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Cover Story: Giant Steps

Save a dollar. Save the world. Can it really be done? David Cheesewright, the new CEO of Wal-Mart Canada, wants you to at least give it a try.

David Dias, Financial Post Business

David Cheesewright, Wal-Mart Canada Corp.'s new CEO, remembers the fall of 2005. That's when everything changed for the world's biggest retailer. It was in late October of that year that Wal-Mart Stores Inc.'s chief executive, Lee Scott, delivered his momentous "Twenty First Century Leadership" speech on the retailer's responsibilities as a global corporate citizen from headquarters in Bentonville, Ark. At the time, Cheesewright was nowhere near Arkansas. He was in Leeds, England, where he was chief operating officer at ASDA, Wal-Mart's U.K. division, watching Scott's speech on a special live broadcast. The distance, however, had no impact on the power of the message Scott was delivering. Wherever you happened to be across Wal-Mart's 15-nation empire, the speech reverberated.

     A folksy Midwesterner, Scott began with a nod to Wal-Mart's legions of critics, who for years had been broadly accusing the retailer of exploiting workers and having wanton disregard for the environment in its pursuit of low prices -- and increasing sales, which this year hit $380 billion. But rather than merely defending Wal-Mart, Scott acknowledged a responsibility on the company's part for public accountability. "People expect a lot of us, and they have a right to," he said. "Due to our size and scope, we are uniquely positioned to have great success and impact in the world, perhaps like no company before us."

     In and of itself, Scott's acknowledgement of his critics was an unusual step. But the big news was about to come. In the next lines of his speech, he moved on to the topic of the environment. There, in the space of a few words, he laid out a commitment to sustainability so far reaching that -- even if it succeeded only partially -- would position Wal-Mart not only as the company against which all other retailers would be measured, but also as a firm with the power to reshape the entire industry.

     "Our environmental goals," Scott said, "are simple and straightforward: to be supplied 100% by renewable energy; to create zero waste; to sell products that sustain our resources and environment." It was an extraordinary pledge. So much so that Scott could not say how or when Wal-Mart would achieve it goals (his speech only vaguely referred to "the next four decades"). But timetables, benchmarks and milestones weren't the issue at this particular moment. Here was the world's largest, most efficient company -- a true juggernaut with a workforce larger than that of the U.S. army and annual sales worth more than the GDP of Saudi Arabia -- vowing to use the same force to drive waste and pollution from its business that it had previously brought to bear on every process and relationship that had, over 60 years, turned a lone, regional department store in the southern U.S. into a global economic powerhouse.

     More impressive still, Lee vowed to spend $500 million annually to meet targets such as reducing Wal-Mart's greenhouse gas production by 20% over the next seven years, doubling the efficiency of its massive trucking fleet within 10 years and assisting in the development of a green supplier program in China, the source of so much Wal-Mart merchandise. "When Wal-Mart throws its weight around, the rest of the economy listens," reported Cleantech, a green-energy blog founded by Neal Dikeman, a San Francisco-based investment banker who specializes in energy and environmental technologies. "If Wal-Mart is sincere about these environmental goals, and can light a fire under its entire supply chain to drive them to help Wal-Mart meet its goals, big things are afoot."

     That it was Wal-Mart claiming the environmental high ground was doubly delightful for the company -- and its shareholders, no doubt -- as it left many of the critics who had successfully battered its reputation with a suddenly smaller supply of ammunition for their attacks. Some outfits, like Wal-Mart Watch, gave no ground, calling Scott's pledge an exercise in "greenwashing" to draw attention away from negative publicity over the company's labour practices. But others -- notably the Sierra Club, the largest environmental organization in the United States -- cautiously welcomed the news as an "important first step."

     For Cheesewright, back in Leeds, it was more than a step: It was a call to action. Within months of Scott's speech, he was rolling out programs for ASDA and making pledges of his own -- a vow to recycle, reuse or compost all waste from the 307-store chain by 2010, a promise to reduce the amount of packaging for store products by 10% within 18 months and a commitment to a pilot solar-power project that would actually put clean energy back into the grid. "It's a massive commitment," Cheesewright said at the time. "I hope our competitors will follow our lead."

