J Sainsbury plc and The Home Depot:
Retailers' Impact on Sustainability

Prepared by James McAlexander and Eric Hansen

Abstract

One of the principal objectives of this study will be to determine the level and source of the target firms' commitment to sustainable forest practices and the market opportunities for retailing certified forest products. It is anticipated that the driving forces behind their commitment are likely to be several and include regulatory and interest group pressures, altruistic corporate social responsibility, and consumer preferences. This study will also seek to determine the degree to which the corporate commitment is integrated broadly through the corporate ranks. Specifically, it is of interest to determine whether the values articulated by the leadership have filtered into individual retail locations and employees. Additionally, information will be gathered to evaluate the current competitive rewards for engaging in programs that encourage sustainable forest practices. This would include such issues as tradeoffs between possible additional marginal costs and additional revenues. Expectations of future actions in the area of certification and sustainability will be investigated. Information will be accumulated through a variety of means. Semi-structured, depth interviews with key managers at the corporate and retail levels will be the primary data collection method. In addition, writers will make ethnographic visits to retail locations, playing the role of the "green" customer. They will also do a close reading of promotional and other outreach materials used by the companies.

Contents

I. Introduction

II. Environmental Management
J Sainsbury plc
The Home Depot

Ill. Sustainable Forestry and Retailing
Retailers Support the Forest Stewardship Council
J Sainsbury plc-Progress toward Sustainability
The Home Depot-Progress toward Sustainability

IV. Different Business Contexts
Macroenvironmental Issues
Strategic Issues

V. Conclusion
Acquiring Supply
Cultivating Demand
Influence of Buyers Groups
Influence of Environmental Entrepreneurs
Lessons Learned

VI. Appendix A: Home Depot's "Environmental Greenprint"

VII. Appendix B: The Sainsbury Group's TimberTracker

VIll. Appendix C: Sainsbury's point-of-purchase brochure

Introduction

Sustainable forest practices have become a pivotal issue within the forest products industry for a variety of reasons ranging from a broad sense of environmental awareness and responsibility to a more self-interested concern for maintaining the economic productivity of forests. Whether the forest products industry widely adopts sustainable practices, however, depends on their long-term economic viability. The development of broad demand and markets for sustainably produced wood products will be a key component of that economic viability.

The efforts of retailers J Sainsbury plc (JS) in the United Kingdom and The Home Depot (HD) in the United States to stock their shelves with products drawn from well-managed forests place them at the forefront of this global issue. These large, respected retailers are uniquely positioned to merchandise sustainable forest products to the mass market and by so doing, lend credibility to these products and demonstrate the importance of the issue to the industry and the public. The buying power of these two companies is of such a magnitude that their purchasing practices can exert a strong influence on the forest products' industry worldwide. However, the use of such buying power as the panacea for ensuring responsible forestry greatly oversimplifies the complex issues involved in changing the management techniques of the timber industry.

The initial programs of these two retailers and that of the 1995+ Group, a group of major wood products buyers in the United Kingdom, indicate that retailers and large wood products buyers will be instrumental in cultivating consumer awareness of certified products, as well as pulling suppliers toward certification and sustainable forest practices. A comparison of the activities of the two companies, which operate in different competitive, cultural, and political environments, identifies a variety of salient issues that will influence whether or not their initial efforts to market certified products are successful. The ability of these retailers to obtain and merchandise sustainable forest products is a barometer for the future direction of sustainable forestry.

The material presented is drawn from a number of different sources and research methods. In-depth interviews with senior executives, wood products buyers, marketers, environmental managers, store managers, and retail employees from both companies were the primary sources of data. These interviews were balanced by discussions with the 1995+ Group, competing firms, and suppliers, visits to stores of both companies in different regions while posing as consumers, and supplemented with a review of published materials.

Environmental Management

Both HD and JS are widely recognized as socially responsible companies. Both firms consider this reputation and associated goodwill to be instrumental to their long-term strategic positions. JS's management prides itself on a long tradition of providing customers with products of high quality and good repute, and they work hard to maintain this reputation (see box). Management speaks of having cultivated the trust of its customers, and that shoppers at JS believe that the company will "do the right thing." HD has an ethic similar to that of JS, but not the long history with its customers. In 1996 HD managers began to revise the corporate mission statement to reflect that ethic by including the notion of being the "most trusted retailer."

