Transcript of Interview with Lee Scott, CEO of Wal-Mart
The following is transcribed from an interview that took place on March 12, 2008, at the Wall Street Journal ECO:nomics conference in Santa Barbara, CA. The interviewee, Lee Scott, CEO of Wal-Mart, was interviewed by two Wall Street Journal moderators in front of conference attendees.
Wal-Mart CEO Lee Scott at the Wall Street Journal’s ECO:nomics Conference
Wall Street Journal (WSJ): The Labor Union-backed groups were attacking you for your wage policies, immigration policies, health policies, but not necessarily for your environmental policies. What made you decide to bring the environment to the forefront of Wal-Mart (WM) and what WM was doing?
Lee Scott (LS): In saving people money so they can live better, and what we did is looked at what Sam Walton started. How did Sam Walton really develop what he did? It was by eliminating waste, bringing in efficiency … (inaudible). Structure techniques we are using today, whether it’s through the supply chain … all of those things are seemingly the creation of waste, and so we got very consistent with the entire model we have had since Sam Walton opened the first store.
WSJ: So it’s all about the cost reduction? Is not about grade loss? Is there never a point where you say, ‘Gosh, this is going to cost us a little more, but it will be better for the environment?’
LS: I think there are things that you as a business have to think about. That something maybe more cost-effective, but it’s just wrong. Pollution, water, those kinds of things … so, but those things can be applied. But really, for the most part, the people who are here, 70% of them have not gone to a WM store in the last month. This audience is not our core customers and so one of the things people talk about is, will people pay more? Our question for sustainable products is, why should they have to? If you can take the waste out, if you can take the cost out, and you can provide people who are working people, living paycheck-to-paycheck, with an opportunity to be more sustainable, we think they will react to it — and they do.
WSJ: But if this is all about cost reduction as you said, cost reduction was something that you folks have been experts at for a long time. Why do you need an overlay of environmental consciousness on top of that?
LS: Well, you want to focus on cost, and what I said, that was waste and waste ultimately translates into cost reduction. So is it bad that our purpose as a company is consistent with sustainability? That is the initiative.
WSJ: Will your consumers pay more for products that are environmentally green? I mean, you certainly see an issue for hybrid cars for instance; it costs a lot more to buy a hybrid car. Is there willingness? You know consumers better than anybody; you have all that data coming in from those 200 million visits to your store every week. Is there any willingness to pay more for something that is perceived to be better for the environment?
LS: You see depending on the store. You see the difference in how people are reacting. So we have a store that is in a higher household income area, you can see either people can afford to and are willing to pay a little bit more. If you get into the stores where you have lower income areas, then those people — 20% of WM’s customers — do not have checking accounts, so in the first of every month, right now with energy prices doing what they are doing, food doing what it’s doing, we have this huge spike of our business in the first part of the month, this slows slightly. Then the 15th of the month, when another pay cycle comes, we see another spike, and the last three days of the month, our business is terrible. People are living — not people in this room, not the 70% — but in general, they are living paycheck-to-paycheck; the broad amount of our American society have negative savings right now. It’s not a matter of they don’t care about sustainability; it is a matter of they cannot afford it anymore. They can’t pay $1 more for the cleaning supplies, they can’t pay $3 more for a t-shirt, and it matters to them.
WSJ: It gets back to the policy issue we were talking about last night: if we impose a tax or cap-and-trade system on carbon emissions, that is like a tax and that means that those shoppers of WM will have to pay more for most of the things they are buying from you, doesn’t it?
LS: First of all, we have started a program that has a long, long way to go.
WSJ: Then you feel that there are many more opportunities?
LS: I think it is extraordinary, our buyers are people in our private fleet and people in our construction area, and they are doing extraordinary things. And at store level, we have what we call PSPs, which are personal sustainable programs, and we have I think 500,000 people who have signed up and have started recycling or using CFLs or who are doing something related to wellness. So who would ever thought that I would go to Battle Creek, Michigan, and sit for two hours and look at the packaging for cereal boxes, or the chairman of General Mills would come to see me, and the primary thing they want to talk about is what they’re doing in packaging, or the union leader chairman come and talk about just downsizing a pack of gelatin. Company after company who are doing these things in the area of packaging — just eliminating packaging, or the Peter Redden of WM could say we are committed to only selling fish in certain marine fisheries. You know, we didn’t tell him to do that. So we have these groups of people working on different things all the way through, from our supply chain all the way into our communities, and they are doing that, and there is an energy about it and it is real and it makes a difference, but it is simply the start. If we grow, what a great day in Nicaragua industry, so if we grow in Nicaragua and we add stores in some of those communities and we get five times as big, do we need to have that same carbon imprint we have today? Or are we talking about what is the carbon footprint for quality, and the business that was being done and now is being done at WM. I have no interest in a program that says ‘OK, WM, you can’t grow anymore.’ It is no business.