     Two years on, Cheesewright is now in Canada -- having become president and CEO of Wal-Mart's operations here this past February -- with a specific mandate to build on internal environmental initiatives that Wal-Mart Canada has implemented over the past two years and turn them into a national, public campaign.

     Cheesewright's arrival and Wal-Mart Canada's sustainability initiative - operating under the banner "For the Greener Good" -- comes at a critical flashpoint for Canada's retail sector. In 2006, Wal-Mart began the Canadian rollout out of its Supercentre format, a form of store that's up to 75% larger than a traditional Wal-Mart and adds fresh groceries to its mix of general merchandise -- a move that takes aim squarely at Canada's major food retailers, most notably its largest, Loblaw Cos. Ltd. Already, the prospect of direct competition from Wal-Mart, a much smaller competitor in terms of market share, has rattled Loblaw, contributing to earnings declines as the company cuts prices to compete and a management shake-up at the highest levels.

     At the moment, Wal-Mart operates only 32 supercentres in Canada, but it plans to add dozens more in the coming years. Some analysts predict it could more than double its current Canadian market share to 9% in as little as five years -- a pace of growth that could potentially cost major competitors like Loblaw, Empire Co.'s Sobeys chain and Metro Inc. billions in lost sales.

     None of these incumbents have the systems or the scale to compete with Wal-Mart on price over a sustained period without seeing erosion on their bottom lines. For that reason, the competition will focus on other issues -- quality, selection and shopping experience, to name a few. The battle, however, will likely be for the hearts and minds of consumers. When it comes to that, no issues hits as close to home as the future of the planet.

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     Wal-Mart's Canadian headquarters, in suburban Mississauga, Ont., are a testament to its aversion to needless spending. There's no gleaming skyscraper here, no polished sculptures or any other sign of corporate panache. Just a plain low-rise building surrounded by a vast parking lot. You could be driving up to any of the chain's 300 stores.

     Equally modest is Cheesewright's office, as is the man himself on this day in April, when he meets with Financial Post Business for his first major Canadian interview. Dressed in jeans and a workman-like checked shirt, he leans against a chest-high table, like something from a coffee shop. (He says he prefers to take meetings standing up to keep them focused and brief). Surrounding him is a clutter of Wal-Mart's environmental offerings -- compact fluorescent light bulbs, organic cotton shirts, jugs of double-concentrate laundry detergent and marketing paraphernalia bearing the company's "For the Greener Good" logo. The place looks more like a showroom than a working office. "I like being surrounded by product," Cheesewright says.

     Only the second-ever CEO in Wal-Mart Canada's history, Cheesewright, 46, took over upon the retirement of Mario Pilozzi -- a larger-than-life personality who's credited for getting the Canadian unit off the ground in 1994 and growing the chain to $15 billion in annual sales. Compared to his gregarious predecessor, though, Cheesewright is soft-spoken and unassuming -- unexpected traits given his reputation as a fiercely competitive operational manager with a keen eye for identifying efficiencies.

     More surprising -- especially given the role he's playing in bringing Wal-Mart's green campaign to the public -- is his reluctance to describe himself as a green spokesman. Cheesewright says his appreciation for environmental issues has developed gradually, fuelled in recent years by watching his three children -- aged eight, 10 and 13 -- grow up with the issue. "If nothing else, I have to set an example on this," he says, (perhaps explaining why, on this sunny April morning, he bicycled to work from home, a 45-kilometre round trip). What's more, he says he dislikes the term "environmentalist," preferring to see himself as a pragmatist -- someone who identifies and assesses objectives and then finds efficient routes to achieve them.

     During the past few years, however, he's been increasingly called on to apply those skills to the cause of sustainability. During his nine-year tenure with ASDA, for example, Cheesewright chaired the U.K.'s Food and Industry Sustainability Strategy, a group of major retailers that collaborates on programs -- such as sharing technology, harmonizing logistics and setting standards -- to reduce the footprint of the industry, with a particular focus on shipping and transportation issues. Now, his efforts are taking a more public turn with his role as the executive with ultimate authority over the Greener Good campaign.