Issues of social responsibility are wide reaching for both retailers. The JS family foundations, for example, are active in numerous philanthropic activities. The HD has provided over $1.5 million to nonprofit environmental organizations over the last five years. The Home Depot also participates in many local and national programs such as the charitable organization Habitat for Humanity, which facilitates home ownership for families of limited financial means. In recent years, as environmental issues have climbed higher on the public agenda, these companies have more actively incorporated "environmental responsibility" into their management decision making and corporate actions.

J SAINSBURY PLC
The primary responsibility for JS's environmental programs is housed in the Scientific Services Division (SSD). The SSD has a significant staff that is responsible for evaluating and agreeing upon standards for the quality, safety, legality, and performance of products sold by JS. Since more than 60% of the products sold carry its brand name, issues of responsibility and liability receive a high level of scrutiny and scientific evaluation. Because of its evaluative role, the SSD is linked closely to the company's centralized buyers, who look to SSD to evaluate products and approve suppliers. The SSD has the power to refuse or deselect suppliers, a sharp contrast to the advisory role of HD's Director of Environmental Marketing.

The SSD has mounted a number of environmental management initiatives: It has, for examples, ferreted out products that have been developed using animal testing, investigated fishing practices, and examined the practices of its suppliers of wood products. JS recently published its first annual environmental report which outlines the company's policy on the environment and the management of environmental issues. This 1995-96 report highlights such environmental achievements as creating a Best Practice Guide on Ground & Surface Water Protection, reducing energy consumption, and gaining a commitment from 90% of its wood products suppliers to use responsibly-managed wood sources. The report also lists future actions and targets, which include eliminating chlorofluorocarbon (CFC) refrigerants in new and existing stores, and stocking five hundred wood products that have qualified for third-party certification by 1998.

THE HOME DEPOT
As the market leader in the $130+ billion U.S. home improvement market, HD is uniquely positioned to increase the awareness of customers, suppliers, and competitors about environmental and sustainability issues (see box). HD developed a formal environmental program that began after Earth Day 1990, about the same time it hired Mark Eisen* as Director of Environmental Marketing. Soon thereafter came the publication of the company's environmental principles in 1991. The later adoption of substantially the same principles by the National Retail Hardware Association and Home Center Institute is an indication of the influence HD wields in the industry.

Eisen's perspective is reflected in a comment attributed to him in HD's 1994 Social Responsibility Report, "Our concern for the environment is part of our ongoing, everyday business and planning. Improving the environment is the ultimate home improvement we can make."

The Environmental Greenprinting® (Appendix A), first published in 1992, is another early component of the environmental program. It documents methods for consumers to make their homes more environmentally friendly through such things as reduced energy consumption, and improved indoor air quality. In 1993, HD placed permanent banners on the front wall of each retail outlet documenting a commitment to continually improve environmental programs (see Figure 1). Dennis Ryan, senior vice president of merchandising, described the degree to which a philosophy of social responsibility is integrated into the corporate culture:

Our founding fathers ... care about their fellow associates, they care about the communities... you find that it rubs off on the company. We know that the right thing to do is the right thing to do... whether its a business decision for shareholders, the care of our associates, for our suppliers, or for our communities...

As Director of Environmental Marketing, Eisen manages a broad range of environmental issues for HD. His duties include auditing the environmental claims of the suppliers in the decentralized supply chain, educating and sensitizing management and corporate buyers about environmental issues, and cultivating support and visibility for environmental issues among HD's external stakeholders. Eisen is attached to the company's community affairs division, however, rather than his original appointment in marketing. This affiliation suggests that HD views success in the environmental arena as dependent upon building broad support among business and the public.

Eisen has proposed that HD implement a formal Environmental Management System (EMS) to further institutionalize environmental management. An EMS would more broadly and formally integrate environmental issues into managerial decision making, especially purchasing decisions. As of late 1996, HD had approved hiring a consultant to make the business case for implementing an EMS. The consultant's recommendation will then be brought before the company's senior executives for assessment.

* Eisen left the company in 1997 and is now retained by HD as an independent consultant. In June of 1997, Kimberly Woodbury was hired to continue the development of HDs Environmental Program.

Sustainable Forestry and Retailing

Buyers for both JS and HD indicate that they perceive an inherent difficulty in personally assessing forest management practices. They generally do not have access to adequate information and are not qualified to assess the sustainability of a particular producer's practices. Nor do they have the time to complete a careful on-site investigation. Moreover, buyers and other managers rarely agree on the meaning of "responsible supply." To some buyers, responsible forestry requires avoiding those products made from wood harvested through clearcuts. Others view sustainable practices as good crop management with emphasis upon sustaining a yield for future harvests. A product manager at HD explained this view of lumber as a marketable crop:

Because of human demands ... if you don't manage the production of lumber, then you're going to lose it, Sustainability is just the management of the crop. There's a lot of poor management. They have to manage the ground and they have to manage everything that affects the growth of that crop... so you don't end up with situations like what we had in the dust bowl.

