Tuesday, March 24, 2009
Monday, March 23, 2009
Rethinking Retail: Sunshine Fitness offers a smorgasbord of all things active
Think of Sunshine Fitness as a smorgasbord for those hooked on all things active, indoor or out. Customers who walk through the doors of the Anchorage, Alaska, store can buy scuba gear, mountain bikes, swim suits and all matter of fitness equipment from treadmills to rowers to barbells, all under a single roof.
As retailers across the country seek creative ways to reel in shoppers, Sunshine (www.sunshinefitness.com) is leaning on its wide variety of offerings to try to ride out the recession's rough waters.
"It's been a good way to diversify," said John Bice, owner of the 6,000-square-foot store. Sales "are up modestly," he said, which in this economy is no small feat.
SNEWS® knows the current economic state is having a huge impact on the specialty retail business. This is one look at different ways retailers are rethinking their retail strategy to become better at serving customers and keeping their bottom line intact. We will take a look at different retail concepts we find in a periodic and ongoing series of stories in SNEWS. This time around we focused on a new fitness retail store with an emphasis on fitness that includes equipment but speaks to the well-rounded needs of a fit and healthy lifestyle. Stay tuned for more in-depth reporting on the current situation both economically and at retail as it develops and changes.
Non-traditional mates
While it's true that what flies in Alaska might not fly in other parts of the United States, Sunshine's experience provides insight into the ups and downs of pairing non-traditional offerings.
"It's a nice mix if you think about it," said Brad Lally, global product development manager for San Diego-based Scubapro diving gear, which Sunshine Fitness has carried for years. "They're going after people in the active lifestyle. If you're outside biking in Alaska, you're definitely into nature and staying fit."
Lally noted that in Florida or California, it's not unusual for a store to combine scuba, snorkeling and swimwear.
"But in other regions of the country with weather extremes, you need to have something else in the store to complement you and sustain sales through the different seasons," he said.
That's pretty much the model that has worked for Sunshine Fitness. Bikes and fitness machines are good seasonal offsets, Bice said, and the state's competitive swimming events help keep sales of suits, caps and goggles strong throughout the year.
Scuba, which Bice called the "odd duck," actually is the bedrock of the store's many offerings. Sunshine Fitness opened 36 years ago in the southeastern Alaska city of Sitka as a scuba shop. The store relocated to Anchorage in 1980.
"Selling scuba in Alaska is probably like selling (snow) skis in Florida," he said. "It's a small, but profitable business."
Diversification to survive
Bice said the decision to diversify came as much from business necessity as it did from a desire to reach new customers. (He said he'd sell the scuba business in a heartbeat if someone offered a fair deal!)
Sunshine began selling fitness equipment five years ago because Bice was eager to unload the ski/snowboard business, which had become so competitive that margins were slim. Sales also were more closely tied to weather than other departments, and the bulky equipment took up valuable floor space. Sunshine officially closed out its line of skis and snowboards last winter.
"It was just a race to the bottom," Bice said of the fragmented ski/snowboard industry. "There was a huge amount of manufactured product, more than the market could handle. It was like selling potatoes."
Bice said he entered the fitness business at the top of the market. And while it remains a profitable and growing part of the business, Sunshine's home and commercial fitness sales have been "off tremendously" this year, Bice said, which is in keeping with most others in the 48 contiguous states. Scuba and bikes make up about 10 percent of sales, and swim a bit less than that, he said.
Tim Porth, co-founder of Octane Fitness, said Sunshine Fitness has stretched farther outside the box than most retailers who carry his company's ellipticals. Porth said it's more common to see fitness retailers branching out into supplements and offering enhanced service packages to try to keep customers coming back to the stores.
But with fitness industry sales plunging some 20 percent in the fourth quarter of 2008, Porth said retailers must get creative, yet remain wary of overreaching.
"You don't want to dilute your offerings too much," said Porth. "You gotta be an expert in fitness categories and you gotta believe in your equipment. If people are paying you that much money for a piece of equipment, you need to gain the respect of your customers."
Octane regional sales manager Dan Rahmann, who works directly with Sunshine Fitness as part of his 18-state coverage area, said Sunshine's location outside the continental United States means it faces some unique challenges.
"Shipping from Minneapolis to Anchorage incurs quite a bit more costs for the product than someone in, say, Denver," Rahmann said. "Dealers can save money through a container program by bringing in great quantities of a product and not paying freight on it. But you're not going to place big orders if you think it could take you a year to sell through it. The manufacturer wants to get paid in 30 to 45 days."
Planning for downturn
Bice said he saw the downturn coming and started making plans to cut inventory and shift his showroom floor in early July 2008. Getting rid of skis and snowboards allowed him to reduce some of his retail space, while also freeing the business of a high-risk category.
The diversity of offerings, he said, is helping him weather the slumping economy better than some of his competitors, though his outlook is far from sunny.
"We're not selling as much as we'd like," he said, "but every department is profitable."
