When it comes to cutting expenses, one area appears off limits for larger retailers – e-commerce. Sports Chalet, Eastern Mountain Sports and Backwoods Equipment Co. (see Q&A with Jennifer Mull) are all moving forward with major e-commerce initiatives this year despite the economy. There is a sense among some that the recession may actually accelerate consumer’s migration online.
It’s easy to see why after reviewing the data. While the recession has slowed online sales growth dramatically from a year ago, sales are still growing. That’s an amazing feat in this economy and a portent of things to come. Consumers are clearly becoming more comfortable buying outdoor apparel, footwear and gear online.
Online sales of outdoor product rose 13% in December, while outdoor specialty sales fell 10%, according to the OIA Retail Sales Topline Report for the month. Research shows shoppers have increasingly identified Internet-only retailers – such as Overstock.com, Zappos.com and Amazon.com – among those who offer the best customer service.
Moreover, the OIA Specialty Retailer Operational Report shows that retailers with more than 10% of total sales online have a higher profit margin (8.2%) than retailers with less or no online sales (4.5%). Online sales comprise 14.2% of sales for stores with less than $1 million in sales compared to 6.2% for stores with more than $2 million.
Yet as recently as 2006, 46% of single store outdoor retailers and 38% with less than $1 million in sales still did not sell online, according to OIA research.
Still, e-commerce is not for everyone. It requires a major commitment on top of your existing brick-and-mortar operations, notes Dawson Wheeler, co-owner of Rock/Creek Outfitters, the Chattanooga, TN, retailer that has sold online for 10 years.
Wheeler said selling online can be a great tool for a successful retailer who is beginning to max out their sales per square foot because of limited market size and local competition.
“But as a life jacket, trying to keep myself afloat I would not look at it for $1 million,” Wheeler said. “It's a completely different business and just because you're a good retailer, does not mean you are a good online retailer. You are talking about a whole new workforce of folks who are far more technical. The day you start out, you are going against backcountry.com, Altrec and others. The competition is intense.”
Wheeler said retailers should expect the cost of launching a viable e-commerce business to equal the cost of opening a new a new brick-and-mortar store.
Online, as in store, retailers must commit to the category, said Dan Mann, founding partner of the retail consulting firm TMG Inc. Mann advises retailers start by offering core product already in their assortment plan, i.e., those items that already have the highest inventory turns at their brick-and-mortar location.
“A lot of people are doing e-commerce, but they are throwing things at the wall and seeing what’s going to stick,” Mann said. “Retailers who take that approach are going to get in over their head. Opening a website is the least of their troubles. Marketing and order fulfillment are your biggest challenges.”
Wednesday, March 11, 2009
Tuesday, March 10, 2009
Retailers - Vicious economic times could call for brutal retail game plans
Surviving vicious retail markets can require difficult and unpleasant action -- bankruptcy, staff reductions, renegotiating leases or shuttering underperforming stores. Although the navigation of today's challenging marketplace can be brutal, those steps are often necessary.
That was the consensus of a group of business attorneys, retail real estate experts and specialty retailer financial officers who gathered recently for a conference in Seattle. The goal: offer tips and suggestions for distressed retailers to help them get a handle on the extreme downturn in the economy.
"Retailers are facing unprecedented challenges," said Scott Staff, business development director at event sponsor Perkins Coie, Washington state's largest law firm and legal counsel to leading retailers and others in consumer products. "We expect the challenges to grow in number and complexity."
Practical advice for surviving the downturn ranged from knowing when a customer is in trouble (sources include www.debtwire.com, a real-time news and data site for financial professionals published by the Financial Times, plus www.MarketWatch.com) to what to look for when a customer is in trouble (e.g. are they stretching out payments).
Other advice included:
Be sure to have a diverse base - Don't become dependant on any one single customer or account, said Marv Toland, Eddie Bauer's chief financial officer. Prior to Eddie Bauer, Toland was executive vice president and CFO of London Fog Group from 1999 to 2007. Seattle-based London Fog Group sought Chapter 11 bankruptcy protection twice (prompting some ribbing from panelists about the company having filed Chapter 22). Click here to see a March 23, 2006, SNEWS® story, "London Fog files again for Ch. 11 reorganization, to divest Pacific Trail.")
"You can't prevent these shocks (customers going out of business), so make sure that no single one can kill you. You have to diversify," Toland said.
Later, when asked what a business owner can do when suppliers or customers are operating under Chapter 11 reorganization and court protection, Toland suggested a clinically objective approach.
"Ask why they are in bankruptcy," he said. "If you see a business model that really is failing and the ground is shifting so fast, it may not be fixable in today's environment."
Use bankruptcy if it could provide breathing room - One tool a bankruptcy filing can provide is the ability to unload unprofitable leases with limited exposure to landlords, Smith said.
It's no secret that retailers are struggling. Retailers are seeing their revenue plunge as financially strapped U.S. consumers spend less and scrutinize purchase decisions. The holiday shopping season failed to save some companies as seasonal sales fell, with some areas logging the first declines in 20 years.
Last year saw a growing number of companies seeking bankruptcy protection, shuttering thousands of stores, breaking leases with shopping malls and laying off workers. And retailers are far from alone in rising bankruptcy rates: newspapers, auto makers, casinos, electronics retailers, and fitness clubs, manufacturers and retailers. The latest: Ritz Camera Centers sought Chapter 11 protection in early March as did Joe's Sports & Outdoor (Click here to see that March 5, 2009, SNEWS story, "Joe's Sports & Outdoor files for bankruptcy protection.")
…But it's not for everyone - A bankruptcy is not "a solution to a business problem, it's a solution to a balance sheet problem," said Alan Smith, Perkins Coie partner, during a retail restructuring and bankruptcies seminar. Bankruptcy offers "just an opportunity for the debtor to take a deep breath."
"There's no point in filing bankruptcy if you don't have a core business that is worth saving," Smith said. "You have to look at business and ask if it is a business that can survive in today's environment."
Carefully examine workforce reductions - During such a down economy, knowing when and how to reduce your workforce is, of course, another important key to survival. To catch the benefits of the next boom, a company also needs to manage its workforce with an eye on top talent retention, employee morale and strategic hiring.
"Some clients are looking for bargains, but that doesn't always work out," said Roy Notowitz, partner at Portland-based Generator Group, a recruiting firm. In a down economy, there are "more candidates on the market, but usually the market floods from the bottom up. "
In these times, it's difficult to convince professionals to relocate for jobs, Notowitz added. Trailing spouses often fear they won't find new employment after following a partner to a new location, he said. Decreased residential real estate values also hamper relocation deals.
Avoid layoff mistakes - The other side of the headcount equation -- reductions in workforce -- sees more action. More companies are scrambling to trim their worker roles. Perkins Coie attorney Linda Walton advises employers to avoid layoff missteps that could land them in front of a jury.
"For every single person you layoff, you need a reason for laying off that person," she said.
Develop selection criteria; train your managers on the process; and sit down and map it out in advance, she said.
As bad as 2008 was, 2009 isn't looking much better. In fact, you can already say sayonara to New Year's cheer, said Nina Kampler, executive vice president of Northbrook, Ill.-based Hilco Real Estate. She spearheads retail business development and works with major retailers and commercial companies to implement real estate portfolio restructuring strategies.
"People still had jobs in 2008. (In 2009), actual net worth has disappeared and there are way fewer shoppers," Kampler said.
Phase out underperforming store locations - In order to stay healthy, retailers can't allow underperforming, duplicative or non-core locations to weigh them down, she said. Retailers have to grab their landlord's ear -- and renegotiate lease terms, she said.
Kampler said she sees "a mass movement of probably every retailer in this country with more than one store acknowledging that in order to stay alive the expense line of rent and occupancy -- the R&O -- has to shorten."
"What we are really talking about when you strip this all away is a retail revolution," she said. "It's about valuations, about what was that shopping center worth? How many times did it change hands? All that perceived value has been filtered down to a rent number and the tenants -- the retailers -- were happy to pay as long as the people were ringing up hundreds of thousands in sales each week. All that is the backdrop to first quarter 09. Where it will settle, we don't know. But people are shopping differently and today's values are all wrong."
Every retailer should carefully study the value of their real estate, Kampler said.
Given the downturn, some landlords (particularly smaller ones) are nervous and are willing to deal, willing to work with retailers to try and keep them.
"They not only want a warm body in the real estate, they have a personal pride and interest in the operation," she said. "They are proud of (the businesses) they have in the center and they want to keep them there."
To get the landlord's attention, you could show the level of threat and demonstrate the downward trend in sales, she said. Of course, Chapter 11 provides another tool that gets the landlord's ear. But she thinks many landlords would rather renegotiate first, and she encouraged that route whenever possible. Forge win-win solutions with landlords, she added.
That was the consensus of a group of business attorneys, retail real estate experts and specialty retailer financial officers who gathered recently for a conference in Seattle. The goal: offer tips and suggestions for distressed retailers to help them get a handle on the extreme downturn in the economy.
"Retailers are facing unprecedented challenges," said Scott Staff, business development director at event sponsor Perkins Coie, Washington state's largest law firm and legal counsel to leading retailers and others in consumer products. "We expect the challenges to grow in number and complexity."
Practical advice for surviving the downturn ranged from knowing when a customer is in trouble (sources include www.debtwire.com, a real-time news and data site for financial professionals published by the Financial Times, plus www.MarketWatch.com) to what to look for when a customer is in trouble (e.g. are they stretching out payments).
Other advice included:
Be sure to have a diverse base - Don't become dependant on any one single customer or account, said Marv Toland, Eddie Bauer's chief financial officer. Prior to Eddie Bauer, Toland was executive vice president and CFO of London Fog Group from 1999 to 2007. Seattle-based London Fog Group sought Chapter 11 bankruptcy protection twice (prompting some ribbing from panelists about the company having filed Chapter 22). Click here to see a March 23, 2006, SNEWS® story, "London Fog files again for Ch. 11 reorganization, to divest Pacific Trail.")
"You can't prevent these shocks (customers going out of business), so make sure that no single one can kill you. You have to diversify," Toland said.
Later, when asked what a business owner can do when suppliers or customers are operating under Chapter 11 reorganization and court protection, Toland suggested a clinically objective approach.
"Ask why they are in bankruptcy," he said. "If you see a business model that really is failing and the ground is shifting so fast, it may not be fixable in today's environment."