Additionally, the fact that there is still much debate within the scientific and environmental communities about the meaning of sustainable forestry makes it even more difficult for the retailers.

RETAILERS SUPPORT THE FOREST STEWARDSHIP COUNCIL
Since the retailers find it difficult to assess the practices of suppliers themselves, both HD and JS have turned to certifying organizations such as those accredited by the Forest Stewardship Council (FSC). The nonprofit FSC approves organizations to certify forests as meeting sustainability standards. Accordingly, FSC-sanctioned certification indicates that a particular product comes from a forest that meets environmental, social, and economic standards. For both companies, certification simplifies the buying process by removing from them the responsibility for evaluating forests and forest practices. Neither company claims expertise in forestry or a desire to develop it. As William Martin of Sainsbury's, the senior manager responsible for coordinating certification, explained, certification has great value: "If FSC certification tells me, that it is a well managed forest, I am happy to honor that. I know if there are any questions I can refer them to the FSC or to the certifier."

Sainsbury is also heavily involved with the U.K.-based 1995+ Group. This buyers group, formed by the World Wide Fund for Nature (WWF) in 1991, operates under an agenda to move members towards the exclusive purchase of third-party certified wood products. The five main requirements for membership include supporting independent systems of forest certification, buying a substantial and increasing volume of wood fiber from certified sources, and naming a senior manager responsible for implementing the program (see Figure 2). Group members, now numbering eighty, have publicly committed to purchasing wood and wood-based products from "well-managed" forests. Prominent companies in the group include B&Q p1c, Boots the Chemists, WH Smith Retail Ltd., and Tesco plc.

Many of these companies, including JS, are committed to buying 100% certified wood products by the year 2000. Since the Group accounts for between 11 % and 25% of the total U.K. consumption of wood and wood-based products (according to Delphi International Ltd., a market research firm, and the World Wildlife Fund), the importance of this commitment to the wood products industry cannot be overemphasized. The U.K. market consumed approximately 59 million cubic meters of wood and wood-based products in 1995, about 15% of total European consumption. Delphi International estimates that demand by the Group will grow around 15% to 20% per year.

HD and JS have publicly encouraged industry-wide adoption of third-party certification. Fear of a public relations calamity appears to have been the initial motive behind support for certification. In the past, environmental advocacy groups have targeted European retailers with actions that have embarrassed and hurt them. Several years ago, environmentalists demonstrated at storefronts and retail lumber yards in the U.K. with large inflatable chain saws to emphasize their claims that the retailers were aiding the destruction of rain forests by carrying products made from tropical wood. Although environmental groups have not actively targeted U.S. retailers, managers are keenly aware of the potential damage that unfavorable publicity may inflict upon their reputation and bottom-line.

Even though senior managers for both retailers acknowledge that their environmental efforts are, in part, a response to the perceived risk associated with bad publicity, they also affirm that their continued commitment to acquire certified wood products reflect their corporate missions. This level of commitment is essential because efforts to provide certified products are in their infancy, and, as a result, neither HI) nor JS have had extensive experience in buying and selling these products.

Visitors, posing as consumers, to a number of stores revealed the embryonic nature of these programs. Retail stores in both the United States and the United Kingdom carried a number of products that made environmental claims,"for every tree harvested 4-6 seedlings are planted or 10-20 seeds sown," for instance,but the stores stocked few certified wood products. The environmental claims that were made are clearly a source of contention between the retailers and suppliers. On a couple of occasions, managers, when asked about these claims, were visibly embarrassed and even frustrated that the claims were printed on the packages. Both retailers are working to rid their stores of any specious claims.

The salespeople at these stores were generally knowledgeable and helpful. Although employing salespeople knowledgeable about home improvement is important to the competitive positioning of these stores, the salespeople interviewed seemed to be unaware of certification and related issues. It was apparent that the salespeople were unaccustomed to receiving customer inquiries on this topic.

In examining the Progress each company has made in its commitment to support sustainable forest practices and market certified wood products, it would be easy to conclude that their commitment is insufficient for the job or that their strategies are ineffective. However, the effect of the companies' commitment on the overall issue of forest sustainability goes well beyond the mere physical presence of certified products on store shelves. Behind the scenes and headlines are successes not evident to the casual observer. Over time, the results of the continued investments made by these companies will probably become evident through growing numbers of certified wood products on store shelves.