--Jackie CrosbySNEWS® View: Even in the sporting goods category, some areas may sell better than others so for Sunshine offering a number of seemingly odd companions has served a purpose. Perhaps rather than thinking of Sunshine as a specialty dealer who is doing a number of categories, he should be thought of as a sporting goods dealer who is specializing. The broader but still selective offerings allow him to have more things for more people while still being a specialty retailer in dealing with customers. Not a bad model in today's times. --SNEWS® Editors
As retailers across the country seek creative ways to reel in shoppers, Sunshine (www.sunshinefitness.com) is leaning on its wide variety of offerings to try to ride out the recession's rough waters.
"It's been a good way to diversify," said John Bice, owner of the 6,000-square-foot store. Sales "are up modestly," he said, which in this economy is no small feat.
SNEWS® knows the current economic state is having a huge impact on the specialty retail business. This is one look at different ways retailers are rethinking their retail strategy to become better at serving customers and keeping their bottom line intact. We will take a look at different retail concepts we find in a periodic and ongoing series of stories in SNEWS. This time around we focused on a new fitness retail store with an emphasis on fitness that includes equipment but speaks to the well-rounded needs of a fit and healthy lifestyle. Stay tuned for more in-depth reporting on the current situation both economically and at retail as it develops and changes.
Non-traditional mates
While it's true that what flies in Alaska might not fly in other parts of the United States, Sunshine's experience provides insight into the ups and downs of pairing non-traditional offerings.
"It's a nice mix if you think about it," said Brad Lally, global product development manager for San Diego-based Scubapro diving gear, which Sunshine Fitness has carried for years. "They're going after people in the active lifestyle. If you're outside biking in Alaska, you're definitely into nature and staying fit."
Lally noted that in Florida or California, it's not unusual for a store to combine scuba, snorkeling and swimwear.
"But in other regions of the country with weather extremes, you need to have something else in the store to complement you and sustain sales through the different seasons," he said.
That's pretty much the model that has worked for Sunshine Fitness. Bikes and fitness machines are good seasonal offsets, Bice said, and the state's competitive swimming events help keep sales of suits, caps and goggles strong throughout the year.
Scuba, which Bice called the "odd duck," actually is the bedrock of the store's many offerings. Sunshine Fitness opened 36 years ago in the southeastern Alaska city of Sitka as a scuba shop. The store relocated to Anchorage in 1980.
"Selling scuba in Alaska is probably like selling (snow) skis in Florida," he said. "It's a small, but profitable business."
Diversification to survive
Bice said the decision to diversify came as much from business necessity as it did from a desire to reach new customers. (He said he'd sell the scuba business in a heartbeat if someone offered a fair deal!)
Sunshine began selling fitness equipment five years ago because Bice was eager to unload the ski/snowboard business, which had become so competitive that margins were slim. Sales also were more closely tied to weather than other departments, and the bulky equipment took up valuable floor space. Sunshine officially closed out its line of skis and snowboards last winter.
"It was just a race to the bottom," Bice said of the fragmented ski/snowboard industry. "There was a huge amount of manufactured product, more than the market could handle. It was like selling potatoes."
Bice said he entered the fitness business at the top of the market. And while it remains a profitable and growing part of the business, Sunshine's home and commercial fitness sales have been "off tremendously" this year, Bice said, which is in keeping with most others in the 48 contiguous states. Scuba and bikes make up about 10 percent of sales, and swim a bit less than that, he said.
Tim Porth, co-founder of Octane Fitness, said Sunshine Fitness has stretched farther outside the box than most retailers who carry his company's ellipticals. Porth said it's more common to see fitness retailers branching out into supplements and offering enhanced service packages to try to keep customers coming back to the stores.
But with fitness industry sales plunging some 20 percent in the fourth quarter of 2008, Porth said retailers must get creative, yet remain wary of overreaching.
"You don't want to dilute your offerings too much," said Porth. "You gotta be an expert in fitness categories and you gotta believe in your equipment. If people are paying you that much money for a piece of equipment, you need to gain the respect of your customers."
Octane regional sales manager Dan Rahmann, who works directly with Sunshine Fitness as part of his 18-state coverage area, said Sunshine's location outside the continental United States means it faces some unique challenges.
"Shipping from Minneapolis to Anchorage incurs quite a bit more costs for the product than someone in, say, Denver," Rahmann said. "Dealers can save money through a container program by bringing in great quantities of a product and not paying freight on it. But you're not going to place big orders if you think it could take you a year to sell through it. The manufacturer wants to get paid in 30 to 45 days."
Planning for downturn
Bice said he saw the downturn coming and started making plans to cut inventory and shift his showroom floor in early July 2008. Getting rid of skis and snowboards allowed him to reduce some of his retail space, while also freeing the business of a high-risk category.
The diversity of offerings, he said, is helping him weather the slumping economy better than some of his competitors, though his outlook is far from sunny.
"We're not selling as much as we'd like," he said, "but every department is profitable."
--Jackie CrosbySNEWS® View: Even in the sporting goods category, some areas may sell better than others so for Sunshine offering a number of seemingly odd companions has served a purpose. Perhaps rather than thinking of Sunshine as a specialty dealer who is doing a number of categories, he should be thought of as a sporting goods dealer who is specializing. The broader but still selective offerings allow him to have more things for more people while still being a specialty retailer in dealing with customers. Not a bad model in today's times. --SNEWS® Editors
ForecastIQ™ : Outlook Moves from Thunderstorms to Scattered Showers for Most Retailers
COLUMBUS, OH – 3/20/2009 – The forecast for same store sales growth is looking better for several retailers this month, according to the latest ForecastIQ™ analysis (a service from Prosper Technologies, LLC). In addition to Aeropostale, Buckle and Hot Topic (retailers who have maintained a positive outlook), there are more retailers to add to the list of those expected to see growth over the next two months.