Use bankruptcy if it could provide breathing room - One tool a bankruptcy filing can provide is the ability to unload unprofitable leases with limited exposure to landlords, Smith said.
It's no secret that retailers are struggling. Retailers are seeing their revenue plunge as financially strapped U.S. consumers spend less and scrutinize purchase decisions. The holiday shopping season failed to save some companies as seasonal sales fell, with some areas logging the first declines in 20 years.
Last year saw a growing number of companies seeking bankruptcy protection, shuttering thousands of stores, breaking leases with shopping malls and laying off workers. And retailers are far from alone in rising bankruptcy rates: newspapers, auto makers, casinos, electronics retailers, and fitness clubs, manufacturers and retailers. The latest: Ritz Camera Centers sought Chapter 11 protection in early March as did Joe's Sports & Outdoor (Click here to see that March 5, 2009, SNEWS story, "Joe's Sports & Outdoor files for bankruptcy protection.")
…But it's not for everyone - A bankruptcy is not "a solution to a business problem, it's a solution to a balance sheet problem," said Alan Smith, Perkins Coie partner, during a retail restructuring and bankruptcies seminar. Bankruptcy offers "just an opportunity for the debtor to take a deep breath."
"There's no point in filing bankruptcy if you don't have a core business that is worth saving," Smith said. "You have to look at business and ask if it is a business that can survive in today's environment."
Carefully examine workforce reductions - During such a down economy, knowing when and how to reduce your workforce is, of course, another important key to survival. To catch the benefits of the next boom, a company also needs to manage its workforce with an eye on top talent retention, employee morale and strategic hiring.
"Some clients are looking for bargains, but that doesn't always work out," said Roy Notowitz, partner at Portland-based Generator Group, a recruiting firm. In a down economy, there are "more candidates on the market, but usually the market floods from the bottom up. "
In these times, it's difficult to convince professionals to relocate for jobs, Notowitz added. Trailing spouses often fear they won't find new employment after following a partner to a new location, he said. Decreased residential real estate values also hamper relocation deals.
Avoid layoff mistakes - The other side of the headcount equation -- reductions in workforce -- sees more action. More companies are scrambling to trim their worker roles. Perkins Coie attorney Linda Walton advises employers to avoid layoff missteps that could land them in front of a jury.
"For every single person you layoff, you need a reason for laying off that person," she said.
Develop selection criteria; train your managers on the process; and sit down and map it out in advance, she said.
As bad as 2008 was, 2009 isn't looking much better. In fact, you can already say sayonara to New Year's cheer, said Nina Kampler, executive vice president of Northbrook, Ill.-based Hilco Real Estate. She spearheads retail business development and works with major retailers and commercial companies to implement real estate portfolio restructuring strategies.
"People still had jobs in 2008. (In 2009), actual net worth has disappeared and there are way fewer shoppers," Kampler said.
Phase out underperforming store locations - In order to stay healthy, retailers can't allow underperforming, duplicative or non-core locations to weigh them down, she said. Retailers have to grab their landlord's ear -- and renegotiate lease terms, she said.
Kampler said she sees "a mass movement of probably every retailer in this country with more than one store acknowledging that in order to stay alive the expense line of rent and occupancy -- the R&O -- has to shorten."
"What we are really talking about when you strip this all away is a retail revolution," she said. "It's about valuations, about what was that shopping center worth? How many times did it change hands? All that perceived value has been filtered down to a rent number and the tenants -- the retailers -- were happy to pay as long as the people were ringing up hundreds of thousands in sales each week. All that is the backdrop to first quarter 09. Where it will settle, we don't know. But people are shopping differently and today's values are all wrong."
Every retailer should carefully study the value of their real estate, Kampler said.
Given the downturn, some landlords (particularly smaller ones) are nervous and are willing to deal, willing to work with retailers to try and keep them.
"They not only want a warm body in the real estate, they have a personal pride and interest in the operation," she said. "They are proud of (the businesses) they have in the center and they want to keep them there."
To get the landlord's attention, you could show the level of threat and demonstrate the downward trend in sales, she said. Of course, Chapter 11 provides another tool that gets the landlord's ear. But she thinks many landlords would rather renegotiate first, and she encouraged that route whenever possible. Forge win-win solutions with landlords, she added.
A Third of Global Suppliers Unaware of Climate Change Risks: CDP
NEW YORK, N.Y. -- One in three global suppliers believes climate change poses no risk to their operations despite the increasing amount of attention being paid to supply chain greenhouse gas emissions.
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Nearly three dozen companies -- including heavy hitters such as Johnson and Johnson, P&G, Johnson Controls, Boeing, Dell and PepsiCo -- called on thousands of their major suppliers to disclose emissions and reduction strategies through the Carbon Disclosure Project.
Of the more than 2,300 suppliers asked to participate in the disclosure, 634 responded, the vast majority of which -- 71 percent -- were divulging their emissions and mitigation strategies for the first time. Fifty-eight percent of respondents acknowledged climate change risks.
Supply chain emissions often represent the largest slice of corporate carbon footprints, but is, in many ways, the least understood aspect of a company's environmental impacts.
Since many suppliers are confronting climate change risks for the first time, the CDP suggests companies engage them, raise awareness and identify the greatest opportunities to improve efficiency. There must be an open dialogue on the types of information needed and how they will be used, and companies should seek support at the board level of supplier companies.
"Procurement teams worldwide must take a role in developing more sustainable business practices and embed the issue of climate change into an organization's core operations," Francis Way, CDP's head of supply chain, said while announcing the survey results. "Risks posed to a company's supply chain from the impacts of climate change include extreme weather events, water scarcity, regulation and associated cost volatility. Companies must take steps to mitigate the impact of these risks to their business."
Michael Meehan, CEO of Carbonetworks, a carbon measurement software developer, hailed the CDP's contribution to supply chain emissions measurement but cautioned that addressing carbon goes beyond using a simple spreadsheet to track emissions.
"What's needed are strategies for managing corporate carbon emissions to achieve the ultimate goal -- that of reductions," Meehan said via email. "The tools to do that already exist, and corporations and their consultants need to evolve their thinking to reflect the possibility of active carbon management, versus passive measurement."
\
Nearly three dozen companies -- including heavy hitters such as Johnson and Johnson, P&G, Johnson Controls, Boeing, Dell and PepsiCo -- called on thousands of their major suppliers to disclose emissions and reduction strategies through the Carbon Disclosure Project.
Of the more than 2,300 suppliers asked to participate in the disclosure, 634 responded, the vast majority of which -- 71 percent -- were divulging their emissions and mitigation strategies for the first time. Fifty-eight percent of respondents acknowledged climate change risks.
Supply chain emissions often represent the largest slice of corporate carbon footprints, but is, in many ways, the least understood aspect of a company's environmental impacts.
Since many suppliers are confronting climate change risks for the first time, the CDP suggests companies engage them, raise awareness and identify the greatest opportunities to improve efficiency. There must be an open dialogue on the types of information needed and how they will be used, and companies should seek support at the board level of supplier companies.
"Procurement teams worldwide must take a role in developing more sustainable business practices and embed the issue of climate change into an organization's core operations," Francis Way, CDP's head of supply chain, said while announcing the survey results. "Risks posed to a company's supply chain from the impacts of climate change include extreme weather events, water scarcity, regulation and associated cost volatility. Companies must take steps to mitigate the impact of these risks to their business."
Michael Meehan, CEO of Carbonetworks, a carbon measurement software developer, hailed the CDP's contribution to supply chain emissions measurement but cautioned that addressing carbon goes beyond using a simple spreadsheet to track emissions.
"What's needed are strategies for managing corporate carbon emissions to achieve the ultimate goal -- that of reductions," Meehan said via email. "The tools to do that already exist, and corporations and their consultants need to evolve their thinking to reflect the possibility of active carbon management, versus passive measurement."
Green Power Forecast: Partly Cloudy -- For the Short Term
The sagging economy continues taking its toll on renewable energy spending, with solar and wind projects across the country shutting down or getting delayed as financiers reassess the benefits of investing in new energy technology as their bottom lines shrink. The lower price of oil isn't helping.
When oil prices spiked last summer, investment in any renewable energy project seemed like a prudent, and even necessary decision. Within months, however, the cost of oil dropped, the economy tanked, and priorities shifted.
"Any time conventional energy prices drop, it impacts renewable energy spending," notes Ying Wu, senior analyst for Lux Research, a New York-based emerging technologies research firm. "Solar is more expensive now that fossil fuel prices have gone back down."
That spells doom for business owners and investors looking for short-term returns on their investments, but those taking a long view are more likely to see renewable energy as a worthwhile, especially with the American Recovery and Reinvestment Act of 2009 stimulus package offering billions in green power incentives which, in some cases, may offset up to 50 percent of some renewable energy installations.
Tight credit, however, remains an obstacle.
"For companies that have already made an investment in solar projects, such as Yahoo and Wal-Mart, they will probably continue to make solar part of their energy mix," says Wu. "But companies that were just beginning to look at investing in renewable energy are slowing down, and financing for unfunded projects is getting delayed."
Though several solar companies have announced major layoffs because of collapsed financing, Monique Hanis, spokesperson for the Washington, D.C.-based Solar Energy Industry Association, believes the stimulus package, signed by President Barack Obama three weeks ago, will help turn things around. The measure includes $16.8 billion for the Department of Energy Office of Energy Efficiency and Renewable Energy (EERE), a nearly tenfold increase.
Three Reasons Why Renewable Energy is Worth a Second Look
• New federal tax incentives make renewable energy projects more beneficial than ever. Analysts suggest you can offset up to half of the total cost of the project by taking advantage of these incentives.
• Many states offer further tax incentives and grants to promote renewable energy growth. Speak to your local utility company to identify resources, partnerships and other opportunities to offset the cost of renewable projects.
• Despite the fact that fossil fuel costs have dropped, pending climate change legislation and an uncertain economy could spell price volatility. Investing in renewable energy is an excellent way to hedge your costs.
"We expect provisions in the bill to stimulate demand, open up financing and create jobs," she says. "We are hopeful that the renewable energy grants, removing a penalty for subsidized financing, and loan guarantees will help free up the credit and investment markets and that the manufacturing tax credit will scale up U.S. manufacturing, which will keep prices coming down."
Lux analyst Johanna Schmidtke agrees. "The final stimulus bill offered a range of incentives for renewable energy," she says, pointing out the $6 billion earmarked to support loan guarantees for renewable energy and electric transmission technologies. The funds are expected to guarantee more than $60 billion in loans.
