Retail's Hot New Shade: Green

Want to be kind to the planet and your portfolio at the same time? The Fool shows you how in our special series on Earth-friendly investing.

Years ago, Earth Day was an idealistic event, the realm of college students in tie dyes and hardcore environmentalists. Today, the green ideal has finally reached mainstream, and what better place to showcase green efforts every day than the retail universe.

Green's the color of money (money well spent, that is)
Over the last couple of years, consumers have become increasingly aware of the idea that the purchasing decisions they make have many ramifications when it comes to the environment. It's arguable that companies like Whole Foods Market (Nasdaq: WFMI  ) and Starbucks (Nasdaq: SBUX  ) would never have reached superstar status if consumers weren't becoming increasingly interested in these issues (and on the other hand, these companies have probably helped increase awareness of these issues as well). Both carved the way to providing for consumers who care about what ethics retailers stand behind.

As it stands now, it's obvious that when it comes to greening up, the marketplace is responding to consumers' desires. There is hard data to support the idea that consumers are driving the increased availability of environmentally responsible products and innovations.

Last October, I ran across data from Omnicom's (NYSE: OMC  ) Fleishman-Hillard. It had done a survey on whether consumers took socially responsible elements into consideration when they made purchasing decisions; 52% said they considered companies' track records "always" or "sometimes." In the strictly green sense, 82% of the respondents said a company's environmental impact was "extremely" or "very" influential when it came to products they purchased.

According to Andrew Zolli, founder of a foresight and strategy firm called Z+ Partners and writing in a recent article in Fast Company, what many of us are calling the "conscious consumer" is alive and well and voting with his and her organic hemp wallet. Zolli described the "LOHAS" market, which stands for "lifestyles of health and sustainability" and represents a whopping $227 billion market for products and services that address "sustainable living, social justice, and alternative health care."

According to research from Zolli's firm, there are 63 million of these consumers, making up 30% of the U.S. market. This research also shows that these well-heeled, sophisticated consumers are willing to pay a 20% premium on green products over non-environmentally geared options. It stands to grow, too, because it's not only about the large and affluent Baby Boomer population that's into this kind of targeted buying, but also the large youth demographic, traditionally idealistic and equipped with discretionary income to spend.

It's not difficult to see why this trend is making big business for companies that saw it coming.

Green goes mainstream
Signs of Starbucks' green stance are pretty obvious whenever you get a pastry or a latte. You don't have to go further than its napkins -- the one sitting on my desk right now says, "Less napkins. More plants. More planet," and boasts that it's made of 100% recycled fibers with at least 40% post-consumer material manufactured in a bleach-free process. And of course, Starbucks' cardboard "sleeves" were an innovation to quickly and easily reduce waste instead of double-cupping to protect customers' hands from burns.

Starbucks isn't the only coffee purveyor that makes being environmentally friendly part of its mission. Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is also into the idea. Perhaps one of the most interesting innovations was last year's word of Green Mountain's partnership with International Paper (NYSE: IP  ) to create a disposable cup that is completely biodegradable, with a corn-based bio-plastic liner to prevent leakage and the impressive upside of the consumption of "nearly a quarter of a million pounds less of non-renewable petrochemical materials every year."

Whole Foods Market springs to mind when it comes to green sensibilities -- remember its big commitment to wind power last year, offsetting all its energy use -- and it came in second on the EPA's latest list of green power buyers. Wells Fargo took the top spot; this was the first year the private sector topped the list.

Wal-Mart (NYSE: WMT  ) may have many critics, but even they must begrudgingly admit that given the retailer's huge size, a Wal-Mart with some focus on green retailing has great power to catalyze change. Its initiative to push compact fluorescent light bulbs to its customers -- saving money and conserving energy -- could do a huge service to bringing the idea of conservation to the forefront of more and more consumers' thoughts, not to mention make a potential difference in carbon footprints.

Home Depot (NYSE: HD  ) is throwing its hard hat into the ring as well. Many do-it-yourself-ers are probably interested in trying to make their homes greener, not to mention more energy efficient. (I admit it, if I had the money, my dream house would be as close to being "off the grid" as possible, and it seems like ways to make greener homes are increasingly popular.) Home Depot recently introduced its Eco Options program, which highlights environmentally friendly products. The initiative will include 9,000 products by 2009. Apparently 90% of the products are already on Home Depot's shelves; the Eco Options brand will simply label them as such.

Apparel retailers also have ample opportunities to peddle environmentally friendly options, and they're making many moves in that direction. The Chicago Tribune featured an article several days ago highlighting the trend in organic clothing and fabrics. The non-food portion of the organic market is skyrocketing, according to the Organic Trade Association, with sales of $160 million in 2005, nearly doubling from $85 million in sales just two years before. Obviously, this includes clothing made of organic cotton, but it also includes fabrics made of substances like corn and bamboo. This is interesting, innovative, and all-natural, as such alternatives turn manufacture away from pesticides and chemicals, big environmental no-no's.

Could every day be Earth Day?
I know I'm missing tons of examples but you get my point: change is at hand, and retailers are responding. Meanwhile, social proof continues to pressure for more and more sustainable alternatives on retailers' shelves (and within their day-to-day operations).

It seems 2007 has been the "it year" when it comes to a sea change in attitude on a greening of our lives, from consumers, corporations, and government alike. Climate change is no longer viewed as a fringe theory; it's accepted as fact, and as something that we can take action on, if we all think more deeply about our daily decisions. It's also becoming clear that for retailers, sometimes doing the right thing can mean doing the profitable thing -- not only because efficiency often saves money, but also because many consumers exert pressure, and positive reinforcement, through their discretionary dollars.

Could every day be Earth Day soon? Given consumer preference and many industries' increased interest, not least of which is retail, it doesn't seem like such a far-fetched concept anymore.

For Foolishness that's bordering on green, see the following articles:

Whole Foods and Starbucks are Motley Fool Stock Advisor recommendations. Wal-Mart and Home Depot are Motley Fool Inside Value picks.

Alyce Lomax owns shares of Whole Foods Market and Starbucks. The Fool has a disclosure policy.


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