     Greener Good is significant not only for its substance, but also for the fact that it's Wal-Mart Canada's first major push to engage the public in initiatives that it has been developing and implementing over the last three years. Among its key features are hard targets for reductions in its carbon footprint and energy consumption at its stores, a commitment to being Canada's largest consumer of renewable energy, a $2.5-million fund to support the restoration of community green space over the next five years and a sustained program to more offer environmentally efficient products and educate consumers about their benefits.

     For all the currency the program may have in the post-Inconvenient Truth zeitgeist, however, Cheesewright does not see it as any particular departure for Wal-Mart. "There are a lot of elements to sustainability that have always been very much a part of Wal-Mart's DNA," Cheesewright says. "Our purpose is to save people money so they can live better. Saving money requires you to run your business for less. A lot of things you do to make savings are good for the environment, too."

     Indeed, a ruthless ability to strip out operational costs has been Wal-Mart's key asset in pursuing its traditional goal of "everyday low prices." The result has been, on the one hand, astonishing growth and, on the other, countless public relations nightmares as critics and assorted activists attacked the company over the social impacts of its practices.

     But what happens when you focus that devotion to efficiency on issues such as reducing energy consumption or driving unnecessary packaging out of a business? The results are an eye-opener.

     About two years ago, for example, Wal-Mart Canada began replacing the 32-watt fluorescent lights that were standard in its stores with 25-watt lights. Now about three-quarters of the way through the retrofit -- involving more than 130 million bulbs -- the program will save Wal-Mart about $5 million in reduced energy costs over the next five years. During the summer months, from the beginning of June through September, the company's central computers are now automatically dimming lights at its stores by one-third, leading to further savings. At new stores, where additional roof insulation has been added to the design, energy costs are down a full 25%.

     Other measures include replacing short-lived cardboard boxes with plastic boxes that can be used 60 times, on average, before wearing out. These boxes are now ubiquitous throughout Wal-Mart Canada's internal logistics network, saving 1,400 tonnes of cardboard and driving out $4.5 million in costs. In 2007, meanwhile, the company opened up a small revenue stream with the recycling of 88,000 tonnes of cardboard -- the equivalent of production from 1.5 million trees. Wal-Mart Canada expects to realize a further $20 million in savings from green initiatives over the next five years.

     Considering the billions it earns each year in sales, Wal-Mart Canada's green savings aren't going to add much to the company's bottom line, prompting some analysts to characterize them as "fluff" or a "marketing gimmick." But to dismiss Wal-Mart's initiatives on the basis of their marginal impact on financial statements is to miss the bigger picture. Project the savings being realized in Canada across the 6,500-store global chain (Canada accounts for only 4% of Wal-Mart's business) and the numbers can be mind-boggling. In November, when Wal-Mart released a report on its global sustainability program, it was able to announce strides such as a 15% improvement in the efficiency of its truck fleet and reaching its goal of selling one million compact fluorescent light bulbs.

     The news wasn't entirely rosy, though. Wal-Mart also owned up to the fact that its carbon emissions increased 8.6% during 2006, a significant setback. But Wal-Mart's story isn't only about its success or failure in hitting internal results. The fact that 70,000 vendors worldwide are clamouring for position on its store shelves, the company has extraordinary power to influence practices at some of the world's largest manufacturers, especially if it's working hard to set an example. And it has been wielding that power to great effect. In one famous example, Lee Scott contacted General Mills about the unnecessary curliness of the noodles in boxes of Hamburger Helper. Straight noodles take up less space, he told the food producer, reducing the size of the package and making it more efficient to transport. General Mills listened to Scott and straightened its noodles. The result? A 20% reduction in the size of a box of Hamburger Helper, making them more efficient to ship and taking the equivalent of 500 distribution trucks off the road.

     Wal-Mart applied similar pressure to Procter & Gamble, the maker of Tide laundry detergent, when it announced that it would phase out regular-concentrate detergent across North America in 2008 in favour of double-concentrate detergent. Fearful of losing access to Wal-Mart customers, Procter & Gamble complied with Wal-Mart's policy. As a result -- and with other detergent makers following suit -- Wal-Mart is cutting the volume of its detergent packaging in half. The company claims this will reduce the usage of plastic resin across North America by 100 million pounds over the next three years. It will also save 425 million gallons of water -- equivalent to 100 million showers -- and ultimately take 15,000 trucks off the road. "There's a bit of this myth that we just decide what we're going to do, tell everybody and off they go and do it," says Cheesewright, whose staff is meeting with suppliers developing a new set of packaging polices for Wal-Mart Canada. "But think of the savings that Procter will make on Tide, in every aspect of it -- the water it takes to make that product when it's double-concentrated, the plastic that they have to buy."