"That should encourage greater investment from private sector companies who can benefit from these grants," she says. "It should generate a big uptick in renewable energy generation."
Even before the stimulus bill was signed, certain regions still showed enthusiasm for solar energy, Hanis said. In California, for example, the number of grant applications for business and residential solar projects hit record highs in the last five months of 2008. And while she expects that interest to wane in '09, she thinks it will be temporary and localized.
"You'll still see activity where there are federal and state incentives for solar," she says. Along with California, she expects progress to continue in Pennsylvania, Ohio and New Jersey, where government programs to support solar investment remain strong.
"I got a call from a manufacturing company in Pennsylvania just yesterday that is still moving forward with a solar water heating project," she says. "And they are very excited about it."
She notes that several major businesses are also showing strong public commitment to solar, despite the economy. For example:
-- Global retailer Wal-Mart announced in January that its Mexican unit installed 1,056 photovoltaic panels on the roof of the Bodega Aurrera Aguascalientes retail center in the city of Aguascalientes in central Mexico.
-- Kohl's, the specialty clothing retailer based in Menomonee Falls, Wis., is currently converting four of its nine stores in Oregon to solar power, and also has solar projects underway in California, Connecticut, Maryland, New Jersey and Wisconsin.
-- As part of achieving its pre-certified LEED Gold status for all new store construction, Office Depot will install photovoltaic solar arrays to offset 11 percent of the building's total annual energy costs, and will include active solar tracking skylights that provide light to than 75 percent of the store. These plans will be implemented on every new store construction project going forward.
-- In the next redesign of its hybrid Prius automobile, automotive manufacturer Toyota plans to install solar panels on the vehicle's roof. The panels will power the air conditioning system and fuel its operation even when the main engine is turned off.
"There are definitely pockets of activity," she says of these and other initiatives. "But the larger projects will need additional funding to survive."
A Little Help from Uncle Sam
The new administration, along with the benefits included in the stimulus package, should boost all renewables industries, suggests Karlynn Cory, senior renewable energy analyst for the National Renewable Energy Laboratory (NREL), a renewable energy research and development lab in Golden, Colo.
"It was definitely a step in the right direction, and a lot of issues around liquidity and the tax market got addressed," she says.
One of the most promising additions was the extension of production tax credit (PTC) to 2012 for wind, and to 2013 for all other renewables. The PTC provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first 10 years of a renewable energy facility's operation.
The extension also allows utilities and businesses already paying the alternative minimum tax (AMT) to take advantage of that credit, which creates greater incentives to invest in renewable energy. In the past, those companies that took advantage of the AMT were not eligible.
"Most companies pay the AMT, so this creates opportunities for a whole new set of investors," she says. "These companies can now own solar operations and take a tax deduction for it. For businesses that have a tax appetite this is very appealing.
"These combined tax incentives mean investors benefit from the long-term 10-year credit, as well as a short-term, upfront 30 percent tax benefit that can be realized in the first year of commercial operation, Cory explains. She estimates the combined tax incentives could offset half the costs of a solar installation. "It's a sizable incentive that impacts the economics of investing in renewable energy substantially."
The elimination of tax laws preventing companies from taking advantage of the investment tax credit if they were subsidized by state or federal programs will further drive incentives to invest in renewables, Cory predicts.
"The stimulus bill will accelerate things beyond what could have otherwise been accomplished," she says. "It's like pushing a fast forward button on project development. Hopefully it will get us back to 2008 levels by early 2010."
She has spoken with major retailers and hotel chains that have already shown interest in investing in solar projects as a direct result of this change in the tax system.
Smaller companies are also looking at ways to partner with utilities to take advantage of similar incentives without making the capital investment themselves. These partnerships allow the utilities to build and operate plants on the business owner's site, in exchange for a fixed energy price, explains Dave Scanzoni, spokesperson for Duke Energy in Charlotte, North Carolina.
"They are like mini-power plants owned and operated by the utility but located on private property," he says. Duke currently has a pilot program in North Carolina to develop this distributed generation system with businesses and residential customers.
"We've seen a lot of interest in this program," he says, noting that more than 500 customers contacted the utility about participating. "It's just a pilot program now, but it's a concept that in the long-term could address our clean energy needs."
The combination of innovative investment opportunities and the lowering price of solar makes these projects attractive, Cory says. "This appears to be a good time to invest, even in today's market," she says. "Solar is a great way to hedge yourself against the current electric and fossil fuel markets, and the tax credit is a great sweetener."
Blowing Against the Wind
Wind farms are not in as strong a position to benefit from all of these lucrative incentives. While wind project investors can currently take advantage of the production tax credit, a separate credit for wind is set to expire in December. That leaves owners of projects already underway scrambling to get them finished before the clock runs out, while investors with projects in the planning stages are slowing progress as they wait to see what happens next.
Most notably, T. Boone Pickens, the billionaire Texas oil tycoon who's been a champion of wind power for years, had to delay construction of his 4,000 megawatt $6 billion Texas wind project. He attributes the delay to the credit crunch and the falling price of natural gas. Construction was originally slated to begin in 2010, but it's now on hold until at least 2011.
Wu predicts that such slowdowns will likely occur across the wind power industry in response to the economy but doesn't believe it will peter out. "Wind is closer to conventional energy costs than solar, it's close to the grid for coal," she points out. "Because of that wind will continue to grow, but at a slower pace."
In fact, she sees the intermittent nature of wind power, rather than the economy, as the primary obstacle to widespread adoption.
To counter that issue, many utility companies, including Pacific Gas and Electric Co., Southern California Edison, and Duke Energy, are currently developing storage technologies that can capture wind energy at its peak and distribute it during lulls.
"Our CEO is a big proponent of renewable energy for the future, and we are in a good capital position to invest in it," says Scanzoni. Along with two solar initiatives, Duke recently acquired two wind companies in an effort to grow that side of the business. By the end of 2008 the company generated 500 megawatts of wind power, including two new wind farms in operation. It has another 5,000 megawatts under development.
He also notes that Duke Energy is very supportive of the stimulus bill and any related tax incentives that will come from it. "It's not going to impact any of the projects we are working on today," he says, "but there will likely be benefits in the future that will enable us to implement technology faster and cheaper, and we will be able to pass those benefits on to our customers."
Duke entered an agreement in December with Wal-Mart to provide up to 15 percent of the electricity used in its 360 stores in Texas from Duke's Notrees Windpower Project.
"Wal-Mart has shown a commitment to a green future on a number of fronts," Scanzoni says. "For Duke, it's exciting when a major partner can commit to these kinds of projects on a large scale because it makes renewable energy that much more cost-effective."
He believes that as the cost of fossil fuels continues to fluctuate and stricter climate change legislation moves forward, other companies, large and small, will follow suit.
"There is one certainty in the electricity market, and that is that costs will go up, and while renewable energy is still expensive, it pays off tremendously," he says. "Global warming is a reality and if we want to keep our businesses and our planet going, these are the choices we need to make."
Sarah Fister Gale is a freelance writer based in Chicago.
When oil prices spiked last summer, investment in any renewable energy project seemed like a prudent, and even necessary decision. Within months, however, the cost of oil dropped, the economy tanked, and priorities shifted.
"Any time conventional energy prices drop, it impacts renewable energy spending," notes Ying Wu, senior analyst for Lux Research, a New York-based emerging technologies research firm. "Solar is more expensive now that fossil fuel prices have gone back down."
That spells doom for business owners and investors looking for short-term returns on their investments, but those taking a long view are more likely to see renewable energy as a worthwhile, especially with the American Recovery and Reinvestment Act of 2009 stimulus package offering billions in green power incentives which, in some cases, may offset up to 50 percent of some renewable energy installations.
Tight credit, however, remains an obstacle.
"For companies that have already made an investment in solar projects, such as Yahoo and Wal-Mart, they will probably continue to make solar part of their energy mix," says Wu. "But companies that were just beginning to look at investing in renewable energy are slowing down, and financing for unfunded projects is getting delayed."
Though several solar companies have announced major layoffs because of collapsed financing, Monique Hanis, spokesperson for the Washington, D.C.-based Solar Energy Industry Association, believes the stimulus package, signed by President Barack Obama three weeks ago, will help turn things around. The measure includes $16.8 billion for the Department of Energy Office of Energy Efficiency and Renewable Energy (EERE), a nearly tenfold increase.
Three Reasons Why Renewable Energy is Worth a Second Look
• New federal tax incentives make renewable energy projects more beneficial than ever. Analysts suggest you can offset up to half of the total cost of the project by taking advantage of these incentives.
• Many states offer further tax incentives and grants to promote renewable energy growth. Speak to your local utility company to identify resources, partnerships and other opportunities to offset the cost of renewable projects.
• Despite the fact that fossil fuel costs have dropped, pending climate change legislation and an uncertain economy could spell price volatility. Investing in renewable energy is an excellent way to hedge your costs.
"We expect provisions in the bill to stimulate demand, open up financing and create jobs," she says. "We are hopeful that the renewable energy grants, removing a penalty for subsidized financing, and loan guarantees will help free up the credit and investment markets and that the manufacturing tax credit will scale up U.S. manufacturing, which will keep prices coming down."
Lux analyst Johanna Schmidtke agrees. "The final stimulus bill offered a range of incentives for renewable energy," she says, pointing out the $6 billion earmarked to support loan guarantees for renewable energy and electric transmission technologies. The funds are expected to guarantee more than $60 billion in loans.
"That should encourage greater investment from private sector companies who can benefit from these grants," she says. "It should generate a big uptick in renewable energy generation."
Even before the stimulus bill was signed, certain regions still showed enthusiasm for solar energy, Hanis said. In California, for example, the number of grant applications for business and residential solar projects hit record highs in the last five months of 2008. And while she expects that interest to wane in '09, she thinks it will be temporary and localized.
"You'll still see activity where there are federal and state incentives for solar," she says. Along with California, she expects progress to continue in Pennsylvania, Ohio and New Jersey, where government programs to support solar investment remain strong.
"I got a call from a manufacturing company in Pennsylvania just yesterday that is still moving forward with a solar water heating project," she says. "And they are very excited about it."
She notes that several major businesses are also showing strong public commitment to solar, despite the economy. For example:
-- Global retailer Wal-Mart announced in January that its Mexican unit installed 1,056 photovoltaic panels on the roof of the Bodega Aurrera Aguascalientes retail center in the city of Aguascalientes in central Mexico.