Fred’s and Sam’s Club improved from retailers likely to see an increase to almost certain to see an increase in same store sales over the next 60 days. Cato and Ross are also expected to see significant improvement. Both are likely to see an increase, whereas last month’s forecast predicted a likely decline in same store sales growth for each.
"There is improvement on the horizon," says Prof. Greg Allenby, Fisher College of Business at Ohio State University. "A number of discount-oriented retailers, including BJs, Freds and Ross are expected to see an increase in same store sales relative to earlier predictions. While prospects for department stores still look generally bleak, there does seem to be a break in the clouds for stores offering good deals."
For a complimentary 30 day trial of ForecastIQ: www.forecastiq.com
Although there is a silver lining for some retailers this month, Abercrombie & Fitch, American Eagle, Gap, among others are almost certain to see declines.
A partial list of retailers covered in the ForecastIQ and expectations for same store sales growth/decline for the next 75 days follows:
Almost certain to see increase:
Aeropostale
Buckle
Family Dollar
Fred’s Hot Topic
Sam’s Club
Walmart
Likely to see increase:
BJ’s
Cato
Costco
Ross
Almost certain to see decline:
Abercrombie & Fitch
American Eagle
Banana Republic
Bonton
Chico’s
Dillard’s
Gap
Neiman Marcus
Nordstrom
Pacific Sun
Saks
Likely to see decline:
TJX
Wet Seal
Flat:Children’s Place
ForecastIQ was developed by Prosper Technologies and Greg Allenby by analyzing over 7 years of data from BIGresearch’s monthly Consumer Intentions & Actions (CIA) surveys. Allenby analyzed same store sales of over 37 publicly held retailers and applied Bayesian quantile analysis to the data including whether or not consumers said they plan to spend more, same or less. The results are accurate and for the first time, provide a forecast of consumer spending 75 days in advance. Same store sales forecasts are provided by percent growth over the next 45 and 75 day period. Short term forecasts are also available via enhanced consensus estimates.
About Prosper Technologies: Prosper Technologies develops consumer centric analytics such as ForecastIQ from consumer responses to help businesses forecast consumer demand and expenditures, budget marketing and merchandising allocations and provide retailer specific cross consumption behaviors.
ForecastIQ is a forecast of same store sales for 37 retailers based upon future spending plans of consumers derived from BIGresearch’s monthly Consumer Intentions and Action survey (CIA). Forecasts are 45 and 75 days forward and also include an enhancement to the consensus currently provided in the marketplace.
Fred’s and Sam’s Club improved from retailers likely to see an increase to almost certain to see an increase in same store sales over the next 60 days. Cato and Ross are also expected to see significant improvement. Both are likely to see an increase, whereas last month’s forecast predicted a likely decline in same store sales growth for each.
"There is improvement on the horizon," says Prof. Greg Allenby, Fisher College of Business at Ohio State University. "A number of discount-oriented retailers, including BJs, Freds and Ross are expected to see an increase in same store sales relative to earlier predictions. While prospects for department stores still look generally bleak, there does seem to be a break in the clouds for stores offering good deals."
For a complimentary 30 day trial of ForecastIQ: www.forecastiq.com
Although there is a silver lining for some retailers this month, Abercrombie & Fitch, American Eagle, Gap, among others are almost certain to see declines.
A partial list of retailers covered in the ForecastIQ and expectations for same store sales growth/decline for the next 75 days follows:
Almost certain to see increase:
Aeropostale
Buckle
Family Dollar
Fred’s Hot Topic
Sam’s Club
Walmart
Likely to see increase:
BJ’s
Cato
Costco
Ross
Almost certain to see decline:
Abercrombie & Fitch
American Eagle
Banana Republic
Bonton
Chico’s
Dillard’s
Gap
Neiman Marcus
Nordstrom
Pacific Sun
Saks
Likely to see decline:
TJX
Wet Seal
Flat:Children’s Place
ForecastIQ was developed by Prosper Technologies and Greg Allenby by analyzing over 7 years of data from BIGresearch’s monthly Consumer Intentions & Actions (CIA) surveys. Allenby analyzed same store sales of over 37 publicly held retailers and applied Bayesian quantile analysis to the data including whether or not consumers said they plan to spend more, same or less. The results are accurate and for the first time, provide a forecast of consumer spending 75 days in advance. Same store sales forecasts are provided by percent growth over the next 45 and 75 day period. Short term forecasts are also available via enhanced consensus estimates.
About Prosper Technologies: Prosper Technologies develops consumer centric analytics such as ForecastIQ from consumer responses to help businesses forecast consumer demand and expenditures, budget marketing and merchandising allocations and provide retailer specific cross consumption behaviors.
ForecastIQ is a forecast of same store sales for 37 retailers based upon future spending plans of consumers derived from BIGresearch’s monthly Consumer Intentions and Action survey (CIA). Forecasts are 45 and 75 days forward and also include an enhancement to the consensus currently provided in the marketplace.
