Environmental Economics, Walmart Style!

Tired about talk of the Producer Price Index? Depressed about the sad state of the Consumer Confidence Index?

Cheer up! We can now look forward to analyzing a brand new index, currently under development by a group of statisticians at …

Walmart!

Huh? Walmart, purveyors of tube socks and toothpaste, issuing socio-econometric statistics? Yep, and more than just sales data. Earlier this week, Walmart’s President and CEO proudly announced the retailer’s development of a worldwide Sustainable Product Index (SPI). Environmental economists, meet the Walmart Smiley Face!

Walmart and the Economy

Walmart shoppers may be surprised to learn that the store produces economic data that can rock the financial markets. Nevertheless, as the world’s largest retailer, it makes sense that business performance at Walmart would greatly influence the world economy. And with most of its operations based in the United States, it is also reasonable to expect that Walmart’s growth or decline would dramatically impact the health of the American business community as well.

More interesting, though, is the manner in which the evolution of the American economy has led to changing perceptions about the economic relevance of Walmart’s performance data. Years ago, when Walmart was pursuing Sears and Kmart for the title of America’s Largest Retailer, growth at Walmart was perceived as a bellwether indicator of the growth of the New Retail Economy. It’s difficult to recall the world of one dollar gasoline in the United States, but at the time that it flourished, economists actually believed that Americans would become more productive by driving their SUVs to stand alone warehouse stores in the suburbs to purchase massive quantities of household items at cut rate prices.

During the temporary affluence of the Great Bubble Economy, Walmart’s growth was perceived as a contrarian economic indicator, as its stores became destinations for shoppers with limited means while wealthier consumers flocked to upscale shopping malls. Chains like Macy’s and Bloomingdale’s boomed; heck, even Target became a more popular destination for the fashion conscious than the stores of the Walmart chain. But then the Great Recession torpedoed the American economy, and frugality once more became en vogue.

Today, any business activity is considered noteworthy, and Walmart revenue has held up far better than the revenue of its rivals. Walmart has also moved successfully into electronics and other higher end product lines; it is once more perceived as a bellwether of the American economy.

The Sustainability Initiative

Considering Walmart’s central role in American society and the U.S. economy, it should thus come as no surprise that the retailer has responded to spreading social concerns about environmental sustainability. A significant portion of its corporate web site is now dedicated to projects concerning climate protection, energy efficiency, waste elimination, and green product development and sales.

Nevertheless, last week’s announcement of Walmart’s socio-economic SPI did raise a few eyebrows. Why would Walmart feel compelled to develop its own socio-economic index? And why didn’t it simply use one of the existing indices that surely must be in place throughout the corporate world?

The answers to these questions are quite simple.  There aren’t any universally agreed upon indices of environmental sustainability in the corporate world. In fact, there aren’t even any commonly accepted or government regulated definitions about what it means to be environmentally friendly. Thus, Walmart simply stepped forward into this vacuum to announce its own index.

Calculating The SPI

In a refreshing burst of honesty, Walmart acknowledged that it doesn’t possess the econometric expertise to create a statistically valid and reliable SPI. And yet, in its press release, it defined fifteen questions across a quartet of categories addressing: (a) energy and climate, (b) material efficiency, (c) natural resources, and (d) people and community. And it promised to obtain answers from its top tier of American suppliers by October 1st, and to request answers from the remainder of it’s 100,000+ global suppliers shortly thereafter.

What happens after that? How does Walmart intend to move from a data base of survey responses to a published socio-economic index? Well, its implementation plan is admittedly a little murky. Walmart proposes to create a “consortium of universities” with the expertise to maintain a data base and define an index; it also promises to translate product information into a “simple ratings for consumers” about the environmental sustainability of specific products. But there are no timelines or deadlines for these activities, and there are no guarantees that other organizations will partner with Walmart for the long term.

Nevertheless, any business economist would agree that one needs a data base in order to create a statistical indicator, and that (in turn) one needs quantitative research questions in order to gather sufficient answers to populate a data base. And thus, although Walmart may not yet be close to achieving the goal of a meaningful SPI, one cannot help but admire their willingness to step forward and lead an initiative to do so.