-- Kohl's, the specialty clothing retailer based in Menomonee Falls, Wis., is currently converting four of its nine stores in Oregon to solar power, and also has solar projects underway in California, Connecticut, Maryland, New Jersey and Wisconsin.
-- As part of achieving its pre-certified LEED Gold status for all new store construction, Office Depot will install photovoltaic solar arrays to offset 11 percent of the building's total annual energy costs, and will include active solar tracking skylights that provide light to than 75 percent of the store. These plans will be implemented on every new store construction project going forward.
-- In the next redesign of its hybrid Prius automobile, automotive manufacturer Toyota plans to install solar panels on the vehicle's roof. The panels will power the air conditioning system and fuel its operation even when the main engine is turned off.
"There are definitely pockets of activity," she says of these and other initiatives. "But the larger projects will need additional funding to survive."
A Little Help from Uncle Sam
The new administration, along with the benefits included in the stimulus package, should boost all renewables industries, suggests Karlynn Cory, senior renewable energy analyst for the National Renewable Energy Laboratory (NREL), a renewable energy research and development lab in Golden, Colo.
"It was definitely a step in the right direction, and a lot of issues around liquidity and the tax market got addressed," she says.
One of the most promising additions was the extension of production tax credit (PTC) to 2012 for wind, and to 2013 for all other renewables. The PTC provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first 10 years of a renewable energy facility's operation.
The extension also allows utilities and businesses already paying the alternative minimum tax (AMT) to take advantage of that credit, which creates greater incentives to invest in renewable energy. In the past, those companies that took advantage of the AMT were not eligible.
"Most companies pay the AMT, so this creates opportunities for a whole new set of investors," she says. "These companies can now own solar operations and take a tax deduction for it. For businesses that have a tax appetite this is very appealing.
"These combined tax incentives mean investors benefit from the long-term 10-year credit, as well as a short-term, upfront 30 percent tax benefit that can be realized in the first year of commercial operation, Cory explains. She estimates the combined tax incentives could offset half the costs of a solar installation. "It's a sizable incentive that impacts the economics of investing in renewable energy substantially."
The elimination of tax laws preventing companies from taking advantage of the investment tax credit if they were subsidized by state or federal programs will further drive incentives to invest in renewables, Cory predicts.
"The stimulus bill will accelerate things beyond what could have otherwise been accomplished," she says. "It's like pushing a fast forward button on project development. Hopefully it will get us back to 2008 levels by early 2010."
She has spoken with major retailers and hotel chains that have already shown interest in investing in solar projects as a direct result of this change in the tax system.
Smaller companies are also looking at ways to partner with utilities to take advantage of similar incentives without making the capital investment themselves. These partnerships allow the utilities to build and operate plants on the business owner's site, in exchange for a fixed energy price, explains Dave Scanzoni, spokesperson for Duke Energy in Charlotte, North Carolina.
"They are like mini-power plants owned and operated by the utility but located on private property," he says. Duke currently has a pilot program in North Carolina to develop this distributed generation system with businesses and residential customers.
"We've seen a lot of interest in this program," he says, noting that more than 500 customers contacted the utility about participating. "It's just a pilot program now, but it's a concept that in the long-term could address our clean energy needs."
The combination of innovative investment opportunities and the lowering price of solar makes these projects attractive, Cory says. "This appears to be a good time to invest, even in today's market," she says. "Solar is a great way to hedge yourself against the current electric and fossil fuel markets, and the tax credit is a great sweetener."
Blowing Against the Wind
Wind farms are not in as strong a position to benefit from all of these lucrative incentives. While wind project investors can currently take advantage of the production tax credit, a separate credit for wind is set to expire in December. That leaves owners of projects already underway scrambling to get them finished before the clock runs out, while investors with projects in the planning stages are slowing progress as they wait to see what happens next.
Most notably, T. Boone Pickens, the billionaire Texas oil tycoon who's been a champion of wind power for years, had to delay construction of his 4,000 megawatt $6 billion Texas wind project. He attributes the delay to the credit crunch and the falling price of natural gas. Construction was originally slated to begin in 2010, but it's now on hold until at least 2011.
Wu predicts that such slowdowns will likely occur across the wind power industry in response to the economy but doesn't believe it will peter out. "Wind is closer to conventional energy costs than solar, it's close to the grid for coal," she points out. "Because of that wind will continue to grow, but at a slower pace."
In fact, she sees the intermittent nature of wind power, rather than the economy, as the primary obstacle to widespread adoption.
To counter that issue, many utility companies, including Pacific Gas and Electric Co., Southern California Edison, and Duke Energy, are currently developing storage technologies that can capture wind energy at its peak and distribute it during lulls.
"Our CEO is a big proponent of renewable energy for the future, and we are in a good capital position to invest in it," says Scanzoni. Along with two solar initiatives, Duke recently acquired two wind companies in an effort to grow that side of the business. By the end of 2008 the company generated 500 megawatts of wind power, including two new wind farms in operation. It has another 5,000 megawatts under development.
He also notes that Duke Energy is very supportive of the stimulus bill and any related tax incentives that will come from it. "It's not going to impact any of the projects we are working on today," he says, "but there will likely be benefits in the future that will enable us to implement technology faster and cheaper, and we will be able to pass those benefits on to our customers."
Duke entered an agreement in December with Wal-Mart to provide up to 15 percent of the electricity used in its 360 stores in Texas from Duke's Notrees Windpower Project.
"Wal-Mart has shown a commitment to a green future on a number of fronts," Scanzoni says. "For Duke, it's exciting when a major partner can commit to these kinds of projects on a large scale because it makes renewable energy that much more cost-effective."
He believes that as the cost of fossil fuels continues to fluctuate and stricter climate change legislation moves forward, other companies, large and small, will follow suit.
"There is one certainty in the electricity market, and that is that costs will go up, and while renewable energy is still expensive, it pays off tremendously," he says. "Global warming is a reality and if we want to keep our businesses and our planet going, these are the choices we need to make."
Sarah Fister Gale is a freelance writer based in Chicago.
Reading the Tea Leaves of Evolving Climate Change Policy
It promises to be an eventful year in the development of climate change policy, both internationally and at the domestic level. But with so much potential movement on several different fronts, what should businesses be monitoring and how can they move from the sidelines to take an active role in shaping future climate policy?
To answer some of these questions, we have Ryan Schuchard joining us. Ryan is a manager of environmental research and development at Business for Social Responsibility. Known as BSR, the organization works with companies to develop and promote sustainable business strategies and is also a partner with ClimateBiz.com.
Ryan is the author of "Looking for Signs Along the Road to Copenhagen," an article appearing at ClimateBiz.com that explores the developments businesses should watch in the months leading up to the U.N. Climate negotiations in December. Today he’ll give us a snapshot of all the action and offer advice on how companies can position themselves ahead of future climate change policy.
Tilde Herrera: Thanks so much for joining us today. How would you characterize 2009 in terms of climate change and potential impacts on business?
Ryan Schuchard: Well, it’s a pivotal year. First of all, we have a president that’s committed to reducing emissions by 80 percent by 2050 and vigorous diplomatic action. We have an incoming Congress that has (more than) 20 more Democrats, more evidence that clean energy is not at odds with jobs, and more consensus among economists that we need to act now. So, it’s a pretty big time for climate policy.
TH: On the international front, I know that a lot of people are looking forward to the U.N. Climate negotiations in Copenhagen in December. Can you talk a little bit about, in big picture terms, why should businesses in the U.S. care about what happens in Copenhagen?
RS: Well, generally speaking, with global climate policy there’s the United Nations Framework Convention on Climate Change process and that’s the big process leading towards an international treaty. It’s important to address leakage, which is emission sources moving from one place to a place of less regulation. Many are concerned that if we don’t address leakage the whole system would be undermined.
So, this is a global treaty that we’ve been working on since the ’90s with Kyoto, and many hope and some expect that we’ll see some treaty in the next year or couple of years signed.
TH: O.K., that’s happening in December. Can you offer us sort of a thumbnail sketch of the events leading up to the talks in Copenhagen that businesses should be paying attention to?
RS: There’s a series of events leading up to Copenhagen, and like Kyoto, there will be meetings afterward. So the big event this year, the symbolic one, is Copenhagen in December. Before that, we’ll have a meeting in Bonn next month in March. There will be another meeting in Bonn in June and then a meeting in Bangkok in September and October, and those are the U.N.-focused events.
There are also some other important ones. There’s a World Business Council meeting on climate change in Copenhagen this May, which is a gathering of corporate leaders that will ideally play into the process. Then, of course, the G8 summit in July is also going to be influential. Climate change is one of four big items on their agenda.
TH: What sort of developments do you expect to come out of those two meetings?
RS: Well, the general thought is moving towards agreement by countries on the basis for a treaty, and both the U.S. and China are two of the big players that need to agree, in particular. So, it’s holding the hands of the U.S. and China, in many ways, to agree and to make them comfortable with the process.
TH: O.K. you talked a little bit about leakage. What are some of the other issues that businesses need to be following at the international level and why?
RS: Well, it’s a good question because global policy can seem kind of esoteric. Ultimately, there’s probably at least two main ways that policy is going to affect companies from the treaty.
One is domestic legislation that companies will take on in order to meet the commitments, so those are things like direct regulation, which could be cap-and-trade or carbon tax. Also product standards and technology incentives -- those are some broad things. That’s on the domestic legislation side.
And then also border measures. We haven’t seen much in the way of border taxes or border tax adjustments or things like that yet, but as the global market mechanisms form, we would expect probably some measures at the border.
TH: And what’s a border tax? How would that impact your average business owner?
RS: There are different proposals for a border tax. A border tax would be relevant if a country has a tax itself, as opposed to a cap-and-trade system, in which case, a border permit would be more likely. A border tax would probably be relevant for some of the heavy-emitting industries like aluminum, steel, maybe glass, paper products.
So, imports would likely be taxed or could be taxed if they were from a country that didn’t have adequate regulations by the view of the importing country.
TH: O.K. So, for instance, raw materials coming out of China might be subject to a border tax.
RS: Yes, that’s a good example. Another one is U.S. exports being taxed (by) the market that they would be exporting to.
TH: So, Ryan, in what sort of scenarios would U.S. exports be subject to a border tax, and what types of exports are we talking about?