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     In early 2007, Wal-Mart Canada started to get some love for developing green programs. In February, a year and a half after the Lee Scott speech, about 2,000 of Wal-Mart's executives and store managers gathered at an auditorium near the company's headquarters for their annual conference. It was wall-to-wall people as the keynote speaker was introduced, prompting the crowd to leap to their feet and begin a chant "David! David! David!"

     The David in question? None other than David Suzuki, Canada's pre-eminent environmental activist. When the cheers finally subsided, Suzuki began to speak. "Wal-Mart's commitment to sustainability acts as an inspiration and incentive to other corporations to follow suit," he said. "The company has enormous influence on corporate thinking and I am delighted with the priorities it has selected."

     It was another extraordinary moment. For nearly 40 years, Suzuki has been imprinting his passion and vision for the environment onto the Canadian consciousness. Now he was endorsing the company that many of his supporters considered the antithesis of his goals and values. Suzuki later admitted to qualms about supporting a corporation built around what he calls "hyper-consumption," but even he couldn't ignore the changes that Wal-Mart was making.

     Peter Robinson, chief executive of the Vancouver-based David Suzuki Foundation, says that Suzuki's remarks are indicative of a new direction the environmental movement is taking. Instead of throwing stones from on high, Robinson says that groups are starting to engage with corporations, and even praise the good work that's being done. "As far as I'm concerned, the only way we can make the kinds of changes that need to happen is to work within the system," he says. "You can't just shut out the business community." As for Wal-Mart in particular, Robinson says that, while the working conditions of its employees -- low wages, meagre benefits -- leave much to be desired, the company has excelled on the ecological front. For that, he says, it should be applauded.

     But it's one thing for a company like Wal-Mart to start turning critics into potential allies. Prevailing with the general public is another matter. After all, the serious critic population here numbers in the thousands; the number of potential customers -- skeptical though many may be -- is counted in the millions. And there is no shortage of competition for the crown that comes with being recognized as the standard bearer for green retail: The Hudson Bay Co. -- operating under the Bay, Zellers and Home Outfitters banners -- says it plans to convert up to 40 of its stores to zero-waste outlets this year. Grocery chains like Sobeys and Dominion have launched reusable canvas bag programs. Home Depot has an extensive consumer-education campaign and has instituted a program to source lumber from suppliers that use sustainable harvesting methods.

     Loblaw, with the most at stake, it has worked double-time to promote its green image as a defensive bulwark against the arrival of Wal-Mart's Supercentres. In its attempt to set the agenda, it has turned its executive chairman, Galen Weston Jr., into a pitchman for its revamp of its PC Green line of all-natural products and committed itself to the annual reduction of one billion plastic bags.

     "There's a lot of jockeying for position, and for the most part these companies all operate the same," says Joe Beaulieu, a retail analyst at Chicago-based investment research firm Morningstar. What distinguishes Wal-Mart from this pack, Beaulieu continues, is the same thing that has always distinguished it -- its core mission to be the most efficient retailer on the planet. No other competitor -- and certainly none in Canada -- rivals it in this respect, and no other has made the goal such an intrinsic part of its identity or management structure.

     In bringing the drive for efficiency to its green programs, Wal-Mart Canada has created 14 management teams called "sustainability value networks," which fall under categories such as "operations waste reduction" and "greenhouse gas reduction." Each network is led by an executive-level manager, based on his or her area of expertise, and each manager is responsible for pulling together a small team from within the company to develop action plans and present them to upper management.

     Wal-Mart has an additional advantage in its immense influence over suppliers, says Beaulieu. After all, when it comes to global retail, Wal-Mart is the biggest of the big dogs. "There isn't another retailer that has that leverage over suppliers," Beaulieu says, "or the ability to make them play along."

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     It's another bright spring morning and Cheesewright is touring a Wal-Mart Supercentre near Toronto when he's noticed by two young management trainees. Dressed in Wal-Mart smocks, they approach the CEO and ask if they can have their picture taken with him. Of course they can, Cheesewright says, striding out into the aisle to pose for the camera.

