Wal-Mart: the Low Cost of Energy Efficiency

Last weeks Fortune’s cover story was entitled “Wal-Mart Saves the Planet- Well, not quite.  Of course, we have to be skeptical when WMT starts burnishing its green credentials; you’d have to be brain-dead not to guess that this is a public relations campaign.  On the other hand, as I never get tired of telling people, energy efficiency usually makes excellent economic sense; the main reason people and companies do not do a lot more of it is education and lack of global thinking (often the savings are indirect.) 

For instance, suppose you are designing a building, and have found that with R-38 insulation, and you calculate that each extra R-1 of insulation will cost $300, but only save $250 in future energy bills (These numbers are just for illustration.  If any architects/engineers have more realistic numbers to substitute, leave a comment, and I’ll change them).

A cost conscious designer would be tempted to stop there.  However, if he then considers the required size of the building’s heating, ventilation and cooling system (HVAC), he may note that if he increases the insulation to R-45, he can reduce the size (without impacting comfort) of the HVAC system, and save $1000.  So, and extra $2100 would be spent on insulation, and $1750 would be save on energy bills, and $1000 would be saved on the smaller HVAC system, for a net savings of $650, without even considering the added benefits to society of lower energy use.)

What does this have to do with Wal-Mart’s Green-washing?  When they started looking into ways to be more green, they started talking to Environmental Defense and the Rocky Mountain Institute.  And they discovered that there are a lot of “green” things they can do which will save them money.   In case you’ve been on another planet for the last couple decades, there is nothing that is more Wal-Mart than saving money.  Often, it has got them into trouble with the left, because they’re skimping on health care for their workers, or selling clothes made in sweatshops.

So Wal-Mart discovered that they could save money by using energy more efficiently.  To name a couple things, on their fleet of 7,200 trucks, they installed auxiliary power units that allow the drivers keep cabs warm or cool during mandatory 10 hour breaks from the road, allowing them to stop idling their engines.  This saves Wal-Mart $28 million a year in diesel costs, or about 10,000,000 gallons of diesel.  That’s about as much diesel as we’d save if we scrapped 5,000 Hummer H2’s, and made their owners ride bikes. 

They’re also making a move to reduce excess packaging on a private-label line of kid’s toys.  This is saving them on transportation costs (if the packaging is smaller, they can fit more in a truck), on top of the cost of packaging, and on the cost of disposal.  Annual net savings (on one line of toys): $2.4 million, 3800 trees, and one million barrels of oil.

The point is, I think that Wal-Mart CEO Lee Scott and much of Wal-Mart management has caught the efficiency bug.  I don’t think they’ve caught it because they’re on a crusade to save the planet; I think they’ve caught it because they’re on a never-ending crusade to save costs, and if it helps them with their gigantic PR problem, so much the better.

For better or for worse, Wal-Mart is one of the most powerful forces in our economy, not only with their own operations, but because of their power over their suppliers.  If they can cut the amount of packaging on things they sell, increase the efficiency of the entire nation’s trucking fleet by demanding more efficient semis from their suppliers, we should support it.

If we are going to move our economy onto a more sustainable path, we need Wal-Mart.  Like it or not, Wal-mart has enormous economic power, so just like a I am thankful for Nancy Reagan’s belated support for stem-cell research, so I am very happy to see Wal-Mart doing what it is.  So long as Lee Scott continues pushing at Wal-Mart’s stores and coercing his suppliers to do likewise, he has my support.

One caveat: there are only 5 Wal-Mart employees dedicated full time to efficiency.  This might be a sign of lack of commitment, but it might also simply be a sign of using resources (in this case man-hours) efficiently.  They are contracting with some of the top minds in the country for efficiency ideas: implementation requires commitment at the top levels of management.  Thinking about efficiency is probably best as a small part of everyone’s job, rather than a full time job for just a small part of the workforce.

I’m hopeful.  Does this mean we should give Wal-Mart a pass on all the other things we may not like about them?  Of course not.  But just because we disagree with them about some things, does not mean that we can’t support them in their drive to be more green. 

Is WMT, the stock, a buy?  I’m currently neutral on it (but last year I thought it was as Sell at 50, so this is an upgrade.)  At $45 (down 44% from its high in 2000), with a P/E ratio of around 16, and a dividend yield of about 1.5%, and expected long term growth of 12-14%, it still does not look like a great value.  But I am keeping an eye on it, and I’ll probably buy if it falls to $35.  (I generally only buy stocks when I think they are screaming deals, or if they are fairly valued and very, very green.)

Some other thoughts on Wal-Mart

  • I expect that Wal-Mart will be one of the first mass distributors of E85 ethanol, and maybe even biodiesel at their gas stations, partly because of this green push, and also because they are a lot more nimble than traditional gasoline retailers about changing formats.  Unlike stations owned by oil companies, they won’t worry about cannibalizing their own sales.  Last year, there was a Wal-Mart near me with a gas station, and a Sams Club about a ½ mile away without one.  Within the space of 3 months, the Wal-Mart gas station had been removed, and a new station was operational at the Sams.  They must have decided that gas would sell better at the Sams than at the Wal-Mart down the road, and the did something about it.  Fast.  When Wal-Mart decides to hop on the alternative fuel bandwagon, I think that will be fast also.  I wouldn’t be surprised if we start seeing Wal-Marts with E85 or B20 before the end of 2007.
  • I spoke this spring to a wind contractor who was working on the “green” Wal-Mart that opened last year in Aurora.  He was installing a small wind turbine to power the sign at the far end of the parking lot, along with a battery bank and some PV.  This was totally overkill for the power demands of the sign, and since it was an off-grid application, there is nowhere for the excess power to go.  Partly, this wastefulness is just due to experimentation by Wal-Mart to see what works, but I think part of this is also greenwashing… they probably think that the highly visible wind turbine and panels on the sign, way out in front of the store, is good advertising.   Cynical, yes.  Good PR?  Yes.  Green?  No.
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2 Comments

  1. [...] Carbon Dioxide Emissions, Energy efficiency, Compact flourescent lights A few months ago I blogged about Wal-Mart’s energy efficiency push.  I predicted that Wal-Mart would be one of the [...]

  2. [...] sure been writing a lot about Wal-Mart’s sustainability push recently. (see July 30, Dec 3 [...]

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