Going green can be profitable for corporations while serving its corporate social responsibilities

For a whole new generation being �green� is much more than being part of the hippy culture and for corporations it is a matter of running businesses consciously. Our planet is getting fragile by the day due to less availability of portable water, increased landfill by non-recyclable garbage and global warming due to increase in green house gases.

According to a research by Industrial ecologist Sangwon Suh of the University of Minnesota, service sector--such as banking, hospitals, computers and retail stores, amongst other businesses account for more than one third of industrial greenhouse gas emissions in the U.S. and this might be the case around the world. With such a big stake, it is time for the retail sector to adopt green practices. Currently retail companies have not focused much on such initiatives as it involves upfront investments in new recycling units, researching for bio-degradable packaging materials, overhauling existing structural materials for a more efficient building materials and introducing energy saving lighting systems and cooling systems.

But the benefits that accrue by going green will far outweigh the costs in the long run. For one, a new generation of people that consists of Generation Y and Generation Z are more conscious of the environment and are prone to buy eco-friendly products. According to a survey by AMP Insights[1], 69% of Gen Y will consider a company's social and environmental commitment when deciding where to shop, and 83% will trust a company more if it is socially/environmentally responsible.

In fact they will be willing to pay a little extra as well. Research by Maritz designed to track Gen Y�s brand awareness among several popular clothing retailers predicts that 47% percent of the respondents are willing to pay more for environmentally friendly services, products or brands. Out of this percentage, the vast majority (77 percent) cited their �care about the environment� as the reason behind their willingness to pay more, with other qualifiers, such as �it�s the right thing to do� (21 percent) or �so that people know I�m environmentally aware� (2 percent) trailing behind. No wonder Wal-Mart consumer�s adoption for green products increased by 66% in 2008 compared to 2007[2].

Apart from tapping into a new segment of consumers, some retailers have improved their bottom-line (profits) by employing eco-friendly practices as well. IKEA Canada has reduced its energy consumption in its stores by 25 percent by implementing new energy management practices and technologies while Wal-Mart stores cut its energy use by 30% by incorporating energy-management systems[3]. Aldi the fastest growing discount retailer is opening up environmentally friendly stores with the aim of a 30% reduction in its utility footprint[4].
Not to be left alone, major consumer product companies like Estee Lauder, Whole Foods, ConAgra, Procter & Gamble, and Unilever have also teamed up with packaging providers to develop sustainable packaging that uses recycled and renewable content, to reduce raw materials in weight and volume, and promote the use of biodegradable materials[5]. The reduced size and use of lesser quantity of materials will help manufactures reduce the cost of products sold. According to Carbon Trust, an independent company set up by UK government, a 20% cut in energy costs represents the same bottom line benefit as a 5% increase in sales. No wonder, Wal-Mart has asked its suppliers to cut packaging by 5% by 2013. This they say will take the equivalent of 213,000 trucks off the road saving 66.7 million gallons of diesel[6] besides improving their profitability.

With such monetary benefits, it is the right time for retailers to take the green initiatives. Some of the areas where retailers can focus are
1) Implementing energy management systems that offers control and monitoring of building services performances and allows for settings to be changed quickly and easily.
2) Going for LED lighting
3) Using advanced refrigeration systems that require less conventional refrigerant and experience lower rates of emission.
4) Increasing overall recycling of solid waste from stores apart from reducing reliance on plastic and paper grocery bags and finally
5) Use of building materials that reduce leakage of heated or cooled air from the store.

For retailers, social responsibility and green initiatives can go hand-in-hand resulting in more loyal customers while managing costs. It is important that as responsible citizens retailers take a pledge to go green and what a better day to do so than today being the World Environment Day.