WSJ: Give a couple examples of some of the wall hangings that you have found through this process, opportunities where you can make huge savings with things that are no-brainers.
LS: Well, packaging is. I mean, you have people who just took toys and they have exactly the same toys and they reduced packaging by 10 or 15%, reduced all of that transportation cost associated with those hundreds and hundreds of containers. I think it’s worth it. Is it worth it to bring General Mills morsels snack bar that there is a little piece of carton that was used under that bar and they just took that piece of carton out and found that it didn’t change how the packaging held up or anything. It just eliminated that in total. So that is the kind of low-key improvement where people just not (inaudible). At WM, we recycle our cardboard; we didn’t recycle the loose plastic that would come under or those kind of things. And we started doing what we call sandwich bails; now, all of a sudden, it’s millions of dollars a year that we are receiving in income on something that used to fill the landfill. So we are just starting. What we are getting is momentum, and it is not just in the U.S., it is in U.K., Costa Rica is taking a leadership role for us in the fishery side, and in environmental consciousness across the world.
WSJ: On an issue like packaging, of course there is a long way you could go. There are significant groups of people out there now who are saying we shouldn’t be bottling water. Why bottle water? It is an environmental waste. How do you decide how far do you go and when to stop? You are still selling bottled water?
LS: A lot. I am surprised that this conference should have bottled water. We have to stay in business. The customer dictates, if the customer wants a bottle of water, we are going to sell bottled water, and as that customer taste changes, then even with bottled water. This is how WM works, too.
WSJ: So this is what is so fascinating about your message, because you are insistent when you speak about this and you write this on your company reports, that this is not a game of pretext, that you don’t have to make a pretext. But, so it seems like when you decide in the store, you have the big bottle of Tide and the little bottle of detergent — which is better for the environment, which it doesn’t cost as much, it is more concentrated — and you just have to convince consumers that the little bottle has as much cleaning power as the big one. You put the little bottle out in front and you can sell more of them. But is it possible that if you put the big bottle in front ,you might sell even more of those? Isn’t there, aren’t you giving up something by saying ‘We are going to lead consumers to green products?’
LS: Well, I don’t know. I mean, that is an argument we have all the time. You put this on the end-cap, is that the best thing to put on the end-cap? Promotionally, are you better off? I don’t know.
WSJ: You don’t feel like you have to make tradeoffs?
LS: No, but I think there will be tradeoffs, there will be things that you just ultimately should not have in products. Like in the past, the harmful chemicals that were put in products. We have a group who is studying chemicals and how do we get certain chemicals out of products. So there will be tradeoffs. There are going to be great controversial issues that we all have to deal with. It will be hard, but there is an extraordinary amount of low opinion that we as a company will take a leadership role. I want to make perfectly clear that it is our suppliers that are doing the research and development, it is our suppliers who are doing the packaging changing.
WSJ: Because you told them to?
LS: No, in many cases, people like 3M have been trying to lead in their industry for years by us asking the question. I think it puts additional energy behind it, additional focus in their company, and I think it helps make it better, and I think it emboldens them into taking more direct … and I want to make sure that we never take the credit for what General Mills and EMG and all of these companies that are actually doing it. I think we can help and be part of this solution. I think it will make a difference to our customers.
WSJ: You have said, “Our company goals are zero waste and 100% renewable energy.” Those are very ambitious goals. What you haven’t told us is, when?
LS: We are not scientists, and so do you set a goal that you are going to reduce this by such date and put the timeframe out there? I mean, I’m almost 60 years old, so you want to put a timeframe out there ten years from now? I will be retired, and so why do that? Why not just say that ultimately, we think this is possible, that the technology, that there are things that we can do. Like Aspen in the U.K., the company as a retailer has had great results in business. They are in the process of trying to eliminate all waste out of the stores in the next few months, and it is a bunch of young people who are extraordinarily aggressive on this. I don’t know if they are going to make it better or not, but what if they did? Eighty percent of the waste goes away, and they are leading the company. So how do you do this? I just said, I don’t know. As a company, we don’t know so what’s to set these things and say ‘this is where we think we can get to? And we got solar now and being installed in a number of stores in California. We have wind that we are experimenting with, but we have 7,000 stores, so don’t ask me: Are you worried about the fact that you are wasting money? No, I think these are more opportunities for us. Like, do you think electricity is going to be cheaper in ten years than it is today? I mean, if we are going to have 7,000 stores, then in five years, we will be a $5 billion company. We need to know, we need to be experimenting today and understanding what works and be out there, so that we don’t subject ourselves and our shareholders to inappropriate costs … our customers, because ultimately, they pay the bill and costs they can’t afford.