Thursday, March 19, 2009
Did you hear?...BIGresearch survey says economic crisis will continue to affect consumer lifestyles for 5 years
According to the March 2009 BIGresearch Consumer Intentions & Actions Survey, just under 91 percent of consumers feel that the current economic crisis will continue to impact lifestyle spending choices over the next five years.
BIGresearch (www.bigresearch.com) asked: "Do you think the current economic crisis will impact your lifestyle over the next five years in any of the following ways?" and more than 8,000 adults, ages 18 and over, responded accordingly:
I will consider each purchase more carefully -- 55.2%
I will be more price-conscious when buying clothing and food -- 50.7%
I will try to stick to a budget -- 48.1%
I will spend less dining out -- 46.3%
I will not incur a large credit card debt -- 43.4%
I will spend less on entertainment (movies, concerts, sporting events, etc.) -- 39.2%
I will save more of what I earn -- 36.3%
I will be more conservative when buying a car -- 30.1%
I will pay off my credit card each month -- 29.0%
I will not run up home equity debt -- 28.1%I will take more practical vacations -- 23.3%
For more details regarding age, gender and income for this survey, click here.
SNEWS® View: The silver lining in what some might perceive as a consumer spending storm cloud is that practical vacations will most certainly include camping and recreational trips with families seeking to stretch dollars while spending more quality time together. Now, more than ever, the outdoor and fitness industries have an opportunity to market the health and well-being of outdoor recreation and vacations for families. It also means for fitness stores, and outdoor stores, it is time to focus on marketing to consumers to show that what products you offer provide quality of life, health, well-being and high value -- needs for any consumer. There is no doubt in our minds that consumers, while interested in saving money and spending less, still want to have fun and stay fit and healthy while doing so. --SNEWS® Editors
BIGresearch (www.bigresearch.com) asked: "Do you think the current economic crisis will impact your lifestyle over the next five years in any of the following ways?" and more than 8,000 adults, ages 18 and over, responded accordingly:
I will consider each purchase more carefully -- 55.2%
I will be more price-conscious when buying clothing and food -- 50.7%
I will try to stick to a budget -- 48.1%
I will spend less dining out -- 46.3%
I will not incur a large credit card debt -- 43.4%
I will spend less on entertainment (movies, concerts, sporting events, etc.) -- 39.2%
I will save more of what I earn -- 36.3%
I will be more conservative when buying a car -- 30.1%
I will pay off my credit card each month -- 29.0%
I will not run up home equity debt -- 28.1%I will take more practical vacations -- 23.3%
For more details regarding age, gender and income for this survey, click here.
SNEWS® View: The silver lining in what some might perceive as a consumer spending storm cloud is that practical vacations will most certainly include camping and recreational trips with families seeking to stretch dollars while spending more quality time together. Now, more than ever, the outdoor and fitness industries have an opportunity to market the health and well-being of outdoor recreation and vacations for families. It also means for fitness stores, and outdoor stores, it is time to focus on marketing to consumers to show that what products you offer provide quality of life, health, well-being and high value -- needs for any consumer. There is no doubt in our minds that consumers, while interested in saving money and spending less, still want to have fun and stay fit and healthy while doing so. --SNEWS® Editors
What New Climate Change Policies Will Mean for Your Business
[Editor's note: This is the second of a two-part series on global climate change policy from Ryan Schuchard.
To read about policy developments taking place this year, see "Looking for Signs Along the Road to Copenhagen." Listen to advice from Ryan on positioning your business at "Reading the Tea Leaves of Evolving Climate Change Policy."]
As global leaders prepare to negotiate an updated version of the Kyoto Treaty at the U.N. Climate Change Conference in Copenhagen in December, the big question is whether China and the United States will join the 183 countries that have already signed on. If that happens, we’ll be on our way to a serious global effort to stabilize the climate.
What would this mean for your company? An agreement that includes China and the U.S. -- the world’s No. 1 and No.2 emitters -- will commit all signatory countries to broad reductions in domestic emissions. Beyond outlining general principles for international cooperation, however, the treaty likely will leave it up to countries to figure out how to do so. Therefore, an evolved global agreement will help speed up and synchronize country-level efforts, but national governments will continue at the helm of climate policy design.
Through that lens, consider the following ways in which policy will impact individual companies, starting with the most direct effects.
1. The Price of Carbon
From global to local, the essence of climate policy is putting a price on carbon emissions, which means either direct regulation by taxes or what’s known as “cap-and-trade” -- a requirement for companies to buy tradable permits when they exceed a certain threshold of emissions. Generally, when experts talk about the “regulatory risk” of climate change, they’re referring to direct exposure to just such a price, and this is rightly considered one the most immediate and tangible climate-related risks.
The onset of a carbon price affects companies directly in two main ways. First, for those paying, there is a per-unit price, which, in recent years, has ranged between $1 to more than $50 per ton of carbon in voluntary carbon offset markets and regulatory schemes like the European Union Emissions Trading Scheme (ETS). The Economist suggests that range may move and narrow to between $38 and $63 in the future.