Sources:

[1] http://www.usatoday.com/news/nation/2006-10-23-gen-next-cover_x.htm
[2] http://www.bluemapinc.com/resources/WalmartGreen.pdf
[3] www.environmentalleader.com/2008/08/27/wal-mart-canada-stores-to-cut-energy-use-30
[4] www.gourmetretailer.com/gourmetretailer/content_display/news/e3i71ba0ba389e5e5bea8e3f4fef9fd25bb
[5] http://www.environmentalleader.com/2009/05/29/con-agra-pg-among-honorees-for-sustainable-packaging/
[6] http://walmartstores.com/FactsNews/NewsRoom/8628.aspx

Discount stores

The discount store fancy has now caught up in India with Reliance Retail planning to open its no-frills stores. And there can never be a better time than the present recessionary period to open such formats. Around the world, the fastest growing retailers are the ones who sell products at discounted prices. For the first time, global discounters like Lidl and Aldi have a place amongst the top 10 retailers according to a recent report published by Deloitte. Discount stores as a concept were invented by Theo and Karl Albrecht who founded Aldi Discount in 1960. Their low-cost business model is a huge success even now in Germany and abroad.

These formats are not only catching the fancy of the urban middle class families across the world who have seen their disposable income falling but it is also attracting savvy rich people who have no qualms doing value shopping for their daily needs. These stores sell goods on an average 20-30% less than a regular superstore, proving to be a big hit with consumers. No wonder, internationally major retailers like Tesco and Carrefour in a bid to capture market share are coming up with their own versions of discount format stores or are introducing value products in their assortment to attract customers who have been hurt by recession.

India has not been new to the concept; down south Subhiksha was the first modern retailer to have a discount model. It offered all products at a 10% discount and up-north D-Mart introduced a blanket 5% off discount on all products. Although D-Mart looks to be profitable the same is not the case with Subhiksha. The company owes its financial mess due to bad capital management and opening up of large number of stores without proper focus on supply chain management. Some of the initiatives that Indian retailers can implement to be profitable viz a viz its western counterparts are a) limiting the number of SKU�s to 1000 -2000 per store. This will ensure that these items are sourced cost efficiently and the high turnover of these most selling SKU�s will ensure that capital is used effectively and b) Notching up properties at reasonable prices. With the recent downturn, a lot of properties will come up for distress sale and it is a good time to rent these properties or renegotiate on old agreements.

Irrespective of how the economy behaves in the near future, one thing is clear that the discount format is here to stay.

Price Indexes

Price indexes are a normalized average of prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.
Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy's price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment. (Source: Wikipedia)
Some of the major price indexes are listed below:

Wholesale Price Index (WPI): The index is used to measure the change in the average price level of goods traded in wholesale market. A total of 435 commodity prices make up the index. It is available on a weekly basis, with the shortest possible measurement lag being two weeks. Because of this, it is widely used in business and industry circles and in Government, and is generally taken as an indicator of the inflation rate in the economy.

Producer Price Index (PPI): It measures average changes in prices received by domestic producers for their output. It is one of several price indices calculated by national statistical agencies.

Consumer Price Index (CPI): It is a measure of the average price of consumer goods and services purchased by households. A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). The percent change in the CPI is a measure of inflation. The CPI can be used to index (i.e., adjust for the effects of inflation) wages, salaries, pensions, and regulated or contracted prices. They are weighted this way: Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Others: 6.9%, Apparel: 6.0%, Entertainment: 4.4%. Taxes (43%) are not included in CPI computation.

By August 2010, the Indian government will have a new Consumer Price Index, in order to address a situation of increasing prices to rise even as the inflation rate is tending towards zero, the government has initiated action to introduce a new consumer price index (CPI) by August next year. The new index would be available with four sub-sections to reflect prices at national, rural, urban and state levels on monthly basis. The data collection for rural as well as urban India would start by July, and the new CPI would be out exactly one year after that in August, 2010. This would be done by engaging 2,400 postmen for collection of retail price from 1,200 villages in the country by June end. The postmen would be identified in May and trained them in June. Preparation for the new CPI for urban India has been completed in March. The CSO is ready for collecting data from retail outlets in 100 cities and town.