The Green Retailing Special Report

October 2012 Integrated Solutions For Retailers

Sustainable Retailing Today

By Aberdeen Group

For today’s retailer, sustainable retailing means encompassing supplier management, brand management, the customer experience — and the bottom line.

Sustainability is an overarching concept that is changing the way business is done. In fact, sustainability is touching all aspects of business including packing, marketing, manufacturing, and distribution. Until recently, however, sustainable retailing had been restricted to environmental issues and planet stewardship. While environmental impact and planet stewardship are important issues, the lifeblood of retail is profit. The hurdle for many retailers is finding buy-in for something that may give you a warm feeling but may not move the needle as it relates to sales and marketing. However, a growing number of retailers are seeing the opportunities for increased profits and cash flows via sustainable retailing. Today, sustainable retailing goes beyond green packaging and carbon footprint reduction, encompassing supplier management, brand management, and even customer experience. Today’s green retail movement must also move the bottom line.

Real Actions For Real Results
Aberdeen research reveals that the mandate for sustainability and social responsibility is being answered with real actions with far-reaching effects throughout the entire supply chain. Indeed, sustainability within retail is quickly becoming a major part of overall retail strategy. In fact, sustainable retail initiatives demonstrate that practically no aspect of the retail enterprise will go untouched by the sustainability agenda. The main functional areas of the green retail organization include:

• Retail supply chain
• Customer-facing component
• Facilities and infrastructure

These actions represent not only a strategic and tactical shift in internal business processes and cost-efficiencies but also — and significantly — a new way of engaging the customer by leveraging sustainability initiatives to enter into a partnership with the customer as good global citizens. Aberdeen data suggests that retailers achieve not only dramatic cost savings, but also dramatically improved customer loyalty.

By adopting an innovative set of sustainable processes and solutions, retailers are striving to achieve competitive advantage, impact top and bottom lines, and deliver an optimal customer experience leading to high levels of customer acquisition, satisfaction, and retention.

Supplier/Supply Chain Management
Sustainability takes on new meaning in the supply chain as energy-saving measures are often in lockstep with cost saving measures. Therefore, supply chain companies have eagerly adopted energy-saving protocols. According to a recent supply chain management (SCM) survey of chief supply chain officers, 52% of companies have taken actions to improve energy efficiency within the supply chain. Additionally, 31% of companies are planning to implement energy efficiency strategies in the coming 12 to 24 months. Here are some examples of supply chain strategies companies are currently implementing or planning to implement to make their supply chains more streamlined and sustainable:

• 81% of retailers are incorporating sustainability/corporate responsibility criteria into at least some of their SCM processes
• 65% of retailers are redesigning their supply chain/network
• 44% of retailers are using alternate fuels/sources of energy

The key pressures behind companies’ focus on the sustainable supply chain are to drive direct business benefits by achieving competitive advantage as well as positively impacting bottom-line financials. This finding is further exemplified by the results of the recent Aberdeen research on strategic supply chain planning, which revealed that the top pressure selected by 68% of supply chain organizations is the need to reduce supply chain operating costs.

The Customer Loyalty Experience
As customers increasingly judge retailers on the basis of their reputation and practices in the global community, Best-in-Class sustainability performance offers retailers a fortuitous package of benefits from lowering overall costs to simultaneously boosting brand value and improving customer experience. Consider the same action from the multiple standpoints at play for the responsible retail enterprise. Green retailers are able to:

• Reduce costs by stemming energy usage
• Ameliorate environmental impact by lowering emissions
• Improve brand value and social responsibility by tracking and communicating the efforts and impacts of the previous two actions

Customers are rewarding companies that have committed to demonstrating the real efforts and effects of conducting themselves as more engaged, caring organizations. This does not mean that said companies have achieved some “pure” green or “responsible” status — rather and importantly — they are making committed efforts with real results in a manner that connects with the customer and stakeholder desire to partner with more ethical organizations — a crucial brand differentiation in a competitive global market.

Aberdeen research has shown that all classes of respondents achieved an increase in three measures of effective customercentricity: new customer acquisition, customer retention, and customer satisfaction (CSAT). The top performing companies surveyed enjoy more dramatic rates of improvement as compared to all others. In fact, top companies can boast a 17% improvement in new customer acquisition and a 31% improvement in customer retention, showing a clear advantage over all others, which are able to claim a 5% and 14% rate of improvement in each category, respectively.