The second direct impact on companies is the uncertainty over what the price will be, and who will have to pay it. This may be more profound than the price impact itself, which is why companies in the U.S. Climate Action Partnership are asking for a system of regulation. Since most emissions come from fossil fuels, regulation is closely related to the supply and the cost of energy. And because corporate energy expenses are so substantial -- many companies spend more on energy than they do on taxes -- an increasing number of firms see regulation as a good deal, as long as the government clarifies it soon.
2. “Supporting” Policies
In addition to direct regulation, there are various supporting policies. One main type is standards, which include transportation sector fuel economy specifications and efficiency requirements for energy-using products in the information and communications technology (ICT) industry. Standards typically set out requirements for end products, but as international sectoral approaches take shape, standards increasingly will cover production processes as well.
Another main type of supporting policy is technology incentives, which include funding for R&D, the removal of barriers to enter new industries (particularly energy), and financial incentives such as tax credits to encourage companies to generate renewable energy on site.
While the three instruments mentioned so far tend to constrain emissions, there is also a widespread movement to develop “market mechanisms” that create positive incentives by taking advantage of the commodity aspect of carbon. For instance, since a ton of carbon emissions is a ton anywhere, it’s possible to use the market to promote activities being done at the lowest-cost locations -- where investments in activities that reduce carbon emissions are cheaper. With market mechanisms, companies can buy reductions when it is cheaper than “making” them. Examples of markets include the U.S. Regional Greenhouse Gas Initiative and United Nations’ Clean Development Mechanism.
Despite the promise of environmental finance-based market systems, two big questions loom: whether and how carbon instruments can be “imported” from elsewhere, and whether forestry-related carbon instruments should be allowed at all.
3. All Policy is Climate Policy
Policies that reduce carbon emissions are not always named as “climate” policies. Case in point: Transportation accounts for a third of emissions in the U.S., so climate will be a significant topic when the U.S. transportation bill comes up for its six-year reauthorization in September. Also, with 20 percent of global emissions caused by forestry and land-use change, and with the food and agriculture sector looking for rewards for good behavior, climate considerations are also likely to come into play in agricultural policy.
In addition, climate issues are becoming ubiquitous in policies that address economic and social issues. For example, the growing risk of international legal and border disputes, the greater likelihood of damaging weather events, and the increasing vulnerability of energy security all mean climate change is a key security policy issue (PDF). It’s no coincidence that the first carbon tax bill -- America's Energy Security Trust Fund Act, which was introduced in the House earlier this month -- has “security” in its name. Climate relations are also ground zero for trade issues. Realizing there is a legal basis (PDF) for using trade measures to enforce environmental initiatives, the U.S. and China are debating who is ultimately responsible for cross-border emissions. In other words, climate policy is trade policy.
4. Society as the Policy Authority
Ultimately, policy is part of a general contract between business and society, and social groups may start to hold companies accountable via direct pressure. These actions, according to a recent Harvard paper (PDF), can range from events targeting single companies to strikes and riots deriving from social instability exacerbated by climate change.
To stay ahead of this risk, companies should conduct broad policy assessments of sociopolitical situations, using resources like the Economist Intelligence Unit, the International Country Risk Guide, Business Environment Risk Intelligence, and S. J. Rundt & Associates.
5. Everyone is Affected
According to the Peterson Institute and World Resources Institute, the most vulnerable industries are those that have high energy intensity of production, low potential for efficiency improvement, little ability to switch to low-carbon energy sources, and high elasticity of demand. These include, in particular, energy utilities and heavy manufacturing sectors.
This analysis, like many, focuses on policies that likely will have a direct impact on a relatively small number of players -- for example, the U.S. Environmental Protection Agency’s proposed reporting rule covers 85 to 90 percent of domestic emissions by focusing on just 13,000 facilities. Nonetheless, all of the policies mentioned so far may reverberate to impact the fundamental conditions on which all businesses depend. For instance, a carbon tax impacting the price of carbon-intensive energy could lead to reduced availability of carbon-intensive inputs such as steel. Such a tax could also lower demand for products that create higher emissions during their use.
These types of policies could also influence competitive dynamics. For example, incentives for renewables might lower entry barriers for ICT companies in the energy sector, while feed-in tariffs might enable consumer products companies to develop better cost positions over rivals. Also, with investor groups like the Carbon Disclosure Project demanding more information about companies’ self-appraisals of policy risk, those firms that are willing and able to disclose more have increasingly preferential access to capital.
Putting it in Perspective
By no means are the effects of climate policy all negative. The economy as a whole stands to benefit from comprehensive climate policy. Without it, a wide scale of human rights, health, disease, and energy problems will likely result.
But more pragmatically, for most climate policy risks, there is also opportunity. Companies that generate and rely on low-carbon energy are set to prosper, as are those that can exploit technological breakthroughs in resource efficiency and materials. Those firms generating new forms of energy -- in particular, renewables -- will participate in a massively growing market. Companies in industries that address adaptation problems, such as pharmaceuticals and biotechnology, stand to gain. In the end, as the world’s climate policies are developed and strengthened, there will be important roles for companies from almost every industry.
Ryan Schuchard is manager of environmental research and innovation at Business for Social Responsibility.
To read about policy developments taking place this year, see "Looking for Signs Along the Road to Copenhagen." Listen to advice from Ryan on positioning your business at "Reading the Tea Leaves of Evolving Climate Change Policy."]
