|Can Green Retailers Make Green?
July 24, 2008
Biodegradable coffee cups. Reusable grocery bags. Organic cotton. Socially conscious products are seemingly everywhere. But "going green" almost invariably means increased costs for companies, resulting in higher prices for consumers. In uneasy economic times, are we willing to pay a premium to feel good?
"In a good economy, overhead associated with sustainability and ethics isn't such a big problem because you can charge a price premium," says Josh Green, chief executive of Panjiva.com, a Web-based service that provides detailed environmental and social rankings for more than 40,000 apparel and textile manufacturers in over 140 countries. "But when the economy gets tough, that desire to feel like you made a difference by making a purchase is one of the first things sacrificed by consumers."
Take Nau, a Portland, Ore.-based sustainable outdoor apparel company that shuttered its operations on May 2. Seemingly in a matter of days, the brand went from being one of the most talked about labels in active wear--lauded by the press and environmentalists alike for its eco-friendly production--to announcing that it would close its doors, unable to finance the business.
In its first three rounds of fundraising, the company--founded in 2005 by executives from Marmot, Patagonia and Nike--raised an impressive $35 million. However, when it was time to build another round of capital this spring, the pool of potential investors had dried up.
The company initially caught the eye of investors with a unique retail concept: "Web fronts"--small retail stores where shoppers could try on sample items, place an order and have their goods shipped to the home via a central warehouse.
But despite the money Nau was saving by distributing its own goods, there were other expenses to consider. First off, the retailer developed most of its fabric from scratch, which added 10% to 20% in costs. Nau also swallowed shipping costs and paid its "ethical" suppliers an estimated 50% premium. Then the still unprofitable company actually donated $250,000 in just 12 months.
Those behind Nau blame the economy, not their unorthodox business practices, for its inability to raise new money. Perhaps. But clearly its spendthrift ways were hammering its margins.
Still, Santa Barbara, Calif.-based lifestyle apparel company Horny Toad has decided to give the brand one more try. In June, it purchased the bulk of Nau's assets. The company has been reinvigorated as an online retailer--the brick and mortar "Web fronts" are gone forever.
To be sure, not all socially responsible brands have struggled as much as Nau. Blake Mycoskie, founder of Los Angeles-based Tom's Shoes, claims his business model turned a profit in just a year and a half. The company sells simple rope-soled shoes, which--in their most basic incarnation--retail for $40. For every pair of shoes sold, another pair is donated to an underprivileged child. Mycoskie says his costs are comparable to that of a traditional shoemaker, except he spends his advertising budget on philanthropy.
Of course, Mycoskie's philanthropy is also a clever way of advertising. The firm employs public relations firm HL Group to work with the press and promote charity events, advertising the company's good deeds alongside its profit-generating products.
Jon Entine, an author and executive consultant with an expertise in sustainability and corporate responsibility, says too many of these retailers' good intentions are getting mixed up with marketing. The original vision may have been to make something that will reduce consumption or improve quality of life, but that doesn't mean the product always delivers.
He uses the example of The Body Shop in the '90s. Although the brand was using organic and natural ingredients in its bath and body products, it was also using plastic packaging, petrochemicals and artificial dyes, canceling out any environmental benefits.
"Claims of green products are very, very problematic," says Entine. "People may say they want to buy green, but what they say and what they do are two very different things. Even if those claims are true, the related extra costs might steer customers away."
After all, consumption is consumption. However unlikely, the best way to shop "green" is to stop buying things.