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Tough Decisions at Marks and Spencer

Time was a scarce commodity in the City of London and Richard Gillies, Director of Plan A, Corporate Social Responsibility & Sustainable usiness at !ar"s and Spencer, "new this well# $n his way to wor" e%ery mornin&, Gillies %isited a !ar"s and Spencer store, which was nearby his house, to pic" up a LT sandwich for brea"fast# Li"e Gillies, many other Londoners had the same habit' they would (uic"ly enter a !ar"s and Spencer store, pic" up a food item from the chilled food section, and (uic"ly e)it the store in order to &et to wor" on time# *istory of !ar"s and Spencer !ar"s and Spencer +!&S, was founded by !ichael !ar"s and Thomas Spencer in -../# The company went public in the -012s, and in -01. established the pri%ate label brand St# !ichael, which came to represent the company3s focus on (uality and %alue# y -04-, !&S had established food departments in all of its stores, in part due to the success of this brand# y -052, %irtually all &oods sold at !&S were under the St# !ichael brand +in 1222, the name St# !ichael was dropped and products were labelled as !ar"s and Spencer,# y the -062s, !&S had firmly established itself as a ritish institution, with locations in e%ery ma7or town in the 8#9#, with 00: of their products branded e)plicitly as !&S &oods# As Gillies put it, ;<e are always focused on buildin&, enhancin&, and sustainin& our brand = it is our core asset#> !ar"s & Spencer was an iconic ritish retailer and household name# The company had o%er 622 stores in the 8nited 9in&dom, as well as 422 additional stores located in o%er /2 countries, and prided itself on offerin& hi&h (uality clothin&, home products, and &roceries at premium prices# $%er 1- million indi%iduals %isited !&S stores each wee"# !&S was the leadin& pro%ider of women3s clothin& and lin&erie in the 89# ?n 12--, clothin& and housewares accounted for /0: of their sales, with the remainin& 5-: in food, which included produce, &roceries, and prepared meals# The company3s competition included &rocery stores such as Asda, Tesco, The Co@operati%e Group, Safeway, Sainsbury3s, and !orrison3s, as well as lar&er department stores such as *ouse of Araser and Selfrid&es# An e)ecuti%e in the food di%ision described !&S as ;not e)actly a supermar"et, li"e Tesco, which would run e%erythin& from 42,222 to /2,222 food product lines on a%era&e# <e run a ma)imum of about 6,522#> *e also noted that ;$ur business model is that of a brand that doesn3t own factories# <e beha%e li"e a brand house, but one that has stores#> Attempts to e)pand the company in the -0.2s were not successful# ?n -0.., !&S ac(uired American retailers roo"s rothers and 9in&s Supermar"et, but neither ac(uisition was ultimately successful and both were sold off in the mid@1222s# At the same time, the company found itself stru&&lin& to compete with suppliers sourcin& low@cost &oods offshore# *istorically, !&S had relied primarily on 8#9#@based clothin& suppliers, a point of pride that ultimately pro%ed difficult in the face of their competition relyin& on cheaper, forei&n suppliers# !&S reco%ered by -00/ than"s to drastic cost reductions, impro%in& operatin& efficiency, &eo&raphical e)pansion, and the establishment of an international franchise pro&ram# The company3s profits pea"ed in -00. with re%enues of B.#1 billion and