RS: Well, you might see border taxes or border permit measures when we have countries with their own domestic regimes. Specifically, you would see the most energy-intense or emissions-intense sectors getting likely caught there, and those would be things like aluminum, cement, steel, paper, glass, chemicals, iron -- these sorts of very intense industries.
When countries like the U.S., Canada, China and other large countries have more serious taxes or caps on carbon, they would want to keep out or at least put constraints on imports.
TH: Mostly for competitive reasons?
RS: That’s a good question. It’s both competitive and environmental reasons, so you can see both. But environmental leakage is one of the big issues, in addition to competition problems.
Those are two of the broad ways the companies will ultimately be affected -- domestic legislation and border measures -- so those have a lot to do with mitigation. The U.N. Framework process is also taking on some broader issues like climate change adaptation, technology transfer, finance, and ultimately developing systems for global finance, or market mechanisms in general, to lead investments to their lowest cost location.
TH: So, you gave us a good primer on what to look for on the international level. What about the national level? What about closer to home? What’s going happen this year and what are the signs that businesses need to be paying attention to?
RS: Well, a lot is going to happen and is already happening, starting with EPA expected to give out more guidance on the greenhouse gas reporting rule that the Clean Air Act outlines.
Of course, both the Senate and the House are developing bills right now on energy, on transmission, and ultimately, on a climate bill. Obama and a number of senators are thinking it seems more like a cap-and-trade is the best or most likely, so it’s not clear that a tax will happen. Cap-and-trade looks more likely. So, those are some of the different levels that they’re happening.
TH: This debate between cap-and-trade vs. a tax -- in recent days it seems like more businesspeople -- CEOs -- coming out in favor of a carbon tax. What’s your take on that?
RS: Well, I’m not an economist and it gets technical pretty quickly, but ultimately a cap fixes the amount of emissions and the tax fixes the price, so a tax might seem easier to manage from an economist’s view and a financial manager’s view, but there is also some back-end work that needs to be done to make sure that we’re getting to the targets, the emissions targets we need.
TH: So, we have all of this action taking place on that policy side, but what can businesses do to engage in the discussion?
RS: Well, there are different standards groups that always make sense to participate in at the industry level and the company level, especially as we talk about supply chain and how carbon footprinting is measured in the supply chain.
One of the big ones is the greenhouse gas protocol developing new guidance on their Scope 3 -- or essentially supply chain -- emissions footprinting. I’d advise companies to go to the WRI website – the World Resources Institute website -- and check that out and there might be some opportunities to get involved with that.
There’s also, depending on the industry -- if it’s the electronics industry, the Electronics Industry Citizenship Coalition, for example, is developing their own suggestions on how their industry ought to be regulated or at least measured in terms of footprinting. So, for most industries, there’s an opportunity to be a part of developing what policies make sense at the sort of measurement accounting level, but it’s very much still being developed all around.
TH: Aside from sort of observing all of these developments taking place and getting involved with their sector, what can businesses do to position themselves favorably ahead of all of these pending regulation?
RS: Well, there’s a lot of different layers of looking at it and possible risk. For some companies, they expect to be regulated soon and so it’s not even so much about risk but about preparing and learning what emissions trading looks like and how that works for their company.
For others, it’s understanding what’s happening in their supply chain, and are there going to be regulations upstream that would likely create more pinches, more price hot spots in their supply? It really depends on the industry, but there are a lot of different levels of analysis that companies should be doing.
TH: So, Ryan, what are the big takeaways here? What’s the single biggest piece of advice you could offer businesses?
RS: Well, it’s that no matter how you slice it, there’s increasingly pressure for the use and propagation of lower carbon fuel and energy. So being on the right side of that makes sense and that is true both in terms of the direct price on energy and carbon associated with the energy, as well as indirect effects, like how suppliers might be affected, about products that you’re selling. So in very many ways, indirectly and directly, there is increasingly a premium on using and propagating low carbon energy and fuels.
TH: You just proposed that businesses get on the right side of low carbon fuels and energy. How do you propose they do that?
RS: Well, it depends on what kind of situation they’re in. If companies have supply chains that rely on emissions-intense or energy-intense production, those that basically have higher emissions coming from the supply chain face more risk. So it’s having a handle on where there are opportunities for lower emissions in the supply chain – that’s one.
For those that are large energy users in production, both efficiency and renewable energy will be a lot more valuable. Also then also for companies that make energy using products, those that are more efficient obviously make more sense. So if the auto industry had been doing this a long time ago, they’d be in a lot better shape now. That’s just going to hold more and more true in the future.
TH: How do you foresee events happening this year, if you can make a prediction?
RS: Well, there’s a lot of speculation about whether the U.S. will ratify a treaty in Copenhagen this year, and if it does, if that’s even a good idea at this point.
There’s a lot of sequencing that needs to take place in order for it to be ratified, and ultimately for policies that the U.S. implements to be durable. So, I don’t know if it’s going to be this year or next year. It’d be too early to say, but in the next one to two to three years, you would expect to see something pretty robust.
TH: Thank you for joining us today.
RS: Thank you, Tilde.
To answer some of these questions, we have Ryan Schuchard joining us. Ryan is a manager of environmental research and development at Business for Social Responsibility. Known as BSR, the organization works with companies to develop and promote sustainable business strategies and is also a partner with ClimateBiz.com.
Ryan is the author of "Looking for Signs Along the Road to Copenhagen," an article appearing at ClimateBiz.com that explores the developments businesses should watch in the months leading up to the U.N. Climate negotiations in December. Today he’ll give us a snapshot of all the action and offer advice on how companies can position themselves ahead of future climate change policy.
Tilde Herrera: Thanks so much for joining us today. How would you characterize 2009 in terms of climate change and potential impacts on business?
Ryan Schuchard: Well, it’s a pivotal year. First of all, we have a president that’s committed to reducing emissions by 80 percent by 2050 and vigorous diplomatic action. We have an incoming Congress that has (more than) 20 more Democrats, more evidence that clean energy is not at odds with jobs, and more consensus among economists that we need to act now. So, it’s a pretty big time for climate policy.
TH: On the international front, I know that a lot of people are looking forward to the U.N. Climate negotiations in Copenhagen in December. Can you talk a little bit about, in big picture terms, why should businesses in the U.S. care about what happens in Copenhagen?
RS: Well, generally speaking, with global climate policy there’s the United Nations Framework Convention on Climate Change process and that’s the big process leading towards an international treaty. It’s important to address leakage, which is emission sources moving from one place to a place of less regulation. Many are concerned that if we don’t address leakage the whole system would be undermined.
So, this is a global treaty that we’ve been working on since the ’90s with Kyoto, and many hope and some expect that we’ll see some treaty in the next year or couple of years signed.
TH: O.K., that’s happening in December. Can you offer us sort of a thumbnail sketch of the events leading up to the talks in Copenhagen that businesses should be paying attention to?
RS: There’s a series of events leading up to Copenhagen, and like Kyoto, there will be meetings afterward. So the big event this year, the symbolic one, is Copenhagen in December. Before that, we’ll have a meeting in Bonn next month in March. There will be another meeting in Bonn in June and then a meeting in Bangkok in September and October, and those are the U.N.-focused events.
There are also some other important ones. There’s a World Business Council meeting on climate change in Copenhagen this May, which is a gathering of corporate leaders that will ideally play into the process. Then, of course, the G8 summit in July is also going to be influential. Climate change is one of four big items on their agenda.
TH: What sort of developments do you expect to come out of those two meetings?
RS: Well, the general thought is moving towards agreement by countries on the basis for a treaty, and both the U.S. and China are two of the big players that need to agree, in particular. So, it’s holding the hands of the U.S. and China, in many ways, to agree and to make them comfortable with the process.
TH: O.K. you talked a little bit about leakage. What are some of the other issues that businesses need to be following at the international level and why?
RS: Well, it’s a good question because global policy can seem kind of esoteric. Ultimately, there’s probably at least two main ways that policy is going to affect companies from the treaty.
One is domestic legislation that companies will take on in order to meet the commitments, so those are things like direct regulation, which could be cap-and-trade or carbon tax. Also product standards and technology incentives -- those are some broad things. That’s on the domestic legislation side.
And then also border measures. We haven’t seen much in the way of border taxes or border tax adjustments or things like that yet, but as the global market mechanisms form, we would expect probably some measures at the border.
TH: And what’s a border tax? How would that impact your average business owner?
RS: There are different proposals for a border tax. A border tax would be relevant if a country has a tax itself, as opposed to a cap-and-trade system, in which case, a border permit would be more likely. A border tax would probably be relevant for some of the heavy-emitting industries like aluminum, steel, maybe glass, paper products.
So, imports would likely be taxed or could be taxed if they were from a country that didn’t have adequate regulations by the view of the importing country.
TH: O.K. So, for instance, raw materials coming out of China might be subject to a border tax.
RS: Yes, that’s a good example. Another one is U.S. exports being taxed (by) the market that they would be exporting to.
TH: So, Ryan, in what sort of scenarios would U.S. exports be subject to a border tax, and what types of exports are we talking about?
RS: Well, you might see border taxes or border permit measures when we have countries with their own domestic regimes. Specifically, you would see the most energy-intense or emissions-intense sectors getting likely caught there, and those would be things like aluminum, cement, steel, paper, glass, chemicals, iron -- these sorts of very intense industries.
When countries like the U.S., Canada, China and other large countries have more serious taxes or caps on carbon, they would want to keep out or at least put constraints on imports.
TH: Mostly for competitive reasons?
RS: That’s a good question. It’s both competitive and environmental reasons, so you can see both. But environmental leakage is one of the big issues, in addition to competition problems.
Those are two of the broad ways the companies will ultimately be affected -- domestic legislation and border measures -- so those have a lot to do with mitigation. The U.N. Framework process is also taking on some broader issues like climate change adaptation, technology transfer, finance, and ultimately developing systems for global finance, or market mechanisms in general, to lead investments to their lowest cost location.
TH: So, you gave us a good primer on what to look for on the international level. What about the national level? What about closer to home? What’s going happen this year and what are the signs that businesses need to be paying attention to?
RS: Well, a lot is going to happen and is already happening, starting with EPA expected to give out more guidance on the greenhouse gas reporting rule that the Clean Air Act outlines.
Of course, both the Senate and the House are developing bills right now on energy, on transmission, and ultimately, on a climate bill. Obama and a number of senators are thinking it seems more like a cap-and-trade is the best or most likely, so it’s not clear that a tax will happen. Cap-and-trade looks more likely. So, those are some of the different levels that they’re happening.
