Environmental Trend and Current and Possible Future Impact on the Retail Business Sector - Essay Example

Analysis of environmental trend and assessment of its current and possible future impact on the retail business sector BY YOU YOUR ACADEMIC ORGANISATION HERE YOUR COURSE/TUTOR HERE DATE HERE Analysis of environmental trend and assessment of its current and possible future impact on the retail business sector Introduction A key trend which is highly-observable in the retail sector is a push for more sustainable business practices in relation to environmental protection and climate change. Often known as greener business strategy or eco-friendly objectives, environmental protection policies at the regulatory and consumer level are driving dramatic changes to how retail industries conduct business. Greener business strategies maintain a significant, current opportunity for businesses to experience profitability whilst, in some retail industries, compliance to various regulatory demands for greener strategies can be a large financial burden. However, this key environmental trend is causing many regional and international companies to rethink their existing business strategies in order to satisfy consumer demand for eco-friendly products through marketing and in areas of facilities management. This report identifies differing viewpoints on environmental consciousness along with an assessment of how this both positively and negatively impacts retail business operations and finance. Greener business strategies Piell (2009) offers that certain regulatory entities, in international retail selling environments, are adding considerable pressure to companies to comply with energy usage reductions, which is especially noticeable in the consumer sales environment. The United States Environmental Protection Agency created its Energy Star labeling system which was a regulatory effort for appliance manufacturers to clearly list the energy-efficiency rating of their products, such as dishwashers, refrigerators and microwaves (Piell). Additionally, Verizon, one of the largest international mobile communications technology companies, proudly promotes the Energy Star labeling system in over 30 of its international retail stores that are at least 5,000 square feet in order to comply with these regulations and also show interested consumers that the business takes energy consumption at its stores quite seriously (Piell). This regulatory pressure forces many appliance retailers (and other energy-consuming product manufacturers) to change the internal energy mechanisms of their products in an effort to reduce a product’s carbon footprint, the volume of carbon dioxide (CO2) emitted by the devices. From a manufacturing perspective, this key trend in regulatory activities related to the environment can be a costly business operation as it often involves devoting more financial resources to research and development in order to meet new standards of energy consumption. Energy consumption levels are of significant interest to retail companies today, noticeable even in the retail supermarket environment. Food Lion markets, another international foods seller, recently reduced their total stores’ energy consumption by over 19 percent, citing a “bottom-line benefit of more than £50 million” (Piell, 2009, p.89). At the financial level, complying with various regulatory demands for energy consumption had an extended benefit for Food Lion in terms of cost savings, thus meeting budget expectations for operations costs. Through the use of clever, green-focused marketing, Food Lion managed to build higher consumer interest as an environmentally-conscious business for the concerned consumer. Amato-McCoy (2009) offers a different aspect of this environmental trend in terms of supplier agreements and the nature by which product distribution occurs. Collaborations are currently underway with many retail organisations and their supplier partners to create leaner and more efficient systems of product distribution. Such activities include consolidation of orders which require transportation through a fleet of refrigeration vessels, thus reducing the volume of trucks on the road in their supply chains. This move is cited as being able to allow retailers and their suppliers to “offset operating costs, achieve a more efficient supply chain and mitigate long-term risk” (Amato-McCoy, 2009, p.54). Transport vessels which use refrigeration or freezing technologies are very large contributors to the emissions of high levels of carbon dioxide, both from the transport vessels’ exhaust and the refrigeration units in each form of transport. Through leaner supply operations and more efficient systems of product consolidation, a company maintains many opportunities to use marketing promotion to illustrate the firm’s commitment to greener business practices. Also related to the supply chain, as part of corporate social responsibility to satisfy consumer stakeholders, Nagappan (2009) offers efforts by Marks & Spencer to combat climate change. This large UK retailer has begun searching for more sustainable raw materials, which involves collaboration with different supply partners to locate raw materials with less of a carbon footprint. The company called this new supply strategy Plan A and, since its launch in 2008, the company has witnessed reductions in carbon emissions by 55,000 tonnes and this supply strategy has led to the procurement of renewable energy sources (Nagappan). This change in supply strategy has further helped Marks & Spencer to find alternative power sources for a substantial 23 percent of its total company electric needs (Nagappan). Companies like the multi-national Wal-Mart and the UK Tesco supermarkets have, together, committed over £1.5 billion solely for energy and climate programmes (Winston, 2008). These companies have considerable buying power in their respective markets, thus they are able to demand certain compliance activities from their product suppliers to meeting greener initiatives. Wal-Mart has just recently asked 60,000 of its suppliers to reduce the volume of non-sustainable materials in their packaging (such as plastics) so that the company can illustrate to consumers its eco-friendly business strategies and boost sales in the process (Winston). In this scenario, larger retailers put significant demands on how smaller suppliers conduct their internal manufacturing operations, which can be of high cost to the supplier companies. Wal-Mart and Tesco maintain the financial capital necessary to impose these costs on retail suppliers as they can easily abandon existing supplier agreements without necessarily sacrificing sales in the process. They would simply have to locate a new supplier to replace a non-compliant