As global leaders prepare to negotiate an updated version of the Kyoto Treaty at the U.N. Climate Change Conference in Copenhagen in December, the big question is whether China and the United States will join the 183 countries that have already signed on. If that happens, we’ll be on our way to a serious global effort to stabilize the climate.
What would this mean for your company? An agreement that includes China and the U.S. -- the world’s No. 1 and No.2 emitters -- will commit all signatory countries to broad reductions in domestic emissions. Beyond outlining general principles for international cooperation, however, the treaty likely will leave it up to countries to figure out how to do so. Therefore, an evolved global agreement will help speed up and synchronize country-level efforts, but national governments will continue at the helm of climate policy design.
Through that lens, consider the following ways in which policy will impact individual companies, starting with the most direct effects.
1. The Price of Carbon
From global to local, the essence of climate policy is putting a price on carbon emissions, which means either direct regulation by taxes or what’s known as “cap-and-trade” -- a requirement for companies to buy tradable permits when they exceed a certain threshold of emissions. Generally, when experts talk about the “regulatory risk” of climate change, they’re referring to direct exposure to just such a price, and this is rightly considered one the most immediate and tangible climate-related risks.
The onset of a carbon price affects companies directly in two main ways. First, for those paying, there is a per-unit price, which, in recent years, has ranged between $1 to more than $50 per ton of carbon in voluntary carbon offset markets and regulatory schemes like the European Union Emissions Trading Scheme (ETS). The Economist suggests that range may move and narrow to between $38 and $63 in the future.
The second direct impact on companies is the uncertainty over what the price will be, and who will have to pay it. This may be more profound than the price impact itself, which is why companies in the U.S. Climate Action Partnership are asking for a system of regulation. Since most emissions come from fossil fuels, regulation is closely related to the supply and the cost of energy. And because corporate energy expenses are so substantial -- many companies spend more on energy than they do on taxes -- an increasing number of firms see regulation as a good deal, as long as the government clarifies it soon.
2. “Supporting” Policies
In addition to direct regulation, there are various supporting policies. One main type is standards, which include transportation sector fuel economy specifications and efficiency requirements for energy-using products in the information and communications technology (ICT) industry. Standards typically set out requirements for end products, but as international sectoral approaches take shape, standards increasingly will cover production processes as well.
Another main type of supporting policy is technology incentives, which include funding for R&D, the removal of barriers to enter new industries (particularly energy), and financial incentives such as tax credits to encourage companies to generate renewable energy on site.
While the three instruments mentioned so far tend to constrain emissions, there is also a widespread movement to develop “market mechanisms” that create positive incentives by taking advantage of the commodity aspect of carbon. For instance, since a ton of carbon emissions is a ton anywhere, it’s possible to use the market to promote activities being done at the lowest-cost locations -- where investments in activities that reduce carbon emissions are cheaper. With market mechanisms, companies can buy reductions when it is cheaper than “making” them. Examples of markets include the U.S. Regional Greenhouse Gas Initiative and United Nations’ Clean Development Mechanism.
Despite the promise of environmental finance-based market systems, two big questions loom: whether and how carbon instruments can be “imported” from elsewhere, and whether forestry-related carbon instruments should be allowed at all.
3. All Policy is Climate Policy
Policies that reduce carbon emissions are not always named as “climate” policies. Case in point: Transportation accounts for a third of emissions in the U.S., so climate will be a significant topic when the U.S. transportation bill comes up for its six-year reauthorization in September. Also, with 20 percent of global emissions caused by forestry and land-use change, and with the food and agriculture sector looking for rewards for good behavior, climate considerations are also likely to come into play in agricultural policy.
In addition, climate issues are becoming ubiquitous in policies that address economic and social issues. For example, the growing risk of international legal and border disputes, the greater likelihood of damaging weather events, and the increasing vulnerability of energy security all mean climate change is a key security policy issue (PDF). It’s no coincidence that the first carbon tax bill -- America's Energy Security Trust Fund Act, which was introduced in the House earlier this month -- has “security” in its name. Climate relations are also ground zero for trade issues. Realizing there is a legal basis (PDF) for using trade measures to enforce environmental initiatives, the U.S. and China are debating who is ultimately responsible for cross-border emissions. In other words, climate policy is trade policy.
4. Society as the Policy Authority
Ultimately, policy is part of a general contract between business and society, and social groups may start to hold companies accountable via direct pressure. These actions, according to a recent Harvard paper (PDF), can range from events targeting single companies to strikes and riots deriving from social instability exacerbated by climate change.
To stay ahead of this risk, companies should conduct broad policy assessments of sociopolitical situations, using resources like the Economist Intelligence Unit, the International Country Risk Guide, Business Environment Risk Intelligence, and S. J. Rundt & Associates.
5. Everyone is Affected
According to the Peterson Institute and World Resources Institute, the most vulnerable industries are those that have high energy intensity of production, low potential for efficiency improvement, little ability to switch to low-carbon energy sources, and high elasticity of demand. These include, in particular, energy utilities and heavy manufacturing sectors.