TH: This debate between cap-and-trade vs. a tax -- in recent days it seems like more businesspeople -- CEOs -- coming out in favor of a carbon tax. What’s your take on that?
RS: Well, I’m not an economist and it gets technical pretty quickly, but ultimately a cap fixes the amount of emissions and the tax fixes the price, so a tax might seem easier to manage from an economist’s view and a financial manager’s view, but there is also some back-end work that needs to be done to make sure that we’re getting to the targets, the emissions targets we need.
TH: So, we have all of this action taking place on that policy side, but what can businesses do to engage in the discussion?
RS: Well, there are different standards groups that always make sense to participate in at the industry level and the company level, especially as we talk about supply chain and how carbon footprinting is measured in the supply chain.
One of the big ones is the greenhouse gas protocol developing new guidance on their Scope 3 -- or essentially supply chain -- emissions footprinting. I’d advise companies to go to the WRI website – the World Resources Institute website -- and check that out and there might be some opportunities to get involved with that.
There’s also, depending on the industry -- if it’s the electronics industry, the Electronics Industry Citizenship Coalition, for example, is developing their own suggestions on how their industry ought to be regulated or at least measured in terms of footprinting. So, for most industries, there’s an opportunity to be a part of developing what policies make sense at the sort of measurement accounting level, but it’s very much still being developed all around.
TH: Aside from sort of observing all of these developments taking place and getting involved with their sector, what can businesses do to position themselves favorably ahead of all of these pending regulation?
RS: Well, there’s a lot of different layers of looking at it and possible risk. For some companies, they expect to be regulated soon and so it’s not even so much about risk but about preparing and learning what emissions trading looks like and how that works for their company.
For others, it’s understanding what’s happening in their supply chain, and are there going to be regulations upstream that would likely create more pinches, more price hot spots in their supply? It really depends on the industry, but there are a lot of different levels of analysis that companies should be doing.
TH: So, Ryan, what are the big takeaways here? What’s the single biggest piece of advice you could offer businesses?
RS: Well, it’s that no matter how you slice it, there’s increasingly pressure for the use and propagation of lower carbon fuel and energy. So being on the right side of that makes sense and that is true both in terms of the direct price on energy and carbon associated with the energy, as well as indirect effects, like how suppliers might be affected, about products that you’re selling. So in very many ways, indirectly and directly, there is increasingly a premium on using and propagating low carbon energy and fuels.
TH: You just proposed that businesses get on the right side of low carbon fuels and energy. How do you propose they do that?
RS: Well, it depends on what kind of situation they’re in. If companies have supply chains that rely on emissions-intense or energy-intense production, those that basically have higher emissions coming from the supply chain face more risk. So it’s having a handle on where there are opportunities for lower emissions in the supply chain – that’s one.
For those that are large energy users in production, both efficiency and renewable energy will be a lot more valuable. Also then also for companies that make energy using products, those that are more efficient obviously make more sense. So if the auto industry had been doing this a long time ago, they’d be in a lot better shape now. That’s just going to hold more and more true in the future.
TH: How do you foresee events happening this year, if you can make a prediction?
RS: Well, there’s a lot of speculation about whether the U.S. will ratify a treaty in Copenhagen this year, and if it does, if that’s even a good idea at this point.
There’s a lot of sequencing that needs to take place in order for it to be ratified, and ultimately for policies that the U.S. implements to be durable. So, I don’t know if it’s going to be this year or next year. It’d be too early to say, but in the next one to two to three years, you would expect to see something pretty robust.
TH: Thank you for joining us today.
RS: Thank you, Tilde.
Thursday, March 5, 2009
Industry Watch: Keeping an eye on layoffs, bankruptcies and closings… Who’s next?
2/9/09
Precor
Amer confirms in its 4Q financial report that Precor had two rounds of layoffs in Q4 resulting in 41 positions being terminated. Click here to read SNEWS coverage.
2/11/09
Nike
Nike announces reorganization plans that could result in up to 1,400 employees losing jobs by end of year. Click here to read SNEWS coverage. And click here to read blog posting on news.
2/11/09
REI
Based on a significant business slowdown in the final months of 2008 and continued projected weakness in 2009, REI announced the elimination of 61 full-time jobs, which represents less than 2 percent of its full-time workforce. Click here to read SNEWS coverage.
2/20/09
Gymcor.com
Kelley Acevedo and his staff at GymCor.com stopped returning calls and emails, and, it appears, have emptied their offices and slipped away. Click here to read SNEWS coverage.
2/24/09
Horny Toad / Nau
As part of restructuring following the Nau acquisition, Horny Toad confirmed that five employees lost positions at Horny Toad, and then in February two more, including Ian Yolles at Nau were let go in Portland.
2/24/09
Champion / Duofold
Hanesbrands has about 45,000 workers in more than 25 countries. Last month the company said 310 jobs will be cut when it closes its Barnwell, S.C., sock-knitting plant and moves production to El Salvador by the end of April. Hanesbrands has been cutting jobs and closing plants in an effort to streamline operations and move production to other countries since it spun off from Sara Lee Corp. in 2006.
2/25/09
FHI, Omni, Busy Body
On Feb. 23, the remaining 24 stores, i.e. the eastern branch of Fitness Holdings International's formerly dominating 120-store national chain, were going to start close-out sales, signaling the eventual demise of the stores. Although once at a peak of 120 stores, FHI at the time of the October filing said it ran 111 stores -- 67 Busy Body and 44 Omni. In late October, the court approved closing 20 stores, and then added four stores to the list in November and another 30 in December. Add those 54 to the current 32 and that leaves 25 stores, which are now only in California and Colorado. Presence in Arizona, Nevada and Washington has already been eliminated. Click here to read SNEWS coverage.
2/27/09
Body Masters
After three decades of manufacturing high-end commercial fitness equipment, Body Masters has shut down operations. Knight Companies, a firm that specializes in oilfield and fishing tools, has acquired Body Masters' bank note and is foreclosing on the manufacturing facility including most of the manufacturing equipment. Click here to read SNEWS coverage.
3/2/09
Marmot / ExOfficio
Four employees at Marmot, including industry veteran John Cooley, as well as four employees at ExOfficio were laid off. Click here to read SNEWS coverage.
3/2/09
Accell Fitness
Accell said production was cut back in Estonia and purchasing is now fully concentrated in Asia. Also, R&D and purchasing activities in Finland were terminated, and were centralized at the head office in the Netherlands. The sales offices and warehouses in Germany, Switzerland and Austria were closed and stock management was transferred to the local distributors. These markets are now managed centrally from the Netherlands. Because of redundancy, 25 jobs were cut. Apart from the head office in the Netherlands, Accell said the fitness division still has sales outlets, including warehouses, in Finland, the United Kingdom and North America.
3/2/09
Big 5
Big 5 said it reduced its employee headcount by 9 percent last year through attrition.
3/2/09
Hardbody Fitness
After 7 years running Hardbody Fitness specialty shop and All Sports sporting goods, owners David and Brenda Hayes announce they are shutting when December 2008 sales plummet. Click here to see a SNEWS report.
Precor
Amer confirms in its 4Q financial report that Precor had two rounds of layoffs in Q4 resulting in 41 positions being terminated. Click here to read SNEWS coverage.
2/11/09
Nike
Nike announces reorganization plans that could result in up to 1,400 employees losing jobs by end of year. Click here to read SNEWS coverage. And click here to read blog posting on news.
2/11/09
REI
Based on a significant business slowdown in the final months of 2008 and continued projected weakness in 2009, REI announced the elimination of 61 full-time jobs, which represents less than 2 percent of its full-time workforce. Click here to read SNEWS coverage.
2/20/09
Gymcor.com
Kelley Acevedo and his staff at GymCor.com stopped returning calls and emails, and, it appears, have emptied their offices and slipped away. Click here to read SNEWS coverage.
2/24/09
Horny Toad / Nau
As part of restructuring following the Nau acquisition, Horny Toad confirmed that five employees lost positions at Horny Toad, and then in February two more, including Ian Yolles at Nau were let go in Portland.
2/24/09
Champion / Duofold
Hanesbrands has about 45,000 workers in more than 25 countries. Last month the company said 310 jobs will be cut when it closes its Barnwell, S.C., sock-knitting plant and moves production to El Salvador by the end of April. Hanesbrands has been cutting jobs and closing plants in an effort to streamline operations and move production to other countries since it spun off from Sara Lee Corp. in 2006.
2/25/09
FHI, Omni, Busy Body
On Feb. 23, the remaining 24 stores, i.e. the eastern branch of Fitness Holdings International's formerly dominating 120-store national chain, were going to start close-out sales, signaling the eventual demise of the stores. Although once at a peak of 120 stores, FHI at the time of the October filing said it ran 111 stores -- 67 Busy Body and 44 Omni. In late October, the court approved closing 20 stores, and then added four stores to the list in November and another 30 in December. Add those 54 to the current 32 and that leaves 25 stores, which are now only in California and Colorado. Presence in Arizona, Nevada and Washington has already been eliminated. Click here to read SNEWS coverage.
2/27/09
Body Masters
After three decades of manufacturing high-end commercial fitness equipment, Body Masters has shut down operations. Knight Companies, a firm that specializes in oilfield and fishing tools, has acquired Body Masters' bank note and is foreclosing on the manufacturing facility including most of the manufacturing equipment. Click here to read SNEWS coverage.
3/2/09
Marmot / ExOfficio
Four employees at Marmot, including industry veteran John Cooley, as well as four employees at ExOfficio were laid off. Click here to read SNEWS coverage.
3/2/09
Accell Fitness
Accell said production was cut back in Estonia and purchasing is now fully concentrated in Asia. Also, R&D and purchasing activities in Finland were terminated, and were centralized at the head office in the Netherlands. The sales offices and warehouses in Germany, Switzerland and Austria were closed and stock management was transferred to the local distributors. These markets are now managed centrally from the Netherlands. Because of redundancy, 25 jobs were cut. Apart from the head office in the Netherlands, Accell said the fitness division still has sales outlets, including warehouses, in Finland, the United Kingdom and North America.
3/2/09
Big 5
Big 5 said it reduced its employee headcount by 9 percent last year through attrition.
3/2/09
Hardbody Fitness
After 7 years running Hardbody Fitness specialty shop and All Sports sporting goods, owners David and Brenda Hayes announce they are shutting when December 2008 sales plummet. Click here to see a SNEWS report.
