wal marts discovers a new bottom line

Quietly, with little or no fanfare, senior management of Wal-Mart Corporation have been wrestling with each other, and with their own consciences, on…

Quietly, with little or no fanfare, senior management of Wal-Mart Corporation have been wrestling with each other, and with their own consciences, on two questions – both related:

What will it take for Wal-Mart to regain its standing as the world’s largest retailer in same-store sales growth (Costco and Target have forced Wal-Mart into third place)?

And, is there an economic advantage to be gained by Wal-Mart to embrace a philosophy touted by many environmental non-governmental organizations: that there need not be a conflict between what is good for the environment and what is good for the economy?

In response to both questions, beginning in earnest in February 2004, Wal-Mart has been engaged in serious and often heated discussions.

These discussions have ranged from the economic and environmental cost of store lighting, declining price of Wal-Mart stock (30 per cent since 2000), expected profit margins in buying and selling organic milk and clothing, and in monitoring public concern for environmental problems on land slated for big-box development.

They have laid out detailed programs to lobby the US Congress for relief from high electrical costs (the company is the biggest private consumer of electricity in the US).

And they have finalized plans to lean heavily on congress to reduce gasoline taxes on their fleet of trucks (it has the second-largest fleet in the US).

Thus, as a way to “get the gold,” senior management went back to business basics: buy in volume, sell as cheaply as possible (at least cheaper than the next guy), cut costs wherever possible, keep up your image and use leverage where you can.

With that game plan down on paper — simple MBA physics — most managers felt the company had an effective plan and the meetings were over.

They were wrong.

Lee Scott, Wal-Mart’s CEO, was not done adding to the bottom line.

At one meeting, speaking almost “off-topic,” Lee rambled on for a few more minutes.

“To me there can’t be anything good about putting all these chemicals in the air. There can’t be anything good about the smog you see in cities. There can’t be anything good about putting chemicals in these rivers in Third World countries so that somebody can buy an item for less money in a developed country. Those things are just inherently wrong, whether you are an environmentalist or not.”

For whatever reason (and Marc Gunther’s essay The Green Machine published on-line at CNN Money.com outlines the more personal story of Lee’s conversion) Wal-Mart’s CEO gets it right: the corporate bottom line at some point intersects and even enhances the ecological baseline.

For Lee, the marketing plan Wal-Mart needed to put forward in order to regain title as world’s leading retailer was lacking one key component – one the other retail giants were simply overlooking:

Through research, lobby and personal persuasion, ENGOs have changed consumer’s minds.

Consumers are now willing to buy and pay for products that are less harmful to the environment.

Environmentalists everywhere had envisioned, given the right incentives and the better mind-set, that commerce and conservation would one day play on the same team.

Most, however, did not, even in their most optimistic moments, foresee Wal-Mart wanting to be at the head of the pack.

But there it is.

One ENGO that did see this coming was Rocky Mountain Institute in Snowmass, Colorado.

Its founder and lead researcher, Amory Lovins, is absolutely convinced Wal-Mart, “has a serious interest in change.”

Lovins, who for more than 30 years has been professing what he describes as an “independent, non-adversarial and trans-ideological” approach to business and environment, has taken Wal-Mart on as a client.

“By enhancing and protecting nature’s capital, Wal-Mart can increase profits and protect the environment by doing what it does more efficiently,” according to Lovins.

And in the 21st century, efficiency means buying and selling green.

With Scott at the wheel and Lovins in the backseat, Wal-Mart’s new business plan outlines a program to increase energy efficiency of its 7,000 trucks by 25 per cent over the next three years.

It has a plan to reduce energy use in its 6,600 stores by 30 per cent over the next three years.

It has committed to selling organic food and clothing.

According to Fortune Magazine writer Marc Gunther: “In Wal-Mart the organic-cotton industry has found its best customer. Five years ago, global production of organic cotton amounted to about 6,400 metric tonnes … and in 2006 Wal-Mart alone will use 6,800 tonnes.

Like it or not, accept it or not, business mind and environmental brawn have covertly come together.

Wal-Mart’s “new future” is by no means the end of the story – there are social justice and fairness issues that must be addressed.

But I believe this is a good beginning.

What we are seeing is that ENGOs are having a serious role to play in the future development and regulation of environmentally enlightened corporations.

If Lovins and Scott do this right — and if consumers respond accordingly — we can no longer write large corporations off as simply being at odds with ecosystem health.

I am being cautious here, and you should be too.

But at first blush, I like what I see.