This analysis, like many, focuses on policies that likely will have a direct impact on a relatively small number of players -- for example, the U.S. Environmental Protection Agency’s proposed reporting rule covers 85 to 90 percent of domestic emissions by focusing on just 13,000 facilities. Nonetheless, all of the policies mentioned so far may reverberate to impact the fundamental conditions on which all businesses depend. For instance, a carbon tax impacting the price of carbon-intensive energy could lead to reduced availability of carbon-intensive inputs such as steel. Such a tax could also lower demand for products that create higher emissions during their use.
These types of policies could also influence competitive dynamics. For example, incentives for renewables might lower entry barriers for ICT companies in the energy sector, while feed-in tariffs might enable consumer products companies to develop better cost positions over rivals. Also, with investor groups like the Carbon Disclosure Project demanding more information about companies’ self-appraisals of policy risk, those firms that are willing and able to disclose more have increasingly preferential access to capital.
Putting it in Perspective
By no means are the effects of climate policy all negative. The economy as a whole stands to benefit from comprehensive climate policy. Without it, a wide scale of human rights, health, disease, and energy problems will likely result.
But more pragmatically, for most climate policy risks, there is also opportunity. Companies that generate and rely on low-carbon energy are set to prosper, as are those that can exploit technological breakthroughs in resource efficiency and materials. Those firms generating new forms of energy -- in particular, renewables -- will participate in a massively growing market. Companies in industries that address adaptation problems, such as pharmaceuticals and biotechnology, stand to gain. In the end, as the world’s climate policies are developed and strengthened, there will be important roles for companies from almost every industry.
Ryan Schuchard is manager of environmental research and innovation at Business for Social Responsibility.
Wednesday, March 18, 2009
Retail - Recession a Good Time for Retailers
If ever there was a time for guerilla marketing this is it. As the focus has shifted to conserving cash, retailers and brands alike have cut their marketing budgets. One survey taken late last year showed 33% of national advertisers, including some of the nation’s biggest brands, were planning on cutting their advertising spend in 2009. Dick’s Sporting Goods told analysts last week it would reduce its advertising spend as a percentage of sales in Q3.
Marketing professionals argue that’s why a recession is the best time to boost your marketing activity. As other brands and retailers dial down their messaging there is that much less clutter to break through.
Even if you don’t have more money to spend on advertising, this is a good time to focus your messaging on whatever marketing you can afford. In a survey conducted for the OIA Specialty Retail Operational Report 2007, more retailers (53%) attributed increased sales to improved advertising than to eight other reasons, including more advertising and a strong economy. Brands, retailers and marketing gurus consulted last week by OIA WebNews indicated they are getting the best return on investment by focusing on existing customers, building up their online communities with user generated content and generating public relations.
“I would wrap all the marketing dollars I had left around those ideas that live in PR,” said Gregg Bagni, a marketing consultant whose firm Alien Truth Communications works with brands in the active outdoor lifestyle market. “I think PR is elevated to another level because PR has a lot more extension and legs on the web from a viral standpoint.”
Below are some marketing tactics that appear to be working in today’s environment.
A constant flow of promotions. Use your close-out buys to fuel a steady stream of sale promotions expected by today’s consumer. Dick’s Sporting Goods has been emphasizing $29 and $39 running shoes in its Sunday circulars for months and is working closely with suppliers to identify other close-out deals to drive traffic. Offer first-come, first-serve daily or weekly deals on your Website to those willing to sign up for an e-mail alert.
Expand rental/outfitter business. Gear rental and outfitting enjoy the highest gross margin of anything outdoor retailers do and will drive motivated buyers into your store.
Focus on existing customers. Existing customers tend to be twice as profitable as new ones, so start rewarding them. Reinvigorate your ties with local outdoor clubs, schools, parks and recreation departments and other NGOs. Partner with them to bring in speakers or hold events that will elevate your brand. If creativity is not your forte, hire a local enthusiast for 10 hours a week to work on promotions and community relations. Give all employees 20% off coupons or $10 gift certificates for distribution to enthusiasts, friends and family outside the store.
Mock “Liquidation Sale.” Bagni offers this free guerilla marketing tip. Buy a gigantic block of ice, carve your logo in it, put it in your parking lot and announce you are having a “Winter Liquidation Sale” until it melts. Hook up a live web cam to your web site to show how much ice is left and send photos to local TV stations every day. “In March, if you’re above Mason-Dixon Line, you can probably get a week out of it,” said Bagni. “The down side is if it melts quickly you’d have to put a tent out there, but then you could have fun with that. It’s totally guerilla.”
Marketing professionals argue that’s why a recession is the best time to boost your marketing activity. As other brands and retailers dial down their messaging there is that much less clutter to break through.
Even if you don’t have more money to spend on advertising, this is a good time to focus your messaging on whatever marketing you can afford. In a survey conducted for the OIA Specialty Retail Operational Report 2007, more retailers (53%) attributed increased sales to improved advertising than to eight other reasons, including more advertising and a strong economy. Brands, retailers and marketing gurus consulted last week by OIA WebNews indicated they are getting the best return on investment by focusing on existing customers, building up their online communities with user generated content and generating public relations.
“I would wrap all the marketing dollars I had left around those ideas that live in PR,” said Gregg Bagni, a marketing consultant whose firm Alien Truth Communications works with brands in the active outdoor lifestyle market. “I think PR is elevated to another level because PR has a lot more extension and legs on the web from a viral standpoint.”