J SAINSBURY PLC-PROGRESS TOWARD SUSTAINABILITY
JS is an important player in the 1995+ Group. As part of its commitment to the Group, JS has invested considerable resources in documenting the sources of its wood supply. A computer database, aptly named TimberTracker, is used with comprehensive surveying of suppliers to monitor "forest of origin" for all wood-based products sold by JS Group companies in the United Kingdom (see Appendix B). JS tracks not only sawnwood, but also pulp and paper products, which represent a far larger portion of its sales of wood fiber than does sawnwood. The tracking system assigns suppliers a letter grade. Grade A indicates that the supplier is fully FSC certified, grade G that the supplier has been delisted.

The formal TimberTracker program implemented by JS provides benefits to the retailer and the certification movement beyond mere data collection. As the TimberTracker questionnaires work their way up the supply channel, they alert suppliers who may be two or three steps removed from JS that the company is an important customer. JS's size and reputation give it leverage when it approaches timber producers to inform them about its commitment to buy FSC certified wood. As TimberTracker and other similar questionnaires from other important 1995+ Group customers, such as B&Q plc, the largest do-it-yourself (DIY) retailer in Europe, accumulate on the desks of their common suppliers, the collective importance of these customers is likely to impress upon them the significance of obtaining FSC certification and the consequences of resisting.

Although JS has delisted suppliers if they refused to participate or had poor performance, it tends to stick with the stated philosophy of the 1995+ Group, which attempts to move suppliers towards rising levels of sustainable practices. As one member of JS's SSD pointed out, "It's easier to work with suppliers who we know than it is to get new ones, because you don't know what other problems they bring in as well." Martin and many other representatives of JS have visited suppliers worldwide to inform them about JS's commitment to FSC certified products. As part of its overall program, suppliers are asked to create action plans that will take them toward obtaining their raw materials from certified sources. Lobbying by JS and 1995+ Group members was apparently influential in moving large pulp and paper suppliers such as STORA in Sweden toward certification.

JS also has formal internal documentation of its policies toward wood and wood-based products. Three documents are used: a one-page issues and position statement and two Environment Best Practice Guides (Paper; and Timber and Forest Products). Both documents were produced by the environmental management department within the SSD. The Best Practice Guides educate company employees about environmental issues and provides alternatives and strategies for finding responsibly-managed supplies of wood and wood-based products. The documents specify such things as the rationale behind the firm's commitment, affected products, and offers a general evaluation of supply sources. The Timber and Forest Products Best Practices Guide, for example, identifies as the "least contentious sources" the United Kingdom, European Community (EQ, and Scandinavian countries; as "questionable sources" such countries as Malaysia, Mexico, and the United States; and as "sources requiring special attention" such places as former Soviet Union countries, most Latin American states, and China.

JS also tries to inform its customers. Although retail employees were not knowledgeable about certification, educational brochures were prominently displayed near the certified rubberwood doors at Homebase stores (see Appendix C). The brochures explain the importance of FSC certification. JS has also aggressively tried to generate media publicity for its environmental programs.

Although a measure of self-promotion is inherent in these efforts, JS management is communicating its involvement with, and the importance of, this environmental issue to the public.

As of November 1996, JS had been more successful than HD in stocking FSC certified products. JS and its subsidiaries had a limited assortment of products with the FSC label: cutting boards, charcoal briquettes, and rubberwood doors. However, certified cutting boards were not found at all outlets and the packaging for the briquettes had not been updated to include the FSC logo and certification claims. JS plans to redesign the packaging for the next barbecue season.

By 1998, JS expects to have 500 FSC endorsed products on the shelves, although many of those will come from one door manufacturer. JS is counting on Swedish companies such as STORA and Assi Domän to complete large-scale FSC certification of their forests. If this certification does not happen, it will be a major setback to JS's current efforts and its goal of full FSC certification by the year 2000 for all the 13,000 wood and paper products it sells. Achieving full certification is an extremely complex, challenging proposition. Paper accounts for about 80% of the wood fiber that JS uses. The sources of fiber that contribute to the production of such diverse products as napkins, diapers, paper plates, newspaper, and magazines are scattered around the world, making it difficult to ensure that the raw materials used in the products come from responsibly-managed forests.

