Why Home Depot and Other Retailers Reject Its Trade Group’s Push for “Sustainability”
October 14 2013 by ChiefExecutive.net
Frank Blake, CEO of Home Depot assured shareholders that the Atlanta-based DIY giant would not pursue so-called green initiatives that may harm customers or the company’s bottom line if the costs of being “sustainable” needlessly raise prices. Last Spring Sear’s Eddie Lampert indicated that his business would resist attempts to impose attempts to add private regulations that would burden the retailers cost structure. Why is the Retail Industry Leaders Association (RILA), an industry trade group, pushing mandates at the expense of consumers that will only punish its members with diminished sales?
Home Depot and Sears along with 200 top retailers in the U.S. are members of the Retail Industry Leaders Association (RILA), a trade association promoting top-down “sustainability” mandates. The group describes its agenda in benign terms saying it will “drive business value, consumer and employee loyalty, and support a healthier planet.” The trouble is RILA never gets around to actually defining the concept of “sustainability”, let alone providing any indication of what the ROI might be or how it benefits consumers—the customers of retailers like Home Depot and Sears.
Since the Home Depot shareholder meeting last May, RILA has doubled-down on its advocacy of private regulation and environmentalist efforts by publishing its “2013 Retail Sustainability Report,” in which it states:
“Companies will often develop individual or industry voluntary programs to reduce the need for government regulations. If a retail company minimizes its waste generation, energy and fuel usage, land-use footprint, and other environmental impacts, and strives to improve the labor conditions of the workers across its product supply chains, it will have a competitive advantage when regulations are developed.”
But shareholder activists such as Justin Danhof, director of the Dallas-based National Center’s Free Enterprise Project, claim the trade group is trying to advance itself “as if they were an extra-governmental body able to place restrictions on its participants” is based on the doubtful premise that more regulation and red-tape is the only way forward for the retail industry. “Nothing could be further from the truth, “says Danhof.
RILA also advocates that its members lobby for changes in local building codes and infrastructure that will increase the cost of buildings and result in significant restrictions on property use. It also advocates top down sustainability standards that go beyond its own members rules affecting the entire supply chain despite the likelihood that these standards will increase suppliers costs and in turn the cost of the goods that they sell.
Last May, at the Sears annual meeting, CEO Edward Lampert rejected any extra-regulatory mechanism such as RILA commenting that, “ personally, I don’t like coercive solutions. I think America is overregulated.” An investor questioned Walgreen CEO Greg Wasson whether the retailer’s “sustainable goods” initiative that the retailer had launched was actually good for its customers or shareholders. Writing in the Motley Fool, Gene J. Koprowski wondered if marketing more expensive products labeled as “sustainable” or “green” was actually central to the chain’s business strategy rather than selling lower priced, higher quality goods. Koproski suggested “that investors refrain from buying shares of Walgreen until CEO Greg Wasson can provide a solid answer to the query.”
The problem for CEOs that are faced with agendas that are variously labeled “green” or “sustainable” is that the thinking behind them is often not clear and the business case is not presented with any rigor. Boards, too, need to be aware that the term is used to cover a variety of attitudes and policies some of which may actually be counter to a company’s interests. Former P&G CEO Bob McDonald learned this the hard way when he was CEO of P&G Canada. After attending a number of focus groups there he was persuaded to do away with the company’s liquid cleaning product packaging and to instead market them in film enviro-paks that were judged “sustainable” and “green.” Trouble was, after this was done at some expense, customers weren’t buying the goods. And they didn’t like the fact that it cost more. P&G had to discontinue the “sustainable” packaging and return to its traditional offering.
“Sustainability” initiatives when focused on productivity improvements such as using fewer inputs like energy or materials can dovetail nicely with business strategy. It’s one reason why MacDonalds long ago discontinued serving its Big Macs in plastic clamshells and moved to biodegradable packaging. Everyone benefits, and it costs less. But under the guise of promoting “sustainable” products and technologies, outcomes can be very different, as Chief Executive pointed out in “Leaders in the Clean-Tech Economy” http://chiefexecutive.net/leaders-in-the-clean-tech-economy. In a white paper written by Bonner R. Cohen, Ph.D., a senior fellow at the National Center for Public Policy Research, he observes that “ a growing number of trade associations are imposing their particular view of the world on their member companies and, by extension, on the nation’s consumers. While the standards and practices dictated by “sustainable” trade associations do not have the force of law behind them, their effect on businesses and consumers can be as far-reaching as the most sweeping edicts from Washington regulators.