WSJ: So when you watched this program several years ago, WM at that time had some extraordinarily fast public relations — some of it in WSJ, but not all in WSJ … in some other papers maybe?
LS: Enough. It was a couple of weeks ago, they said it was our model the other day before we released our accounts for sales last month.
WSJ: You are forgetting some enormously bad public relations. Today, if you look at the way WM has been written about over the course of the last year, these written initiatives have generated enormously good public relations, which is probably if you count the stories and say this is good and this is bad, totally turn the situation around. Some people would say that that is why you are doing it. Is this all about PR?
LS: You just need to work with our people. I mean, they are good decent people. The differences that we are making are real. We did not in any way feel that it was all about PR. We face a number of challenges; part of the challenges we face are related to the fact that we have probably the largest, most highly financed campaign in this industry of business in part of the issues we face is because we are not (inaudible) … We sat down, we said, ‘Well, ten years from now, what would be something that we wished we had done? Such as, we wish that the prior generation of management might had done and that they had instructed us that this world is going to become more sensitive to the environment and sustainability. This is something that is coming, ultimately, whether it is you accountable for, whether or not you participated appropriately in the role in advancing in this area of environmental sustainability. I quite honestly had no idea that there are people who dislike this, who would not be willing to talk to us. I apologize for this, but I had no idea that it would excite the younger generation to the extent that it has. Like Jeff said, ‘I hope to improve.’ I had an email this morning from an associate in Houston, Texas. He wanted to know about my idea on changing out all the bulbs around the house to CFLs, the idea of having a hybrid vehicle and personal sustainability programs. So I think that these ideas mean a lot to the next generation of our people. More so than I ever would fathom. I didn’t realize that our people would actually engage our suppliers to do this. I mean, we have 6,000 suppliers who now are on the WM packaging scorecard, and there is like 97,000 items on there. I didn’t realize they would engage our truck drivers and construction people. I mean, it has been a positive thing from a PR standpoint. One of the things we learned with this campaign is that we are not sophisticated enough to spin a story ultimately we can have. So we are not out saying that we are a green company; we are not. We have never given speeches saying WM is a green company. We have an extraordinary distance to go. But think about it — we have all the means for success. Sixty-thousand supplier factories, we have all of these things across the U.S. One of the things that is culpable for us is that if we get everybody moving and we build momentum, just the fact that these are there, because for the chairman of a company reads on the WSJ that WM is aggressively pursuing this thing, they ultimately will say ‘What are we doing? Are we partnering with them?’ When our associates hear things on TV or in the press, it encourages them to get their own personal sustainability program and understand the company, and it causes our customers to look for items that are more sustainable, and they try to understand what we have. So the press actually plays a role (positive press) in helping to create the momentum that helps us make the difference. Who else can make this difference?
WSJ: Let’s open it up, but I’d like to hear … I know a lot of people out there are involved in consumer products in one way or another. Who here is involved in the consumer product business? Raise your hand please.
Name: Arsien from Technical Consumer Products
We supply compound products to WM and we learned tremendously amount from WM. We teamed up with WM’s team for sustainability. We have about 15,000 employees in China and we go for zero waste.
Question: How close are you to getting zero waste?
Arsien: Very close, we are almost at 80% and you know that CFLs are used as glass recycling. Right now, we are recycling almost 95% of glass. We still have 5% to go. We learned this concept from WM, because we work together. Beyond that, we also work with a PSP concept from WM. Now the 15,000 employees in China and 200 employees in the U.S., almost 40% of the people signed up for PSP. So my question to Lee is this: Do you think you can take this sustainability concept into WM? Right now, only our employees benefit from this, because we work with you, but I think the rest of the group should be able to do it, too. I think everybody will benefit. Do you think your guys will push you further?
LS: First of all, we are a basic retailer; our core business is consumables that people need for everyday life, so one of the things that we try to do is operate in this phase that is appropriate for us as a company to operate in. We have. though. started two weeks ago with a very aggressive program in China that is not only going to deal with environmental sustainability. but it is going to deal with much more aggressive, with entirely the social issues that are involved in resourcing in China. We are trying to put together a meeting this fall where we would have thousands of fliers in China. We would lay out the entirety of where this thing has to go, the fact that they have to participate if they are going to be able to do business with us, and so right now, what we are trying to do is focus on within our scope, which is not think that we can play a role that extends outside of WM, outside of our customer base, but stay within of who we are. We are a basic non-glamorous company, and there is where we are going to stay. So, it is just what it is. It has served us reasonably well.