     Cheesewright is a friendly person, but this little encounter isn't only about chit-chat. Wal-Mart's workforce -- 75,000-strong in Canada -- also forms an important plank in its overall environmental strategy. Besides squeezing waste out of its internal operations, persuading suppliers to be more efficient and convincing a skeptical public of Wal-Mart's intentions, the company and its executive also have to mobilize employees.

     To that end, Wal-Mart Canada has just unveiled what it calls its "personal sustainability project," modelled on a U.S. Wal-Mart program, wherein each employee is encouraged to make voluntary changes in their lives that will have a positive environmental impact, such as riding a bike to work or switching to compact fluorescent lights. Not only does this challenge them to make environmental choices outside the workplace, it's a way of getting them to embrace the concept of environmentalism and giving them an issue to rally around, Cheesewright says. More than that, engaging staff gives Wal-Mart what may be its best opportunity to communicate its message to consumers at the time they're paying most attention -- when they're actually shopping in the chain's stores.

     The ability to reinforce the green message at this personal, grassroots level may be the strongest tool Wal-Mart has to prove that a company famed for its culture of quirky, sometimes silly mantras -- like the Wal-Mart cheer, which store employees recite at the start of each business day -- is sincere in its environmental goals and commitments. No doubt, some employees will dismiss the initiatives as just another set of chants to mouth during working hours. But already a culture shift is underway at Wal-Mart in the growing number of employees -- everyone from shop clerks to executives -- who speak with passion and pride on the subject of environmental sustainability.

     None of this will be enough to counter the years of bad press that have dogged the company, nor the inevitable accusations that Wal-Mart's commitments amount to little more than a public relations campaign. And make no mistake, Wal-Mart executives see their environment campaign as a PR winner. But to view it only through that lens isn't fair. John Williams, president and founder of retail consultancy J.C. Williams Group, says part of Wal-Mart's motivation comes from a genuine concern for the environment.

     "We're all citizens," he says. "We all have families. We're all exposed to the environment, including people at Wal-Mart." Indeed, if Wal-Mart lacked sincerity, Williams says, they wouldn't be making incremental improvements in their relations with attack groups. In the past year alone, he has noticed a mellowing out from organizations such as Wal-Mart Watch and Environmental Defence. In an article in the New York Times last month, for example, Wal-Mart Watch executive director David Nassar admitted that his group had become less "in your face" about its strategy. "The incredible heat that they were under from these groups has been greatly reduced," Williams says. "Wal-Mart is listening to them, and they've been talking, rather than just having a slugfest."

     One of the more poignant examples suggesting that Wal-Mart really does have its corporate heart in this issue came when Scott delivered his "Twenty First Century Leadership" speech three years ago. The devastation of Hurricane Katrina was fresh in his mind as he spoke of Wal-Mart's contribution to relief efforts. The company donated an unrivalled $20 million, distributing 1,500 truckloads of merchandise, 100,000 meals and the promise of a job for every victim left homeless by the disaster. "This was Wal-Mart at its best," said Scott. "Katrina asked this critical question, and I want to ask it of you: What would it take for Wal-Mart to be that company, at our best, all the time?"

     "That company." It was a touching turn of phrase. Lee had seen Wal-Mart at a time of humanitarian crisis and realized what can happen when a great company -- even a controversial one -- uses its expertise and resources to be a truly great citizen. He wanted to lead "that company" again. Since then, a different kind of breeze has been blowing through the halls at headquarters in Bentonville.

     Don't think for a minute that Scott -- or any other Wal-Mart executive -- has taken their eye off the bottom line. ("Will I destroy the company over our environment policy? No," says Cheesewright. "My job is to keep 75,000 people employed and one million customers a day happy.") Nor should anyone expect goals stated in inspirational speeches to roll off the assembly line like boxes of Hamburger Helper. The significance here is that Wal-Mart has entered the game. Even if it takes decades to reach its goals -- if they can be reached at all -- Wal-Mart is setting standards that competitors can't ignore. From here on out, the retail sector -- both in Canada and around the world -- will not be the same.

Source: FinancialPost.com

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