Written by Glynn Davis
Glynn Davis looks at technology solutions available to retailers as they address their environmental impact
While the focus for most retailers over recent years has naturally been on surviving the recession, rather than addressing some of the sustainability challenges the industry faces, the downside to this has been a storing up of problems that must now be sorted.
Retail industry experts Verdict have calculated in a recent report that the industry could face hefty fines of as much as £300 million per year - just to cover the carbon emissions from stores. Such onerous liabilities, relating to the government’s Carbon Reduction Commitment (CRC), were re-iterated at the recent Spending Review. The message is clear: there will be no let up on penalising the heaviest carbon emitters in the sector.
Matt Piner, senior retail analyst at Verdict, says it is not only the recession that has diverted attention away from the issue of the environment and the CRC. Although CO2 emissions from UK shops have fallen by 8.1 per cent over the past three years Verdict says the figure has been grossly inflated by the 5.3 per cent reduction in retail square footage over this same period. “We’ve had new shopping centres open like Westfield London but vacancy rates have gone up from the low single digits before the recession to 13 per cent recently. There has been a lot of space lost from (failed) independents and the High Street players,” explains Piner.
The result is that, while a number of larger retailers have embraced the environmental agenda and sought to develop more sustainable practices, there are many smaller operators that have done little or nothing. “The major grocers have embraced it as they have the scale whereby even small improvements to inefficiencies can save lots of money (and energy). Because there has been so much more wastage in the supply chain it’s been more scrutinised than other parts of business and as the supply chain is more of an issue for big companies - they’ve been more pro-active in this area,” says Piner.
The supply chain
Hamish Brewer, chief executive at JDA Software, says the supply chain clearly has a “potentially significant role to play in the overall environmental situation” and that it is fortunate therefore that there is a good convergence of saving money and saving the planet. “Retailers want to service customers with the lowest inventory and if they can do this then there will be less waste. It involves the best alignment of supply and demand, which then has the overall effect of less impact on the environment,” he explains.
Brewer suggests there is “trillions of dollars” of inventory tied up due to inefficiencies in the supply chain. The lack of effective co-ordination across supply chains is leading retailers to have buffer stocks held at various points and for emergency orders to be a frequent occurrence. “Many of these orders could probably have been sorted weeks earlier rather than being sent on a 747 plane overnight,” he says.
Although large retailers have sought to address the inefficiencies in their supply chains it has been because of the need to cut costs in the recession and not for environmental reasons, according to Brewer, who says: “The environment is a contributory factor but not a driver of change. It is not a strong enough reason for (retailers to commit) capital expenditure.”
The one area where JDA has added functionality to its software to specifically address the sustainability issue for retailers is with monitoring and tracking - making it possible to measure certain elements of the supply chain such as the CO2 impact.
One major retailer that has not focused on its supply chain for simply cost saving reasons is Kingfisher, which under chief executive Ian Cheshire has recognised the potential positive impact on the brand from being an environmentally conscious global retailer - even if he admits it is a tough task. “We’ve 35,000 SKUs so it is physically impossible to do a full environmental review on them all - it is complicated and we need help, just as consumers do. But those retailers that do become the consumers’ friends will be successful. However, if you set your stall out for this then you’ve got to avoid the ‘greenwash’,” he warns.
Murray Sherwood, managing director at green IT specialist Externus, forecasts that the need to be seen to be working towards a sustainable future could become a big driver for retailers - just as cost-savings are currently. The big prompt for this will be the publication in October 2011 of league tables of the worst offenders (excluding energy-intensive businesses) in carbon emissions. “Customers are doing their bit and they want to see their shops doing it too. If they have not taken steps to reduce emissions then it will have a brand impact,” suggests Sherwood. Although IT has a vital part to play in helping reduce waste through improvements to the supply chain and logistics infrastructures as well as optimising transportation, Sherwood says IT is in fact a big emitter itself - accounting for around two per cent of all global CO2 emissions.
One of the key areas where savings are being made in retail IT is through ‘server virtualisation’ whereby the existing dedicated servers for each application (that might only have a 10 per cent utilisation) are removed and replaced by a single server that runs many virtual servers. This was pioneered by John Lewis and has saved it vast amounts of energy that was previously required to both power the servers and to keep them cool.
Other head office energy reductions from IT can come from simple activities, according to Sherwood, like replacing many distributed printers with a small number of departmental devices, which he says has been shown to reduce printing by as much as 30 per cent in some companies.
Retailers also have to consider ways of reducing their IT energy usage at stores. “Collectively there are thousands of devices across retailers’ businesses - including tills, printers and back office computers,” he says.
A sign of how seriously retailers are taking stores’ overall energy consumption was the recent opening of the new energy management centre (EMC) by Matrix that optimises energy usage of companies including Tesco and Marks
A key problem for many large organisations is their ability to control when lights are on or off and the temperature of their buildings. After determining the optimum level for energy outputs, the EMC helps to regulate this and to effectively manage energy investments. Steven Daniels, director at Matrix, says:
“Large organisations accept that it’s impossible to effectively control the lighting, heating and air conditioning in every single one of their buildings, but linking up with the EMC allows us to determine the optimum levels of energy that clients need over a 24-hour period.”
“Some of our existing clients see the cost of the service recovered within months, making it a very attractive commercial proposition for them. It’s also attractive to companies as the service sees them reduce their carbon footprint at the same time,” he explains.
The ability to implement such technologies, combined with the prospect of finding themselves in the league table of the country’s worst carbon emitters,
is a potent combination that is sure to have large retailers assessing their environmental impact. And with the rest of the industry certain to follow them we will likely see sustainability pushed back up the industry’s agenda.