HD is committed to providing its customers the opportunity to choose certified wood products; JS intends to sell certified wood products exclusively. One member of the JS board of directors, pointed out that, even if the market does not currently demand certified wood products, "good marketers will anticipate the need." William Martin offered an analogy to explain JS's position:

If I turn to a customer, and say, "We have two eggs and we'll offer you one guaranteed to be salmonella free, but it will cost ten cents more than the salmonella iffy one" the customer is going to say Sainsbury shouldn't be selling the questionable one anyway.

THE HOME DEPOT-PROGRESS TOWARD SUSTAINABILITY
Although HD does not yet benefit from the actions and power that come with membership in a buying group as does JS, its overall commitment to the sustainable forest products issue is similar. HD managers articulated a goal of providing certified wood products to their customers; and it is also the company's policy not to do business with suppliers that are "not doing the right things." Currently, managers are working with suppliers to increase awareness of the issues and to motivate them to improve the sustainability of their forest practices. They emphasize screening out any new, truly bad suppliers, and improving the practices of current suppliers. Managers hope that these efforts eventually lead suppliers to adopt third-party certification.

HD uses several related tactics to approach the challenge of obtaining products from sustainably-managed forests: avoiding acquisitions from obviously problematic sources, species, and suppliers; carefully investigating questionable suppliers; and using existing and developing relationships to cultivate improved practices and interest in certification, Eisen provides periodic reports and consultative support to buyers as they consider product acquisitions. With access to Scientific Certification Systems (SCS), FSC, and relevant publications, Eisen can provide buyers with informed assessments of product sources that help to make them aware o f environmental trouble spots. As Eisen explained:

If [a buyer] were in China and a supplier said we'll get this wood from Burma, the red light would go off because I sent some articles to [the buyer] about the illegal logging in Burma and the fact that they are going to have to stop [logging] or those people aren't going to be able to cook their food.

As part of an evaluation of new suppliers and to manage current relationships, HD buyers and Eisen visit suppliers' facilities. One manager in the lumber and building materials unit reported spending over a week with a Chilean supplier investigating its reforestation and harvest practices. HD buyers also work with existing suppliers to educate them about third-party certification and motivate them to participate. One buyer explained that his strategy is to present forest sustainability as a marketing issue, telling suppliers that if they want to "market their products, there will come a day in the U.S. when you must be certified." Once a business relationship has been established, HD managers said they are better position to exert leverage on suppliers and motivate changes.

In 1994, HD became the first home center in the world to offer tropical and temperate region wood products from certified forests-shelving from Collins Pine Co. and doors from Portico S.A. For these and related efforts that advanced eco-labeling, in 1996, Collins Pine and HD received the President's Sustainable Development Award. At the time, the President's Council on Sustainable Development praised HD for educating consumers and building support for sustainable product design and production, and helping to open new markets for sustainable forestry products through eco-labeling.

As of late 1996, however, HD carried no forest products with a certification logo. The company had discontinued its Collins Pine certified shelving, although a line of interior doors is certified for its doorskin substrate, which is made from eucalyptus (Premwood®, by Premdor). One of its products, doors made by Portico S.A. carried in about 25% of HD stores, melds materials from certified and non-certified forests and, therefore, cannot use the SCS certification. However, Portico uses the logo in its brochures and point-of-purchase materials. HD is committed to the exclusive use of the SCS Green Cross logo, which is accredited by FSC, principally because the SCS logo has widespread cachet.

Six San Francisco Bay area stores had previously sold certified pine shelving from Collins Pine Co. with an SCS "green cross and globe" logo. Through a unique arrangement and direct distribution, Collins Pine received a premium for the product while HD was able to cut the retail price and maintain profit margins. In late 1996, HD quit stocking the pine shelving. HD managers suggested that the company discontinued the product because of a variety of business reasons unrelated to certification. Collins Pine interpretation is that the decision stemmed from problems,and added costs, associated with maintaining dual inventories for certified and non-certified products.

Even though this ended HD's symbolic first effort in certified products The Home Depot has continued to experiment with other certified product lines. If consumers really want certified products, Eisen said that it is likely that one of HD's competitors will begin selling the Collins Pine shelving, which might cause HD's buyers to reconsider their decision to drop the Collins shelving. While HD executive vice president Larry Mercer stated that, everything else being equal, HD would always choose certified products, the action on the pine shelving indicates that many considerations beyond certification dictate the viability of a product. Concerning the future of certified products at HD, Eisen commented that "..What limits the success of the program is the fact that it's not seen as something that is really ringing the register."