Question: That raises the question of how much you can really expect business to do toward solving this problem? Or is it fundamentally a problem of government?
LS: No I think it takes business, it takes government. We think it takes NGOs. First, we had to guarantee that sustainability when we were just trying to understand and what our opportunities were. We had to guarantee that if NGOs came to meet, that we would never tell anybody who they are. That’s true.
Question: Because they didn’t want anyone to know that you were working with them?
LS: That is exactly right, because it was WM. I mean, think about this: right in the middle of all the attacks, and you are an NGO who gets all this funding and you are going to Bettonville (sp) and meet with WM. So we had to guarantee that we would not ever tell anybody that they were there. We would not be where we are today without the NGOs. When we started this process, we thought of them as the enemy, and they have been wonderful resources for pushing further than we were comfortable with. But I will tell you, most of them also are very sensitive to the fact that we want to stay in business and that we can do things that make a difference.
Question: (Name of woman inaudible)
What role do you think WM is going to take and in what respect that of consumer education? You talked about doing things like putting compacted detergent out in the front as a way of demonstrating to consumers they should buy that, but what else? I mean the common challenges in this area have been quite big, and they are coming into big scrutiny, so what can WM do and how much (inaudible)?
LS: Well, that is more complicated than I thought when we entered into it. You know, we sold enough compacted CFLs last year to eliminate the need for 2.5 or 3 power plants. That is pretty incredible. Being kind of a linear thinker, I thought that’s good … and then you have to deal with the issue of the incandescent light bulb and CFL, and how much is there. Then you find out that if you generate that much electricity with the CFL bulb you emit more mercury into the atmosphere. You get into all that stuff and you know it’s not as clear. So you have to be careful of what you communicate. But for Earth Day, we have an extraordinarily good tab. I would recommend that 70% of that tab is used in our advertising. We have a … in fact, it is the popular items that are, in general, better for the environment. We have an environmental message to tell because of packaging or something that qualifies them to get into the tab. You will see that that is our first major outreach, but we are struggling with the in-store placement and signage. How much do you do it? And it is so complicated, that something that the supplier tells you is green, you find out it is controversial with somebody else. So how much do you want to take on as a company? And get in the middle of maybe over-representing or hyping something. The trade-offs are not as positive as you would want them to be. And I will say that has been pretty effective internally, but externally with our customers, we have not. I think you will see us get better at that. We will use outside people to help us, and we will probably use NGOs to help us in-depth with the products, so we don’t end up with a company who said this was green and it really wasn’t.
Question: Name – Tom O’Reilly with Green Transaction Fund
I am kind of surprised with the fact that you don’t understand the consequences of cap-and-trade to your business. When we look at your business, we see energy as a huge risk. As energy prices go up, it is a huge influx for you, and that is money right out the door. And then, for your consumers, every economic study done, cap-and-trade had set at least a slower economic growth and higher energy crisis, and you have mentioned your consumers are running out of money at the end of the month. Your recent comments about Christmas gift cards are used to buy groceries just screams at the impact of the consumer, and yet you just said that you have a small margin in-office and you don’t really understand the consequences of cap-and-trade.
WSJ: I don’t think that was quite what he said, but you understand the point?
LS: I do, very well. I think what I said is that whatever is done needs to be thought out about the consumer, and needs to be an evolutionary process and mindful of the fact that people work from paycheck to paycheck. From the company stand, we are concerned about energy costs. We know what our energy costs are. The most important thing in retail is the consumer. We are very mindful that we are going to end up in a situation that none of us want. Let’s say that the most important thing for WM and for you as a shareholder is that the playing field is developed well.
WSJ: We are just about out of time, we need to keep it to one question per person. One more quick question.
Question: We reposition environmentally contaminated properties for rebuild and development. Will your real estate approve and consider new sites for development? Do you give any preference or thought to trying to get these properties back into play?
LS: Actually, because of some issues that we have in many cases of the organized efforts against us, those sites in fact have become kind of priorities, because those are sites that seem to be more in grace for a WM development. And so, yes, there is a number that we are currently working on today … I guess we have about 1,000 sites that we are currently working on, and we will continually look for those sites for expansion outside the traditional retailer, those have become more attractive.
WSJ: Let me point out since we have been talking about sustainable practices and products, the chairs that you are sitting on are made with sustainable products. Also, the bottles you are drinking out of have recycled bottle tops — it is a new one on me, I don’t know how that works, but they are. Thank you for coming.