Wednesday, March 4, 2009
Overstock Glut Could Hit This Summer
With outdoor retailers continuing to cancel orders for spring and summer, concerns are growing among outdoor apparel brands of a significant inventory glut this summer.
With consumers not responding to deep discounting by retailers, some are concerned whether the discount channels brands have resorted to in the past will work. Some liquidation outlets fell behind on payments to manufacturers as early as last fall. This has sent some brands scrambling to find buyers before goods being imported from China reach U.S. docks.
“It’s starting to snowball and it will hit this summer,” said Eliza Sokolowska, a liquidation sales coordinator based in Oakland, CA.
In late January, executives at Columbia Sportswear acknowledged that the outlet channel it was building to mitigate the effects of weather on its seasonal business is becoming increasingly important in dealing with the “volatile and unpredictable consumer environment that we expect to continue.” Columbia Sportswear opened 15 outlet stores in the United States in 2008 and will open another 15 this year even as it pulls back on other retail initiatives.
Brands looking to liquidate overstock should consider the following options:
Sell to existing dealers.
This is the best option for protecting your brand image and supporting existing dealers, who can use the discounts to drive traffic to their stores. Offer the discounts to your best paying dealers first on 15 to 30 day terms. Then open it to the wider dealer base via e-mail and notices on your dealer Website. Note that all sales are final. Prices: 10-20% below wholesale, 60% below retail.
Liquidation sale.
Organize your own or hire a liquidation sale planner to provide turnkey services. This allows you to reach existing customers willing to pay more in markets outside your distribution area. Most liquidators work on consignment, which means you don’t get paid until after the sale. Prices: 50% below retail.
Jobbers.
This channel can normally move a lot of merchandise very quickly, including high volumes of a single SKU. They are considered a last resort, however, because they pay pennies on the dollar and often cause channel conflict by selling at 70% off retail online or to discount retailers. Moreover, this channel is already swimming in inventory and may be less inclined or able to buy. Prices: 80 to 90% below retail.
Open your own store.
This costs money, takes time and requires retailing expertise, but if you have reached a certain size, it may make sense. With retail occupancy rates falling, now is a great time to negotiate a lease in many parts of the country. Horny Toad has liquidated some of its inventory through an outlet store in Freeport, ME, since 9/11, when it set up the store after a major order was canceled.
Outlet malls.
This is an expensive option and usually requires ceding control over some areas of operation, such as outdoor signage. At Tanger Outlet Malls, average annualized base rents approach $20 per square foot, but annual average sales exceed $300 per square foot. While vacancy rates are rising at some outlet malls, space remains tight, which means this may not be a short-term solution. Tanger Outlet Mall expects to finish the year with 95% occupancy and says it is turning away prospective tenants that don’t add long-term value to its centers. Tanger’s clients include Columbia Sportswear, Eddie Bauer, L.L. Bean, Nike, Orvis, Quiksilver, Timberland, Under Armour and VF Outdoor.
Combination of the above.
Columbia Sportswear said in late January that it would use its own outlet stores, dealer network and the value channel to liquidate a major order that was canceled
With consumers not responding to deep discounting by retailers, some are concerned whether the discount channels brands have resorted to in the past will work. Some liquidation outlets fell behind on payments to manufacturers as early as last fall. This has sent some brands scrambling to find buyers before goods being imported from China reach U.S. docks.
“It’s starting to snowball and it will hit this summer,” said Eliza Sokolowska, a liquidation sales coordinator based in Oakland, CA.
In late January, executives at Columbia Sportswear acknowledged that the outlet channel it was building to mitigate the effects of weather on its seasonal business is becoming increasingly important in dealing with the “volatile and unpredictable consumer environment that we expect to continue.” Columbia Sportswear opened 15 outlet stores in the United States in 2008 and will open another 15 this year even as it pulls back on other retail initiatives.
Brands looking to liquidate overstock should consider the following options:
Sell to existing dealers.
This is the best option for protecting your brand image and supporting existing dealers, who can use the discounts to drive traffic to their stores. Offer the discounts to your best paying dealers first on 15 to 30 day terms. Then open it to the wider dealer base via e-mail and notices on your dealer Website. Note that all sales are final. Prices: 10-20% below wholesale, 60% below retail.
Liquidation sale.
Organize your own or hire a liquidation sale planner to provide turnkey services. This allows you to reach existing customers willing to pay more in markets outside your distribution area. Most liquidators work on consignment, which means you don’t get paid until after the sale. Prices: 50% below retail.
Jobbers.
This channel can normally move a lot of merchandise very quickly, including high volumes of a single SKU. They are considered a last resort, however, because they pay pennies on the dollar and often cause channel conflict by selling at 70% off retail online or to discount retailers. Moreover, this channel is already swimming in inventory and may be less inclined or able to buy. Prices: 80 to 90% below retail.
Open your own store.
This costs money, takes time and requires retailing expertise, but if you have reached a certain size, it may make sense. With retail occupancy rates falling, now is a great time to negotiate a lease in many parts of the country. Horny Toad has liquidated some of its inventory through an outlet store in Freeport, ME, since 9/11, when it set up the store after a major order was canceled.
Outlet malls.
This is an expensive option and usually requires ceding control over some areas of operation, such as outdoor signage. At Tanger Outlet Malls, average annualized base rents approach $20 per square foot, but annual average sales exceed $300 per square foot. While vacancy rates are rising at some outlet malls, space remains tight, which means this may not be a short-term solution. Tanger Outlet Mall expects to finish the year with 95% occupancy and says it is turning away prospective tenants that don’t add long-term value to its centers. Tanger’s clients include Columbia Sportswear, Eddie Bauer, L.L. Bean, Nike, Orvis, Quiksilver, Timberland, Under Armour and VF Outdoor.
Combination of the above.
Columbia Sportswear said in late January that it would use its own outlet stores, dealer network and the value channel to liquidate a major order that was canceled
Monday, March 2, 2009
Retail - How to Get Green Goods Flying Off the Shelves
Major retailers, such as Target, Office Depot and Home Depot, report strong sales in green goods through the recession and studies indicate consumers’ commitment to buying environmentally friendly products has not fallen off.
Yet even as green product sales continue to thrive, industry insiders say, retailers need to tweak their message to emphasize quality and value in addition to the environmental attributes.
“The challenge is promoting the efficacy and innovation of the product, as well as the sustainable elements,” says Neil Stern, senior partner with retail consulting firm McMillanDoolittle in Chicago and author of “Greentailing and Other Revolutions in Retail.” “The message has got to be about value.”
That consumers are continuing to buy items offering a combination of quality and green characteristics bodes well for retailers who've invested time, money and inventory in private label green brands and other green product lines. The 2008 Good Purpose survey from public relations firm Edelman overwhelmingly shows that buyers plan to remain loyal to products that they perceive to have strong social value.
According to survey results, 68 percent of consumers say that even in a recession they would remain faithful to a brand if it supports a good cause; nearly seven in 10 would be prepared to pay more for eco-friendly products.
The results don’t surprise Ron Jarvis, vice president of environmental innovation for Atlanta-based Home Depot. While sales are down overall at Home Depot, its Eco Options label of energy efficient products are outperforming conventional merchandise sales across the board. “We are seeing continued interest in socially conscious products in our stores,” he says. “American consumers still want choices that have less of an impact on the environment.”
Jarvis points out that Home Depot sells non-luxury items that people need to buy, regardless of the economy, which gives the company and its green brand an edge.
“We aren’t selling designer luggage made from recycled material, these home essentials that people need.”
He notes that energy-saving products in particular, such as compact florescent light bulbs, are doing extremely well because they have such an obvious long-term financial and environmental benefit. “Customers may pay a little more up front but they see the payoff down the line,” he says.
Despite this strength, Home Depot is tweaking the marketing message -- and price points -- of its green products. The company has launched a price reduction program across the store, lowering prices on thousands of products to make them more affordable to struggling consumers. The Eco Options line is no exception.
Selling Green Products in Trying Times
Be consistent.
Communicate information about your green offerings across all media, including the website, advertising, catalogs and store shelves.
Show the value.
Consumers won’t buy low-quality products just because they have green attributes. You have to show that they perform as well or better than non-green competitors, ideally at a similar price point.
Make them easy to find.
The days of green products aisles and separate sections for green options in catalogs are over. Green products should be stocked side by side with similar non-green offerings so buyers can make comparisons and purchasing decisions on the spot.
Understand why customers are buying green products.
For many businesses, green choices are made to support certifications and regulations. If you can help them quickly identify products that meet their needs, you are more likely to make the sale.
“Our advertising message is that these products are great for the environment with new lower price,” Jarvis says. The company is also focusing on "opening price points," which spotlight the lowest priced items in a category.
“Consumers are looking for green products that they can afford,” he says. “Focusing on opening price points in our advertising shows them that they don’t have to spend any more than they would on conventional products to buy green.”
This kind of dual message is critical for marketing green products in a down economy, says Stern of McMillanDoolittle. He notes that those retailers who got involved in green branding early on, such as Home Depot, Target and Office Depot, are doing a better job of balancing the environmental message with quality and price.
Communicating the value statement is a key component of successful green marketing, agrees Anne Rodgers, spokesperson for Target in Minneapolis.
“Our focus has always been on value, giving consumers affordable options that enable them to live and work in eco-friendly ways,” she says. “That’s a consistent message for us, whether it’s a good economy or bad.”
Rodgers notes that along with pricing green products to be competitive with other product lines, the company stocks green items, such as its bamboo and organic cotton sheets, next to conventional ones so that consumers can make side-by-side feature and price comparisons.
The company also clearly states the environmental attributes on its packaging and signage to educate consumers about their choices.
“You have to offer an assortment of solutions at different price points so consumers can find multiple ways to be eco-friendly,” she says.
The Green Supply Cabinet
That combination of communication and education is critical to successfully positioning green product lines and establishing the corporate brand as an environmental leader, notes Stern.
“Communication is key,” Stern says. “You have to communicate what you are doing and what the value is to the buyer. And you have to do it consistently across all channels of communication, from the website and advertising down to the store shelves.”
Office Depot offers a vast array of products with environmentally friendly elements, from recycled paper and low toxicity cleaners, to a complete line of private label green brands that can outfit an office from top to bottom. The company’s message and selection is consistent regardless of the economy, which customers have come to rely on, according to Yalmaz Siddiqui, the company’s director of environmental strategy. As a result, the company reports sales of products from its green catalog continue to grow.