HD managers clearly feel that they do not have the resources or ability to unilaterally develop the market for certified products. Ryan expressed the difficulty that Home Depot retail managers perceive in educating consumers about such complex issues:

It really takes an infomercial where you can explain it for an hour on television ... why it's the greatest thing that ever existed. But if you don't have that opportunity, you just put it in the store, it sits on the shelf and it collects dust.

In the context of HDs business environment, managers look for outside groups to share the burden of educating consumers, environmentalists, and regulators. According to Eisen, if environmental groups started promoting certified products as a way for consumers to be sure they weren't harming the forests, "we would have consumers coming into the stores, and our buyers would be going back to companies and the buyers would say get certified tomorrow." Despite the company's desire for an industry-wide effort, managers do not yet find supportive voices resonating with that of HD.

HD's product-line decisions, though guided by environmental and social considerations, are ultimately driven by consumer purchasing decisions. The company intends to purchase sustainably-produced forest products and to expose them to the market. Whether or not consumers buy them, however, will ultimately determine the degree to which these efforts succeed and are broadened at HD.

Different Business Contexts

The ability of these two companies to accomplish their shared goal of buying and merchandising wood products from well-managed forests depends, in no small part, upon the larger business environment in which they operate, and how central the efforts are to corporate strategy.

MACROENVIRONMENTAL ISSUES
HD and JS operate in substantively different macroenvironments that have a dramatic impact on their business strategies. The most striking difference between the two business environments is the relative size of their markets. The US home improvement market is more than six times larger in sales volume than that of the United Kingdom and, of course, the geographic size difference is even larger. While JS is able to use centralized management and purchasing that gives it a high degree of control and uniformity in product specification and acquisition, the size and diversity of the US market make that impractical for HID, which covers more area with one regional division than JS does with its entire operation. This difference, along with the sheer volume of products sold, exerts an undeniable effect on the relative abilities of the two companies to implement an integrated system for purchasing certified wood products.

The United States and the United Kingdom also differ in their politics, legislation, sources of wood supply, and business norms. It is unclear whether a group similar to the 1995+ Group would have the influence in the United States that it has in the United Kingdom. Membership in the 1995+ Group has helped JS learn from other companies' experience how to implement a system to track supply (JS's TimberTracker). The coordinated efforts of the 1995+ Group have increased JS's ability to get access to certified products and lowered its risk of stocking them. Although members do not purchase cooperatively, the combined buying power of the Group speaks much louder to suppliers than a lone company. Since the largest UK retailers are joined in marketing certified wood products, it eases the burden on each company of developing primary demand for the products and reduces the risk associated with the adoption curve. Many U.K. consumers may not have, or recognize alternative product sources. HID, however, currently has no other companies in the U.S. industry, retail home improvement or otherwise, to help it move suppliers towards forest certification and to cultivate consumer awareness and preference.

Environmental advocacy groups also appear to be more accepted and wield more influence in the United Kingdom than in the United States. The cooperation of the VVWF and business in the 1995+ Group is but one example. This credibility has influenced the corporate culture of many companies, and managers are acutely aware of the need to address the concerns of environmental groups. It could be argued that JS has become a partner with environmental groups through the company's participation in the 1995 + Group, although JS personnel would not characterize it as such.

While WWF recruited JS to participate in the 1995+ Group, a similar situation is only now developing in North America. So far, HD managers have been reluctant to align themselves so obviously with environmental groups or certification schemes for fear of alienating important suppliers and, most likely, some consumer groups. HD prefers an "arms-length" relationship with groups on all sides of the sustainability issue.

HD operates in a fragmented retail sector, compared to JS's markets. HD's current market share is about 14%, while the next largest competitor is about half that size. By contrast, in both the home improvement and grocery sector JS operates with a market share slightly less than its nearest competitor (12% share in grocery and 10% in home improvement). This reality has an obvious impact on the strategies these companies choose.

STRATEGIC ISSUES
As Larry Mercer, HD Executive Vice President, described it, what is at stake for both companies is the ability to be on the cutting edge of environmental concerns and market sustainably-produced forest products, while still remaining profitable. "The two have to balance," Mercer states. Both firms are responsible to stockholders, and cannot put their companies at a strategic disadvantage. Consequently, fundamental strategic differences between HD and JS influence how each implements its environmental program.

HD is strategically positioned as a discount D1Y retailer and strives to provide "excellent customer service and floor-to-ceiling products at day-in, day-out low prices," according to the 1995 Annual Report. The pursuit of overall efficiency, economies of scale, preferential and efficient access to crucial supplies, and low overhead are crucial for business success. The need for efficiency for HD dictates a lean organizational structure. This strategic requirement likely influences the administrative resources that management feels can be applied to programs or developing markets for the limited number of certified wood products that it has been able to purchase.