Aggressive Energy Management Strategies
Driven by the rising cost of oil and internal mandates to decrease the company’s carbon footprint, retail sustainability agendas adopt aggressive energy management strategies that increase visibility of and control over energy usage. A growing number of enterprises are also adopting a variety of alternative energy options such as solar, wind, and fuel cell technology to run facilities, stores, equipment, vehicles, and headquarters. Though top-performing retailers have seen dramatic reductions to their energy (75%) and transport costs (44%), it is also important to note the reductions they have been attained in labor costs (25%) and mall/common area fees (16%). An increased visibility and attention to a holistic set of operational areas result in greater efficiency around scheduling and/ or a greater focus on telecommuting. Further, companies with highly efficient, ecofriendly facilities can effectively negotiate lower common fees as a result of their smaller impact on, or need of, common resources.

8 Sustainable Retail Steps To Success

• Assign an executive champion for green retail chain initiatives and ideally, for all enterprisewide green/sustainability programs. Without an executive champion, initiatives are more likely to lack a holistic and clear vision and implementation strategy, take longer to implement, and are less likely to yield the desired results.
• Improve communication to internal and external stakeholders. Gaining stakeholder understanding and buy-in is a crucial element to enterprisewide, green success. Without this regular sharing of vision and effort, it becomes far more difficult to attain three other key benefits of sustainability platforms: effective collaboration, innovation, and dramatically improved customer loyalty.
• Institute an alternative energy management and control strategy. With the spiraling cost of oil, energy performance management — and alternatives to traditional energy sources — are key areas on which to focus efforts.
• Engage the use of technology and services as part of the green retail initiative. If it is not clear where to begin, engage with a sustainability support/service provider to assist with program selection and prioritization.
• Centralize responsibility for all enterprisewide green and sustainability initiatives. Seek a qualified candidate with experience dealing with external factors like compliance and reporting, as well as internal issues of cross-functional alignment and identification of areas of opportunity.
• Implement internal training and education around the company’s green/sustainability mission. Ensuring internal alignment around program objectives requires that everyone understands not only their role, but the CSR (corporate social responsibility) position and commitment of the entire company.
• Go customer-centric. Enterprises of all sizes need to focus on understanding and improving the customer experience of the growing number of responsibility-driven consumers. Implementing responsibility-focused research and marketing programs allows insight into the needs and wants of green-focused buyers.
• Move more aggressively to expand investments in sustainability- oriented software and assets. Having the assets and software to efficiently provide a deep view of asset performance and overall enterprise-sustainability performance will help to highlight both successes and opportunities for improvement. Sustainability-oriented software offers a granular view of financial and nonfinancial performance and metrics that can be presented, analyzed, and acted upon by key stakeholders.

Sustainability In Retail Operations

By Adam Siegel, VP of sustainability & retail operations, Retail Industry Leaders Association (RILA)

For some retailers, sustainability was built into their values from the beginning; for others it has been embraced more recently. Regardless of its origin, sustainability is becoming a core consideration for the retail industry, affecting strategy, operations, workforce engagement, and connection to consumers and communities. To forge a path forward on social and environmental issues where there is often no precedent, retailers are reaching out to nonprofits, academics, and governments, as well as to their suppliers, consumers, investors, vendors, and communities to solidify a realistic course of action.

In most cases, this path starts behind the scenes, looking at the environmental impact of company operations.

Operational Footprint
Through the process of measurement, assessment, strategy implementation, and reporting, retailers are building a foundation that will support continuous improvement in their operational footprint. While these efforts save money, they also improve the customer experience: an appropriately lit, climatecontrolled, and ventilated space can feel inviting and comfortable. Energy and waste reduction are key considerations for efficient, comfortable stores.

Managing Energy: Techniques for an energy-efficient retail space include installing building automation systems that track energy and control temperature settings, monitor alarms, and help identify areas for energy savings and for retrofitting mechanical systems with more efficient models. For retail formats like grocery and convenience stores, retailers can install advanced refrigeration systems with self-closing doors, motionactivated lighting, and refrigerants with a lower climate impact. Lighting is another way to introduce efficiency. Retailers are installing low-energy lighting systems, including fluorescent and LED lamps, which use about 75% less energy over a longer lifespan than standard incandescent bulbs. They are also incorporating daylighting to reduce the need for artificial light during daytime hours.

On-site renewable energy is a long-term investment that hedges energy costs, saves money, reduces emissions, and provides reputational benefits. Rooftop solar energy systems are the most common approach. As retailers continue to make progress toward carbon reduction, strategic and comprehensive initiatives like submetering, efficiency retrofits, and renewable energy generation will become increasingly common.

Managing Waste: The core of retail’s business is the sale and distribution of physical goods. That does not mean, however, that waste is a necessary output. Through the hierarchy of waste reduction — material reduction, reuse, recycling, and then lastly disposal — retailers radically reduce the amount of landfill waste produced, resulting not only in benefits to the environment but also cost savings and new revenue sources.