supplier. Thus, this key environmental trend seems to be of significant benefit to larger retail companies but a growing strain on suppliers who must, in order to stay profitable, comply with large-scale company demands for sustainable packaging. Bokaie (2008), however, warns that companies, such as Wal-Mart and Tesco, should pay careful attention to what consumers really want in terms of eco-friendly products and packaging before creating an environmentally-focused branding and promotional strategy. After launching Marks & Spencers’ Plan A, the company continuously used promotion to illustrate how closely the company was working with the UK government to meet climate change demands. This was an effort to gain consumer support for the Marks & Spencer brand and ensure higher sales volumes from the segments of buyers who support eco-friendly initiatives in the retail environment. However, the director-general of the British Retail Consortium, Stephen Robertson, flatly said, “Not even the government can claim to have such a unique and wide relationship with Britain” (Bokaie, 2008, p.36). What does Robertson’s statement mean for companies in the retail marketplace? Robertson is attempting to suggest that companies are using too much promotion for their environmentally-conscious business strategies and are, essentially, misleading consumer markets to believe that their efforts, as retailers, are more monumental and sustainable than even the regulatory entities which create compliance legislation. It is being implied that Marks & Spencer is attempting to capitalise on these efforts, which were originally designed to comply with new legislation, and making it appear to consumers that it was a product of their own ingenuity and focus on satisfying stakeholders needs related to the environment. Thus, in this viewpoint, there is a warning being offered by Robertson that such promotional efforts run the risk of, long-term, creating negative publicity and causing consumers to defect to other retailers. In a different aspect of environmental policy and focus, Brasher (2008) describes how retail companies are partnering with consumers to raise awareness of eco-friendly business and how to contribute to developing a more sustainable environment. Tesco, the large UK grocer, has created its Together campaign which communicates the cost-savings and environmentally-sustainable use of energy efficient lighting, prompting a more interactive marketing promotion to make consumers feel more authorised to assist in environmental policy. Tesco has decided to forego most of its profitability on energy efficient light bulbs by pricing them well below competitor pricing on these products. These types of bulbs are longer-lasting, consume less energy than traditional bulbs and can be disposed of much more safely without risk to hazardous materials in landfills. In this situation, Tesco is not only engaging consumers who are interested in doing their own part to sustain the environment, but is also “transforming green consumption from a fringe effort into a mass-market proposition” (Brasher, 2008, p.13). Tesco has witnessed explosive sales gains since starting the Together campaign, which further supports the notion that promotion of these activities, and setting an appropriate price which is acceptable to consumers, can have long-term, positive impact on total sales volumes as buyers find connection with Tesco in environmental consciousness. Parker (2008) also offers that retail buildings, themselves, make up nearly 40 percent of the entire world’s carbon emissions and 70 percent of these emissions in London and New York. A building’s carbon footprint is of considerable interest to retail organisations in an effort to reduce their carbon footprint. Tesco recently opened what it called “the greenest store in the world”, which was made completely out of recyclable materials, including flooring, walls, and other infrastructure elements (Black, 2006, p.50). Another UK supermarket chain recently designed a new water consumption model for their business which consisted of a rainwater recovery system on the roof which guides natural rainwater into areas such as restroom facilities and handwashing areas (Chilton, Maidmentb, Marriott, Fransic and Tobiasd, 2000). This recovery system’s cost was recovered in just under 12 months and managed to increase the efficiency of water usage at the company by 57.4 percent (Chilton et al). Retail companies which are taking steps toward creating eco-friendly building development are accomplishing two objectives: Cost-savings and satisfying regulatory and consumer demand for more sustainable business practices. The impact of these changes require an initial investment, however when operations costs are significantly reduced, these changes generally achieve payback in a very short period of time. However, despite any cost-savings experienced through this eco-friendly retail focus, Walsh (2009) offers that some retail companies experience such high volumes of regulatory and environmental advocacy group pressures that it can rapidly deplete profitability. Kimberly-Clark, a well-known multi-national manufacturer of consumer paper products, such as the branded Kleenex and Cottonelle bath tissue products, is consistently the target of negative publicity stemming from Greenpeace in an effort to stop their deforestation efforts across the globe (Walsh). Kimberly-Clark does not use a great deal of recycled fiber in their consumer paper products, like many of their competitors focused on green initiatives, thus their deforestation efforts advance at a much higher rate. These pressures to radically alter current operational strategy and supply chain would be a considerable risk to Kimberly-Clark as it would require establishing new supply agreements or changing the whole scheme of product production to meet Greenpeace (and other groups) demands. The negative publicity which follows Kimberly-Clark for their lack of environmental focus can also cause sales declines from outraged consumers who might boycott their many branded products. Bonini and Oppenheim (2008) offer that in virtually every opinion poll which describes eco-friendly objectives for retailers, consumers indicate a strong concern about climate change and the environment. Companies like Kimberly-Clark which rely on strong consumer loyalty to their many paper brands must recognise this consumer sentiment and begin adjusting their efforts to appease this stakeholder group, who are the focus of most of their potential profitability. There is, again, the risk that concerned consumers can defect to more eco-focused competition, thus profit as an outcome of attempting to appease eco-friendly consumer demands should be on the forefront of Kimberly-Clark