Beginning this month, Wal-Mart (NYSE:WMT) has launched a massive in-store campaign to educate customers about the benefits of energy-efficient compact fluorescent lightbulbs (CFLs). Normally, a story about lightbulbs would not be particularly, uh, illuminating. But this new move could make a big difference for consumers' wallets, the environment, and Wal-Mart's reputation.
The future grows brighter (and cheaper)
For years now, CFLs have shone in hotel and resort chains around the country. And while these companies' economic savings have been significant, the bulbs have not typically elicited a glowing reaction from consumers, who've had to strain their eyes while trying to see or read in the dim light that the bulbs produced. As such, CFL's, which also cost more than regular incandescent bulbs, have not found widespread usage in homes across the country. This is about to change.
According to an insightful article in Fast Company, Wal-Mart CEO Lee Scott challenged his employees to find ways to "lower the price of living" for the company's customers in the wake of last year's devastating hurricanes, knowing that Wal-Mart's shoppers were hurting.
After consulting with an energy expert, Scott was reportedly convinced that his customers could save big money by converting to newer CFL bulbs, which have improved dramatically in terms of brightness over the past few years.
Scott was impressed with the argument, but he knew that even though the bulbs would pay for themselves in just a few months in power savings, CFLs' more expensive up-front price tag -- then about 12 times the cost of incandescent bulbs -- was a significant barrier that his company would have to help consumers overcome.
Immediately, Wal-Mart began negotiating with General Electric (NYSE:GE) to lower CFL prices. GE is the largest manufacturer of "Spiral" CFL's, so called because their tiny, coiled fluorescent tubes resemble a swirled soft-serve ice cream cone. The company successfully used its immense negotiating power to get GE to lower its price by 21%, reducing CFLs' cost to about 10 times the price of a regular light bulb.
Several other factors then converged to cut the price even further. Last fall, Oprah Winfrey touted the bulbs' energy-saving benefits on her popular TV show, increasing demand for CFLs. This, in turn, helped achieve greater manufacturing economies of scale, further reducing CFLs' price to $1.59 per bulb -- roughly six times the cost of the old-fashioned bulbs.
Fewer and more energy-efficient bulbs
Lowering the price point on CFL's, however, was just the first barrier to overcome. Consumers also needed to be persuaded that the bulbs were a sound, strategic investment. That's what Wal-Mart's big campaign is all about.
The company is devoting significant floor space in each store -- especially for a firm that measures floor space by the millimeter -- to educate consumers about CFLs' benefits. Because CFLs last anywhere from 8,000 to 12,000 hours, compared to 1,000 for the average incandescent, they can actually reduce consumers' lifetime lightbulb costs.
However, these savings are peanuts compared to what consumers will save in energy consumption. Each CFL bulb uses a slightly more than 25% of the energy of an equivalent incandescent bulb; replacing a 60-watt bulb with its CFL equivalent could save about $0.50 per month, allowing the new bulb to pay for itself in five months! And over the course of its eight-to-10-year life, a recent Fast Company article estimated that a single CFL will save the average consumer $38 in energy.
I was so persuaded by this argument that I went to my local Wal-Mart this Labor Day weekend, purchased two eight-packs of CFLs, and installed them throughout my house.
Buy locally, benefit globally
Wal-Mart's stated goal is to sell 100 million CFL's this year. That's an ambitious figure, but with its in-store education campaign and the likes of Oprah and Fast Company singing CFL's praises, I believe the company stands an excellent chance of meeting -- and possibly exceeding -- this goal.
Eco-friendly initiatives finally seem to have taken root in the public's mind, as consumers begin to take action on their environmental impulses. Witness the success of Ford's (NYSE:F) Escape Hybrid, the Toyota (NYSE:TM) Prius, and Honda's (NYSE:HMC) hybrid Civic and Accord.
The CFL light bulb's positive environmental impact has the potential to dwarf the benefits of hybrid automobiles. If Wal-Mart achieves its 100-million-bulb goal, the electricity savings will equal the removal of 1.3 million automobiles from the road, or the closure of two-coal powered energy plants.
This may sound too good to be true for some Fools. If you're like me, you're probably wondering why the current producers of light bulbs, such as GE, Philips, and Sylvania, would knowingly pursue a plan that will render a profitable product obsolete. After all, the sale of one CFL will replace six to eight regular incandescent bulbs on average. But so far, there's been surprisingly little resistance. GE has been actively working with Wal-Mart on the initiative, even rebranding its CFLs as "energy smart" bulbs.
GE realizes that in today's information-rich environment, it isn't possible to outsmart its customers for very long. It's also less than prudent to be on the wrong side of the fence on energy and environmentally related issues.
You light up my life
Given Wal-Mart and GE's massive size, the new CFL bulbs aren't likely to make a huge splash on either company's bottom line. Wal-Mart may even lose sales, since longer-lasting CFLs will cut lightbulbs' shelf space by 30% to 40% within the next few years. GE may lose revenue as well, as the longevity of the bulbs outweighs their higher cost.
From this perspective, these CFLs might look like less than a bright idea, but I'd argue otherwise. The new initiative will help reestablish Wal-Mart's image as a company that is truly interested in saving its customers money. Meanwhile, GE will be able to use the bulb to further brand itself, through its "ecoimagination" initiative, as a responsible environmental steward. That favorable PR could lead to a brighter future -- and greener profits -- for both companies.
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Fool contributor Jack Uldrich owns stock in GE, but not in any of the other companies mentioned in this article. The Fool has a strict disclosure policy.