Waste minimization starts with reduction and reuse. Retailers are updating procurement policies to minimize the volume of disposable material entering their facilities. Customers are also important allies in reducing waste; many retailers are introducing reusable shopping bags, and some offer incentives to use them.

For the materials that cannot be eliminated or reused, retailers are maximizing recycling. Stores with proactive recycling efforts are saving, if not making, money when all recycling costs and revenues are considered (including new revenue streams, savings from avoiding landfill costs, and money saved on hauler fees).

Integrated Into The Local And Global Community
Retailers continue to place priority on working with a diverse set of stakeholders. With customers, retailers seek to understand and satisfy their desire for sustainable products. Within communities, retailers pride themselves on being strong local partners. And with nonprofit and government organizations, retailers seek partnerships to advance social and environmental programs in their direct operations and supply chains.

The Consumer Perspective: Retailers do more than simply communicate sustainability; they help customers see and feel it through the shopping experience by providing educational signage, on-site recycling stations, and buy-back programs or trade-in options.

With regard to product marketing, creating a common language to ease consumer understanding will be a top priority for the industry. Retailers recognize that phrases such as “green,” “sustainable,” “nontoxic,” and “recyclable” have different meanings for different people. While price will always be a major factor in consumers’ choices, other factors — like where the product came from, how it was made, and how it impacts the planet — will increasingly influence their buying decisions.

The Local Community: Community engagement was important to retailers long before the phrase “corporate social responsibility” was coined. Today, retailers lead many diverse programs tied to local community needs. The strongest programs are directly aligning their philanthropic programs with their sustainability and business objectives.

Nonprofits & Government Engagement: Collaboration with external stakeholders has become more pronounced as retailers seek to minimize their social and environmental impact and strengthen their businesses. Today, retailers, nonprofits, governments, and academics alike realize the challenges inherent in integrating sustainability into company operations and supply chains.

Working with nonprofits and government entities to improve labor conditions in supplier companies, especially in developing countries, has been a priority for the industry for many years. Individual companies have teamed up with nonprofits and government organizations like the Fair Labor Association, the Global Social Compliance Program, and many others.

Where The Industry Is Headed
Turning from sustainability as a cost and risk reduction measure to an opportunity for business growth, sustainability programs are increasingly seen as a source of innovation.

As retailers build their sustainability programs, they have developed management, measurement, and IT systems for continuous improvement. Retailers are recognizing that increasing transparency in operations and the supply chain institutionalizes their efforts, adds public accountability, invites stakeholders into the conversation, and strengthens their business. In retail stores, companies aim to provide a place for employees and customers to flourish, while minimizing the environmental footprint. For the products retailers sell, companies seek ways to continually measure and reduce their impact, from design to end-of-life. In the communities in which retailers operate, companies serve as partners and as citizens, working to meet human needs inside and outside of the store.

The Retail Industry Leaders Association will continue to encourage growth in the industry’s ever-changing sustainability journey.

Customers and other stakeholders have ever greater expectations and buying preferences for the retail sector. Companies are competing in new ways and need to do so in a cost-effective manner. What are retailers doing to keep electric consumption down as retail sales surge in 2012 and beyond? And how are they engaging their customers to claim the reputation benefits from being an environmentally minded company?

At Ecova, we work with more than 45% of North American retailers and manage over 600,000 sites for our clients. This work gives us actionable insights into how retailers are answering these questions. Recently we compiled some of this data in a Big Data white paper, which revealed that Ecova’s retail clients reduced their electricity consumption by 2,300,000,000 kWh between Q1 2009 and Q3 2011. Sound like a big number? Well, it is. This amount of conservation is equivalent to the carbon emissions from 3.7 million barrels of oil and is enough electricity to power just shy of 200,000 U.S. homes for one year.

This is great, but we know retailers are ready for the next step. How do you translate those energy savings into long-term sustainability programs? And how do you engage your customers in your journey? Come talk to us to hear more about our ideas and the work we are doing with leading retailers to succeed in this next frontier, or connect with us online at ecova.com, on LinkedIn at linkd.in/ecovainc, or follow Ecova on Twitter at @ ecovainc.

About Ecova
For retailers, saving money and resources while providing an excellent customer experience is a critical business goal. From energy, water, and waste to telecom, lease, and carbon management, Ecova gives you accurate information and advice, as well as the expertise and service implementation you need to improve efficiency, lower expenses, and enhance your reputation with customers. Ecova is the total energy and sustainability management company whose sole purpose is to see more, save more, and sustain more for its clients.