business strategy. Baker (2009) does offer a warning about consumer attitudes toward eco-friendly objectives, suggesting that during times of recession, many consumers will simply abandon their ecological objectives in favour of more value-oriented product purchases and cheaper product alternatives. For instance, organic foods shopping has often been linked with sustainable agriculture and many markets experienced explosive growth in sales of these products. However, in today’s economic climate, consumers are quickly turning away from organic in favour of less-expensive, traditional produce options (Baker). This is an element of buyer behaviour dealing with price elasticity and their willingness to buy a particular product variety at a certain price before seeking alternative options. Today’s global economy is not in favourable condition for many retailers and consumers, thus eco-minded products which carry a higher price tag might not be the supply options that retailers would want to seek currently. If the global economy stabilises, it is likely consumers will then return to organic foods options or the products which have more environmentally-sustainable elements. Another expert in economics describes today’s economy as a “pessimism economy” where eco-friendly consumers are not as trusting of businesses in terms of giving them what they actually want (Rogers, 2008, p.36). This author describes the consumer as being concerned about the lack of consensus in the scientific world about the actual state of climate change as well as the rising cost of energy in the household. It was previously identified that many consumers are interested in being more interactive in environmental objectives, however this perceived pessimism economy should be of considerable concern to today’s retailers to ensure that they are giving buyers what they really want. As far as a future opportunity, retailers can partner with different governmental agencies to illustrate the potential cost savings, per year, for energy-saving appliances and light bulbs, as well as solidifying scientific data results on climate change, to act as a form of mentor to consumers as a knowledgeable business partner. This is yet another marketing and promotion opportunity for the pessimistic consumer who might abandon eco-friendly product alternative simply because they cannot find an advocate to give them consistent information on the environment and promote their eco-minded philosophies of consumption. Tesco has been a large advocate for consumers in this method, through the creation of a carbon label developed between Tesco and Oxford University Centre for the Environment’s Environmental Change Institute. This partnership began researching, for consumer knowledge, the carbon footprints left by different retail products to give them a firm advocate in describing the scientific background of product sustainability (Information World Review, 2007). This is a current opportunity in today’s pessimism economy which caters to the consumer demand for carbon labelling and consistent, scientific data regarding the environment. It would seem that partnerships in this area are highly beneficial to businesses as it tends to show a unified presence from multiple retailers and specialist organisations to assist in offering consumers new alternatives to become interactive in eco-friendly policy. Kemp (2006) describes a rather unprecedented strategic alliance between nine large UK retail brands to combat climate change. The total market availability to all of these brands is more than 250 million consumers in over 30,000 retail stores (Kemp). What this shows to consumers is that businesses are legitimately focused on long-term commitment to creating a more sustainable business model in which environmental advocacy is on the forefront of all consumer marketing. Outside of these partnerships and the pessimist consumer, there is yet another action being undertaken by businesses, especially supermarkets, to reduce their carbon footprint and delight consumers. New refrigeration and freezing technologies commonly found in meat and dairy display cases in supermarkets are becoming available which uses chemical dehumidification rather than traditional treated gas units which emit significant carbon dioxide (Sawalha, 2007). Though these technologies usually have a higher installation cost and purchase price, it is estimated that the cost-savings, in the long run, are worth consideration for today’s supermarket retailers as a strategy to reduce energy costs whilst lessening their business’ carbon footprints. Ducoulombiera, Teyssedoua and Sorinb (2006) also offer that many supermarket energy models now consist of an audit process which measures temperature leakages between cold and warm sales areas, the nature by which modern electrical heating is developed, and the efficiency of various energy loads between internal and external supermarket walls. This again tends to illustrate that many retailers are actively exploring alternatives to make their retail stores more energy efficient and also satisfy operational budgets at the same time by reducing the dependency on costly energy consumption. Conclusion The current social and regulatory pushes for more sustainable, environmentally-focused business practices seems to have many positive benefits for retail businesses, especially in terms of how buyer markets relate to current retailer efforts in this area. Sales volumes in the retail environment are largely driven by consumer sentiment, thus businesses are utilising marketing promotion to strongly reinforce their current and future commitments to more sustainable business models. The growing consumer demand for eco-friendly product alternatives is giving companies new considerations about how best to align supplier activities with their own internal operations strategies toward energy consumption and the removal of their unique carbon footprints. Despite any potential drawbacks, such as lost sales due to retail non-compliance to social and regulatory pressures in environmental strategy, it seems that the gains to retail businesses which do promote more eco-friendly strategies outweigh negative consequences. The key, it would seem, to finding profitability and business success in environmental policy in this sector is to clearly define the actions to consumers through appropriate marketing whilst making the environment a very transparent business activity to buyers. This key trend is certainly driving multiple retail companies in this sector to change or improve their existing operational strategies in relation to energy conservation and the reduction of harmful packaging in a way that seems to satisfy many consumers. 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