuzzies of doing the right thing but a substantial return on investment. And it’s Walmart’s stated intention to share the stuff that works best with anyone who’s interested. “We’re measuring and metricking our sustainability initiatives the way we would our sales and profits,” says Pelletier. “It’s that key to the business now.???Because ultimately you are driving waste out of your supply chain.”

Walmart’s efforts have won some unlikely allies. The keynote speaker at its Vancouver summit was none other than David Suzuki, and green groups are now as likely to praise the company’s work and form partnerships with it as to criticize and protest.

“One of the most important roles for environmental groups in this new reality is as distinguishers of truth, validators of sincere efforts and unveilers of the insincere efforts that you see happening with a lot of corporations,” says Rick Smith, executive director of Environmental Defence and co-author of Slow Death by Rubber Duck (an expose of the toxic stew lurking in everyday household products). Smith points to the lead role Walmart took in removing products containing the chemical bisphenol A from its shelves — well ahead of the Canadian government’s formal ban — as evidence of its willingness to act unilaterally on its sustainability pledge. “There’s no doubt in my mind that Walmart is sincere on this stuff,” says Smith.

Peter Robinson, CEO of the David Suzuki Foundation, concurs. “Their concerns about waste, about water, about greenhouse-gas emissions and now with respect to food, are completely admirable. And because of their clout, they will, of course, influence and change the entire landscape as it relates particularly to retail operations on sustainability.”

Robinson worries, however, that Walmart’s “narrow vision” of what he calls “eco-efficiency” — all that obsessive energy-saving stuff at the new distribution centre, for example — might reduce the original definition of sustainability to something less transformative. When Walmart does almost anything, after all, it goes big, reconfiguring the whole marketplace. In 2006, when the company first entered the organic cotton clothing market, it bought more of the stuff than the entire global supply had been five years earlier.

The intent of sustainability is to be a new bottom line — an overarching concept that embraces not just energy use and emissions but land use, community enhancement, fair trade and living wages — in place of rapid expansion. And even supporters like Robinson note that some of the “broad perspective” of sustainability has yet to be addressed by Walmart’s push. Its business model is still predicated on perpetual growth, for example, and it continues to fill its shelves with imports from China, which famously builds a new coal-fired, greenhouse-gas-spewing power plant every other week to feed its manufacturing base.

And while Walmart has been extremely aggressive in reducing its own energy use in-store, it has done very little to reconsider the entire big-box model. Your typical Walmart is a huge warehouse in the middle of a vast plain of asphalt in the outer-belt suburbs; this is very nearly the antithesis of urban sustainability.

Walmart Canada’s Pelletier points out that the company has upped its auditing of Asian suppliers and even organized a sustainability summit in Beijing. And a number of its new Canadian Supercentres are retrofits of existing stores rather than brand-new, much larger warehouses. But these are merely less-bad approaches to existing problems, not solutions to them.

Still, Pelletier insists that Walmart is open to discussing its shortcomings — and, ideally, correcting them. The company is at the beginning of a long journey to sustainability, he says, not the end of a marketing push. “If this is going to be a marketing campaign for somebody, they are completely missing the point. Completely missing the point. [Sustainability] is indigenous now. It is truly indigenous to the company.”

A telling example of what Pelletier is driving at are the retailer’s “personal sustainability pledges” — individual commitments made by cashiers and warehouse labourers as well as executives and managers. They would be as easy to mock as Walmart’s notorious morning cheer, but the reality is something much more genuinely personal. Walmart Canada CEO David Cheesewright’s pledge is to bike to work at least once a week. At the store level, though, employees are as likely to make commitments to losing weight or quitting smoking as to improving in-store recycling — and Walmart treats these as equally valid ways of exploring what sustainability means to the business. It also bears noting that the program — along with the whole, wildly ambitious sustainability effort pledged by Lee Scott — has endured after Scott passed the reins to Michael Duke in 2008.

Back in Balzac, the tour of the distribution centre offers yet another example of indigenous sustainability, Walmart-style. Out on the tarmac in front of a row of 18-wheelers, Andy Ellis is joined by a colleague from Bentonville, Kory Lundberg, to talk shipping. Walmart recently partnered with truck maker Freightliner to develop prototypes of next-generation trucks. (Walmart operates its own fleet in the United States but uses third-party shippers in Canada.)

The cab parked on the tarmac in Balzac has been nicknamed Ivy. It has green leaves painted on its doors and an electric battery pack installed on its rear axle to help with acceleration. Lundberg estimates this hybrid engine setup will reduce fuel consumption by 5% to 7%. “It makes a lot of sense,” he says, “but somebody’s got to go first. And Walmart, because of our size and scale, is in a unique position to do it.”

One of the first headline-making ventures of Walmart’s sustainability program involved trucking. Working with the Rocky Mountain Institute, the company retrofitted its entire fleet to save gas. The fuel tanks on truck cabs and the underbellies of trailers were fitted with aerodynamic skirts, and auxiliary power units were installed in cabs so truckers wouldn’t run their engines all night just to power a television or heat a hot plate. Last year, Lundberg notes, Walmart overhauled its truck loading and scheduling, reducing its U.S. fleet’s total miles travelled by more than 100 million. Through these means, the company saved US$200 million last year.

These are the kinds of results that will likely start turning heads even in corporate boardrooms indifferent to pleas to save the planet or end the oil addiction. When Walmart executives refer to making the business case for sustainability, this is what they mean: carefully and transparently detailing the huge savings to be reaped by paying meticulous attention to its precepts. Walmart hasn’t suffered at the cash register or on Wall Street for going green, because its version isn’t an altruistic act at the expense of profit; it’s just good business. Indeed, the word Andy Ellis keeps repeating as he tours corporate partners and VIPs around the new distribution centre isn’t “green” or “eco-friendly” or even “sustainable,” but simply “smart.”

Out on the tarmac, Lundberg points to the trucks parked at the loading bays, operated by third-party shippers. Several of them sport skirts and fuel-tank covers in the style Walmart pioneered. A small thing, to be sure. But a signal, perhaps, of a much larger shift. “We’ve been amazed at how much we weren’t doing that just made so much sense,” Lundberg says. “But now that you kind of put a focus on it and everybody’s looking at it, you find those things.”