HD's strategy depends on maintaining high sales volumes and the related economies of scale that brings, which clearly affects its effort to acquire certified wood products. HD management is very sensitive to the sales productivity of the items it carries in inventory. Continued financial success for HD also depends upon maintaining a reliable and efficient flow of supply into its stores. Out-of-stocks, high inventory costs, and other supply inefficiencies make it vulnerable to competitors. Under those circumstances the uncertain and limited supply of certified wood products introduces a greater degree of risk by developing too strong a reliance upon limited sources of supply.

J Sainsbury has a 128-year reputation in England as a well run company that has an almost paternalistic attitude towards its customers. The company's strategy consists of offering quality, value, and superior service to its customers, who are drawn evenly from all socioeconomic groups that live near each store.

JS's management feels that an important component of customers' goodwill comes from its reputation for reliability and responsiveness to customers' concerns. Justin Stead, a consultant for the WWF and manager of the 1995+ Group, characterized the expectations of JS customers regarding environmental issues: "Their customers want to buy everything at Sainsbury's and they expect Sainsbury's to address these issues on their behalf." The central role JS's reputation plays is seen in the formal, aggressive, and comprehensive approach it has taken to acquire FSC certified wood products. The seriousness of this commitment is also manifest in the pressure some buyers feel to obtain certified products. As one paper products buyer observed:

The suppliers see it as a good opportunity to be the first FSC product on the shelf. They know that Sainsbury's will back it. If someone was to come to me tomorrow with an FSC approved product, I would have to take it, They could theoretically charge what they wanted for the product, because we have in some ways tied our hands behind our backs, in that we want FSC products on the shelves.

The comment, while not be taken literally, expresses the pressures placed on buyers. Strategically, JS seems to have more latitude than HD to incorporate programs that depend upon administrative resources, the SSD division, for instance, but the company is still sensitive to obtaining reliable suppliers of quality goods.

Conclusion

Absent consumers demanding certified wood products, both HD and JS have taken actions that are reactive, but also driven by principle. They are reactive because these efforts were established in part to avert the threat of embarrassing publicity. They are driven by principle to the extent that the companies have, within their unique contexts, approached the challenges of retailing certified wood products.

In comparing and contrasting the two companies, three related issues are key to gauging their current and future impact: the development of the distribution channel (gaining supply and cultivating demand), the influence of buyers groups, and the influence of individual environmental entrepreneurs.

Questions of supply and demand are much like the old philosophical query, "what came first the chicken or the egg?" Retailers face a considerable challenge in acquiring a sufficient and economical supply of certified products to make a credible and visible offering to the market. Suppliers respond that there is no profit in certification because the market is not demanding the product, although suppliers clearly are a component of the market.

ACQUIRING SUPPLY
Both retailers bemoan the lack of certified wood products. Their publicized commitment to selling certified products has generated pressure to find supply, yet few vendors are able to supply product in the quantities these retailers need. Since certification also has to be coupled with other critical product attributes as quality, consistency of supply, and price, the difficulties increase. Yet these varied criteria seem to be inherent to good suppliers. George White, of JS's SSD, expressed an opinion echoed throughout the interviews at both companies:

The companies that don't deliver environmentally, don't deliver in other areas as well-according to product delivery, they don't meet specification, they don't deliver on time, and might have price fluctuations ... it seems that the important companies also deliver on environmental issues.

As mentioned earlier, JS depends on large companies in Sweden to move towards FSC certification in the near future, which would move the company and other members of the 1995+ Group well towards their goal of 100% certified products. About 40% of the sawn softwood consumed in the United Kingdom comes from Scandinavia, according to Delphi International Ltd. JS management thinks that if Sweden embraces FSC certification on a large scale, Finland will follow quickly, so as to not place its companies at a competitive disadvantage to their most significant competitor.

CULTIVATING DEMAND
Consumer demand, while potentially the most powerful force in this equation, currently appears to be inconsequential. Managers from both companies agree that consumers generally have limited knowledge or even awareness of issues related to sustainable forest practices. Managers also recognize that consumers are not enthusiastic about certified wood products, nor are they likely to pay a premium price for them. This conviction contradicts published consumer surveys that consistently find that a significant proportion of people is concerned about environmental issues and how their behaviors impact upon them. As one HD manager commented, "consumers who way they would buy an environmental product over a nonenvironmental one rarely do if the price and quality are not equal."