“In a tough economy our clients are still looking for environmentally sustainable products that perform, and they know they can find a tremendous range of green items that are price competitive,” he says.
When it comes to product messaging for green products, price and performance are equally as important as the environmental qualities, agrees Stern. “The challenge in promoting green products today is proving their efficacy,” he says. “Consumers want to know if they will work as well as other products.”
Part of Office Depot’s approach to selling green products is recognizing that every buyer has a different idea of the definition. The company focuses its green marketing message primarily on its business customers who are often seeking specific criteria to meet certification requirements or corporate goals. It offers them a choice of 4,300 different products that feature green attributes, such as environmentally preferable furniture, technology, lighting, dishware, cleaning products and printer cartridges.
A core part of its communication strategy is its annual Green Book catalog, which this year features an entire supply cabinet outfitted with green products, along with educational content to help buyers learn more about greening their office in a cost effective manner.
The company works with customers to identify products that meet specific environmental goals or certification requirements, such as federal government mandates to purchase a certain percentage of recycled materials, or LEED specifications for non-toxic products. Once they know what the client needs to accomplish these goals, they help them choose products that best meet those criteria at the desired price point.
Office Depot also help buyers choose products that
can strengthen their purchasing processes while still maintaining cost criteria, such as buying in bulk to improve their environmentally standing.
“Being aware of why our clients purchase green helps us help them identify solutions,” Siddiqui says. This is especially helpful for products that may not otherwise clearly communicate their green value, such as office furniture that features low volatile organic compounds (VOC) in its design, which is a key component for LEED certification.
“We reach out to our suppliers to learn about those attributes then we communicate them to our customers,” he says.
To help customers register their green purchases for LEED certification purposes, and to add further value to working with Office Depot, the company now offers a purchase-tracking tool that records green product purchases in a format that mimics LEED certification documentation requirements.
“It converts their historic spend to the exact template used by the U.S. Green Building Council (USGBC),” Siddiqui says. “It dramatically simplifies the paperwork for buyers because they don’t have to do it themselves.”
Office Depot also publicly honors those who make the biggest effort to buy green products through its annual Green Customer Award ceremony. This year the awards were presented during the USGBC Greenbuild International Conference & Expo to six customers, including law firm DLA Piper, Edelman public relations agency, and New Balance Athletic Shoe Inc.
“The rationale for these awards is partly to recognize customers for green purchasing, and partly to show that we are a seller of green products,” Siddiqui says, noting that at the recent awards ceremony several customers approached him to say they wanted to be on that podium next year – particularly if their competitors were winners. “It’s good recognition for individuals, and it’s an encouragement to other customers to make that transition.”
Whatever green products a company is offering, the message has to be consistent across all methods of communication, and product offerings have to support customer interests in cost, quality and environmental attributes.
“Whether the economy gets worse or better these products are not going away,” says Home Depot’s Jarvis. “Those retailers that carry green products through the hard times will establish themselves as the companies that care about the environment, and consumers will remember that.”
Sarah Fister Gale is a freelance writer based in Chicago.
Yet even as green product sales continue to thrive, industry insiders say, retailers need to tweak their message to emphasize quality and value in addition to the environmental attributes.
“The challenge is promoting the efficacy and innovation of the product, as well as the sustainable elements,” says Neil Stern, senior partner with retail consulting firm McMillanDoolittle in Chicago and author of “Greentailing and Other Revolutions in Retail.” “The message has got to be about value.”
That consumers are continuing to buy items offering a combination of quality and green characteristics bodes well for retailers who've invested time, money and inventory in private label green brands and other green product lines. The 2008 Good Purpose survey from public relations firm Edelman overwhelmingly shows that buyers plan to remain loyal to products that they perceive to have strong social value.
According to survey results, 68 percent of consumers say that even in a recession they would remain faithful to a brand if it supports a good cause; nearly seven in 10 would be prepared to pay more for eco-friendly products.
The results don’t surprise Ron Jarvis, vice president of environmental innovation for Atlanta-based Home Depot. While sales are down overall at Home Depot, its Eco Options label of energy efficient products are outperforming conventional merchandise sales across the board. “We are seeing continued interest in socially conscious products in our stores,” he says. “American consumers still want choices that have less of an impact on the environment.”
Jarvis points out that Home Depot sells non-luxury items that people need to buy, regardless of the economy, which gives the company and its green brand an edge.
“We aren’t selling designer luggage made from recycled material, these home essentials that people need.”
He notes that energy-saving products in particular, such as compact florescent light bulbs, are doing extremely well because they have such an obvious long-term financial and environmental benefit. “Customers may pay a little more up front but they see the payoff down the line,” he says.
Despite this strength, Home Depot is tweaking the marketing message -- and price points -- of its green products. The company has launched a price reduction program across the store, lowering prices on thousands of products to make them more affordable to struggling consumers. The Eco Options line is no exception.
Selling Green Products in Trying Times
Be consistent.
Communicate information about your green offerings across all media, including the website, advertising, catalogs and store shelves.
Show the value.
Consumers won’t buy low-quality products just because they have green attributes. You have to show that they perform as well or better than non-green competitors, ideally at a similar price point.
Make them easy to find.
The days of green products aisles and separate sections for green options in catalogs are over. Green products should be stocked side by side with similar non-green offerings so buyers can make comparisons and purchasing decisions on the spot.
Understand why customers are buying green products.
For many businesses, green choices are made to support certifications and regulations. If you can help them quickly identify products that meet their needs, you are more likely to make the sale.
“Our advertising message is that these products are great for the environment with new lower price,” Jarvis says. The company is also focusing on "opening price points," which spotlight the lowest priced items in a category.
“Consumers are looking for green products that they can afford,” he says. “Focusing on opening price points in our advertising shows them that they don’t have to spend any more than they would on conventional products to buy green.”
This kind of dual message is critical for marketing green products in a down economy, says Stern of McMillanDoolittle. He notes that those retailers who got involved in green branding early on, such as Home Depot, Target and Office Depot, are doing a better job of balancing the environmental message with quality and price.
Communicating the value statement is a key component of successful green marketing, agrees Anne Rodgers, spokesperson for Target in Minneapolis.
“Our focus has always been on value, giving consumers affordable options that enable them to live and work in eco-friendly ways,” she says. “That’s a consistent message for us, whether it’s a good economy or bad.”
Rodgers notes that along with pricing green products to be competitive with other product lines, the company stocks green items, such as its bamboo and organic cotton sheets, next to conventional ones so that consumers can make side-by-side feature and price comparisons.
The company also clearly states the environmental attributes on its packaging and signage to educate consumers about their choices.
“You have to offer an assortment of solutions at different price points so consumers can find multiple ways to be eco-friendly,” she says.
The Green Supply Cabinet
That combination of communication and education is critical to successfully positioning green product lines and establishing the corporate brand as an environmental leader, notes Stern.
“Communication is key,” Stern says. “You have to communicate what you are doing and what the value is to the buyer. And you have to do it consistently across all channels of communication, from the website and advertising down to the store shelves.”
Office Depot offers a vast array of products with environmentally friendly elements, from recycled paper and low toxicity cleaners, to a complete line of private label green brands that can outfit an office from top to bottom. The company’s message and selection is consistent regardless of the economy, which customers have come to rely on, according to Yalmaz Siddiqui, the company’s director of environmental strategy. As a result, the company reports sales of products from its green catalog continue to grow.
“In a tough economy our clients are still looking for environmentally sustainable products that perform, and they know they can find a tremendous range of green items that are price competitive,” he says.
When it comes to product messaging for green products, price and performance are equally as important as the environmental qualities, agrees Stern. “The challenge in promoting green products today is proving their efficacy,” he says. “Consumers want to know if they will work as well as other products.”
Part of Office Depot’s approach to selling green products is recognizing that every buyer has a different idea of the definition. The company focuses its green marketing message primarily on its business customers who are often seeking specific criteria to meet certification requirements or corporate goals. It offers them a choice of 4,300 different products that feature green attributes, such as environmentally preferable furniture, technology, lighting, dishware, cleaning products and printer cartridges.
A core part of its communication strategy is its annual Green Book catalog, which this year features an entire supply cabinet outfitted with green products, along with educational content to help buyers learn more about greening their office in a cost effective manner.
The company works with customers to identify products that meet specific environmental goals or certification requirements, such as federal government mandates to purchase a certain percentage of recycled materials, or LEED specifications for non-toxic products. Once they know what the client needs to accomplish these goals, they help them choose products that best meet those criteria at the desired price point.
Office Depot also help buyers choose products that
can strengthen their purchasing processes while still maintaining cost criteria, such as buying in bulk to improve their environmentally standing.
“Being aware of why our clients purchase green helps us help them identify solutions,” Siddiqui says. This is especially helpful for products that may not otherwise clearly communicate their green value, such as office furniture that features low volatile organic compounds (VOC) in its design, which is a key component for LEED certification.
“We reach out to our suppliers to learn about those attributes then we communicate them to our customers,” he says.
To help customers register their green purchases for LEED certification purposes, and to add further value to working with Office Depot, the company now offers a purchase-tracking tool that records green product purchases in a format that mimics LEED certification documentation requirements.
“It converts their historic spend to the exact template used by the U.S. Green Building Council (USGBC),” Siddiqui says. “It dramatically simplifies the paperwork for buyers because they don’t have to do it themselves.”
Office Depot also publicly honors those who make the biggest effort to buy green products through its annual Green Customer Award ceremony. This year the awards were presented during the USGBC Greenbuild International Conference & Expo to six customers, including law firm DLA Piper, Edelman public relations agency, and New Balance Athletic Shoe Inc.
“The rationale for these awards is partly to recognize customers for green purchasing, and partly to show that we are a seller of green products,” Siddiqui says, noting that at the recent awards ceremony several customers approached him to say they wanted to be on that podium next year – particularly if their competitors were winners. “It’s good recognition for individuals, and it’s an encouragement to other customers to make that transition.”
Whatever green products a company is offering, the message has to be consistent across all methods of communication, and product offerings have to support customer interests in cost, quality and environmental attributes.
“Whether the economy gets worse or better these products are not going away,” says Home Depot’s Jarvis. “Those retailers that carry green products through the hard times will establish themselves as the companies that care about the environment, and consumers will remember that.”
Sarah Fister Gale is a freelance writer based in Chicago.
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