Below are some marketing tactics that appear to be working in today’s environment.
A constant flow of promotions. Use your close-out buys to fuel a steady stream of sale promotions expected by today’s consumer. Dick’s Sporting Goods has been emphasizing $29 and $39 running shoes in its Sunday circulars for months and is working closely with suppliers to identify other close-out deals to drive traffic. Offer first-come, first-serve daily or weekly deals on your Website to those willing to sign up for an e-mail alert.
Expand rental/outfitter business. Gear rental and outfitting enjoy the highest gross margin of anything outdoor retailers do and will drive motivated buyers into your store.
Focus on existing customers. Existing customers tend to be twice as profitable as new ones, so start rewarding them. Reinvigorate your ties with local outdoor clubs, schools, parks and recreation departments and other NGOs. Partner with them to bring in speakers or hold events that will elevate your brand. If creativity is not your forte, hire a local enthusiast for 10 hours a week to work on promotions and community relations. Give all employees 20% off coupons or $10 gift certificates for distribution to enthusiasts, friends and family outside the store.
Mock “Liquidation Sale.” Bagni offers this free guerilla marketing tip. Buy a gigantic block of ice, carve your logo in it, put it in your parking lot and announce you are having a “Winter Liquidation Sale” until it melts. Hook up a live web cam to your web site to show how much ice is left and send photos to local TV stations every day. “In March, if you’re above Mason-Dixon Line, you can probably get a week out of it,” said Bagni. “The down side is if it melts quickly you’d have to put a tent out there, but then you could have fun with that. It’s totally guerilla.”
Business Plan - Outdoor Foundation Report Finds Participation
Initial data from the 2009 Outdoor Recreation Participation Topline Report, published by The Outdoor Foundation, shows that an increasing number of Americans participated in nature-based, outdoor activities last year. The study finds sizeable participation increases in many nature-based activities including double-digit increases in backpacking, mountain biking and trail running and close to a ten percent increase in hiking and camping. Overall participation trends in recreation, sports and fitness remained largely unchanged from last year.
“Americans are finding solace and security, adventure and excitement in the great outdoors,” said Christine Fanning, executive director of The Outdoor Foundation. “During these challenging economic times, a return to affordable, nature-based recreation allows individuals, friends and families to reconnect – with one another, with the natural world and with natural values.”
The Outdoor Foundation 2009 Outdoor Recreation Participation Topline Report also shows increases in many active outdoor activities among youth, showing a positive trend from 2008 in some key areas. Biking, backpacking and hiking are just a few of the activities that show increases in participation among young people. Overall, outdoor participation for youth ages 6 – 12 is down 7.6% from last year, showing a continued need to focus on connecting kids and nature.
“It is certainly encouraging to see an increase of youth participation in some important recreation categories, but more must be done,” continued Fanning. “Public and private partnerships, effective outreach programs and creative campaigns must be top priorities for every sector of society if we are to truly inspire and grow the next generation of outdoor enthusiasts.”
Retail sales information from Outdoor Industry Association supports the assumption that more Americans are participating in nature-based outdoor activities. The Outdoor Industry outperformed many other industries in 2008, with a 5% gain over 2007.
The Outdoor Foundations 2009 Outdoor Recreation Participation Topline Report details Americans' participation in outdoor activities from 2007 to 2008. The Report is a high level overview of The Foundation's full Participation Report, which will be released later this year with expanded data and full analysis.
A copy of the 2009 Outdoor Recreation Participation Topline Report along with the 2008 Outdoor Recreation Participation Report can be downloaded from The Outdoor Foundation website at outdoorfoundation.org/research.
“Americans are finding solace and security, adventure and excitement in the great outdoors,” said Christine Fanning, executive director of The Outdoor Foundation. “During these challenging economic times, a return to affordable, nature-based recreation allows individuals, friends and families to reconnect – with one another, with the natural world and with natural values.”
The Outdoor Foundation 2009 Outdoor Recreation Participation Topline Report also shows increases in many active outdoor activities among youth, showing a positive trend from 2008 in some key areas. Biking, backpacking and hiking are just a few of the activities that show increases in participation among young people. Overall, outdoor participation for youth ages 6 – 12 is down 7.6% from last year, showing a continued need to focus on connecting kids and nature.
“It is certainly encouraging to see an increase of youth participation in some important recreation categories, but more must be done,” continued Fanning. “Public and private partnerships, effective outreach programs and creative campaigns must be top priorities for every sector of society if we are to truly inspire and grow the next generation of outdoor enthusiasts.”
Retail sales information from Outdoor Industry Association supports the assumption that more Americans are participating in nature-based outdoor activities. The Outdoor Industry outperformed many other industries in 2008, with a 5% gain over 2007.
The Outdoor Foundations 2009 Outdoor Recreation Participation Topline Report details Americans' participation in outdoor activities from 2007 to 2008. The Report is a high level overview of The Foundation's full Participation Report, which will be released later this year with expanded data and full analysis.
A copy of the 2009 Outdoor Recreation Participation Topline Report along with the 2008 Outdoor Recreation Participation Report can be downloaded from The Outdoor Foundation website at outdoorfoundation.org/research.
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