Both HD and JS have stressed the importance of eco-labels (SCS and FSC, respectively) in stimulating consumer awareness and demand for certified wood products. However, it may be that the mass market just expects the products that they buy will not destroy the environment in which they live. Consumers are unwilling to pay a premium, but, in the case of forest practices, may expect that sustainable forest practices are the price of admission for a company that wants to sell to them. Future research might examine this issue.

Consumers simply may expect products drawn from responsibly managed forests, so short-term setbacks should not deter further development by these retailers. The JS and HD managers expressed some frustration over the lack of consumer interest and demand for environmentally responsible products. At the same time, when Eisen remarked, "We are always trying to go ahead of the curve and do it before the customers would demand it," he voiced a forward-looking perspective that is shared among the managers of both firms.

INFLUENCE OF BUYERS GROUPS
JS's participation in the 1995+ Group represents a key difference in the business environments of the two companies. As a member of the Group, JS has support from other retailers, suppliers, and environmental groups in informing consumers. When all 1995+ Group members carry the same certified wood products, it will build awareness of, and preference for, the FSC label specifically and certified wood products generally. The buyers group offers the additional benefit of effectively leveling the competitive playing field. Collectively, the group's members represent huge market share. Since they intend to carry certified products exclusively, their customers will have no alternatives to choose from, so all the competitors would receive any price differential for certified wood. In effect, this would allow them to pass any price premiums on to customers. That puts JS in a better position than HD to push certified wood products because there is no competitive price disadvantage to the company, and the investment of building initial consumer demand is shared.

How global timber suppliers react to the demands of the 1995+ Group companies will be a determining factor in their success. Suppliers have a variety of options. They might certify all of their forestland, a portion of their forestland, or simply abandon U.K. customers that demand certified products. The first two alternatives would probably move the issue forward by familiarizing suppliers with certification and eliminating many of the unknowns that currently exist. They would also increase supplies of certified product to other companies. Abandoning the U.K. market, however, would set a precedent that could discourage other country-based buying groups from such a rigid commitment to certified wood products as that of the 1995+ Group. Such a tactic would likely lead to uncertain supplies and higher prices in the U.K. market.

Success of the 1995+ Group, however, may add power and credibility to buying groups currently organizing in other parts of the world. HD has participated in the discussions regarding the creation of a North American based buyers group, the Certified Forest Products Council, and has financially supported its formation. The Home Depot's participation would be mutually advantageous. In return for lending its credibility and buying power to the group, HD would be able to share the costs of developing consumer awareness and the buying leverage provided by other members. It is unclear, though, whether the Certified Forest Products Council will wield the same influence as the UK group. The U.K. group was able to agree upon using the FSC certification and an associated label. A North American group might be divided among differing loyalties to available labels as the FSC, SCS (preferred by HD), or others. Division over such an issue might hinder the group's ability to focus the buying issue and diminish its overall impact.

INFLUENCE OF ENVIRONMENTAL ENTREPRENEURS
A common element for both companies is the important part played by environmental entrepreneurs. At HD, Mark Eisen's efforts have been instrumental in educating senior managers and buyers to the importance of acquiring products from responsible sources. At JS, Alison Austin, William Martin, George White, and Jayne Gilbert, all have been visible and effective advocates for certified wood products. Interviews with individuals in other parts of both organizations, indicated that the efforts to improve the sources of supply for wood products would not have survived without the advocacy of these people. As other companies consider such programs, they will need to choose a manager to spearhead the program carefully. The effort requires someone with the appropriate leadership skills and the qualifications to champion the issue internally. Someone who can command the respect needed to motivate change.

LESSONS LEARNED
It is too early to gauge the success of the efforts by JS and HD to market certified wood products. It is apparent, however, that both are influencing the global forest products industry, and that their long-term success would be a significant force moving the industry toward more sustainable forest practices. Supplies of certified products, of course, would have to increase many times over to meet the needs of these retailers. Success would demonstrate to environmental groups, other firms, and to consumers that an effort by retailers to move to 100% certified products is possible despite seemingly monumental difficulties.

Literature Cited

Delphi International, Ltd. 1996. "The Demand for Certified Wood Products." Unpublished working manuscript. London, England.
World Wide Fund for Nature 1996. "The Vv'WF 1995 Group, The Full Story." WWF-UK, Panda House, Weyside Park, Catteshall Lane, Godalming, Surrey GU7 1XR.

• Publications