an operatin& profit of B-#- billion, but profits soon declined once a&ain due to the continuin& difficulty of usin& primarily ritish suppliers, and the erodin& loyalty of customers who were torn between fidelity to the ritish@based company and the appeal of lower prices# The company3s financial downfall was se%ere' its share price fell by more than two thirds and its operatin& profit plummeted to B-/5 million, with re%enues of B. billion in the financial year 1222 C122-# Durin& the early 1222s, followin& the financial downfall, !ar"s and Spencer underwent chan&es in mana&ement that recei%ed a &reat deal of attention in the ritish press# ?n 122/, chairman Luc Dande%elde resi&ned and the board recruited Stuart Rose, who had e)perience as chief e)ecuti%e for other well@established ritish retailers such as Ar&os, Arcadia Group +which included the TopShop and Principles Stores,, and oo"er plc# Rose was a former business associate of the owner of Arcadia, Philip Green, who had attempted to ta"eo%er !ar"s and Spencer in 122/ with a hostile bid# After a lon& battle between Green and the shareholders, !&S brou&ht on Rose, re&arded as one of the 893s top retail e)ecuti%es, as CE$ to brin& renewed ;credibility to the mana&ement team,> which resulted in the mar"et %iewin& the company3s price ta& ;at least by B-bn#> Green was li%id, and pulled out of the deal e%entually, with !&S %iewin& Rose lar&ely as their sa%iour a&ainst the ta"eo%er attempt by a corporate raider# After assumin& the role of Chairman of the oard in 122., Rose decided to step down as CE$ in !ay 12-2, and !arc olland, former CE$ of !&S competitor !orrisons, was appointed as the new CE$# Rose remained as the chairman of the board until Fanuary 12--# olland then hired Alan Stewart in 12-2 as the new Chief Ainancial $fficer, who had pre%iously wor"ed at an aircraft leasin& business# The many chan&es in leadership brou&ht fresh perspecti%es to the company, but the mana&ement team3s lac" of a lon& history of in%ol%ement in the company was an abrupt departure from the norm where historically all senior mana&ement positions had been filled throu&h internal promotions# Stewart noted that this ;was unusual for a company that historically prided itself on bein& a %ery lon&@ser%in& or&aniGation,> and that ;!arc came in as part of the succession which, from a public perspecti%e, became (uite sensiti%e# There were a lot of ears around &o%ernance within the company at the time#> *owe%er, Stewart also declared that ;Rose had become the sa%iour of the company, and the retail base rallied around and said we3re not &oin& to sell to Philip Green# *e3s a raider# And structurally that made Philip3s ta"eo%er bid impossible to finance, because there was ne%er a way he could &et sufficient control of the company#> Rose renewed the historical emphasis on %alue for money products, e)ceptional customer ser%ice, and a friendly store en%ironment# Store locations were reno%ated in 1225 and 122H to achie%e a more modern, trendy loo", and mar"etin& and ad%ertisin& were increased# The mar"etin& campai&n, ;Loo" ehind the Label,> hi&hli&hted ethical and en%ironmental aspects of the company3s sources and production methods, such as Aairtrade products, sustainable fishin&, and en%ironmentally@ friendly dyes# Despite these inno%ations, the company e)perienced another decline in stoc" price in 122. due to the financial crisis# <hile sales remained flat at rou&hly B0 billion from 1226 to 122., net income sta&nated to B52. million in 122., from B.1- million in 1226# These costs were lar&ely attributed to a corporate restructurin&, which re(uired lease and other substantial write@offs, and increased financin& costs#

Plan A ?n Fanuary 1226, before the &lobal financial crisis, Rose built on the success of ;Loo" ehind the Label> and launched the company3s fi%e@year eco@ethical plan, with the &oal of increasin& the company3s en%ironmental sustainability# Accordin& to Rose, the initiati%e was named ;Plan A,> since ;There is no Plan for our one Planet#> ased on the fi%e essential pillars of climate chan&e, waste, sustainable materials, fair partnership, and health, the plan sou&ht to transform the company3s practices# y 12-1, the pro&ram3s aim was to ensure that !&S was carbon neutral and sent no waste to landfill# ?t also aimed to help its customers and employees achie%e a healthier lifestyle, and to impro%e the li%es of all in%ol%ed in the company3s supply chain with fair wa&es, as well as impro%ed wor"in& hours and conditions# Clair Aoster, *ead of Employee Communications and Group Plannin&, described how this plan re%i%ed the company in the face of the trauma brou&ht on by the turmoil of an attempted ta"eo%er and chan&es in mana&ement# ;After this period of instability, we found a new plan and new direction#> As Rose publicly commented, ;?f you belie%e that all of us are &oin& to ha%e to espouse this &reen issueIwhether it is climate, waste, or whate%er else = then there is no alternati%e#> The rationale for this initiati%e was four foldJ -, brand enhancement and protection, 1, operational efficiency, 4, increased staff moti%ation, and /, dri%in& inno%ation and future proofin& the business +impro%in& the business ability to adapt to anticipated rises in ener&y prices, water and resource scarcity, more strin&ent re&ulations etc,# Accordin&ly, as part of Plan A, !&S increased its commitment to sustainable farmin&, or&anic food, and the phasin& out of pesticides# ?n addition to its &oal of ma"in& all 8#9#, and Republic of ?reland operations carbon neutral, the company hoped to reduce the amount of ener&y used in its stores by 15: per s(uare foot of floor space, as well as achie%e a 12: impro%ement in fuel efficiency and ener&y in its warehouses and offices# As of 122., the company had three wind turbines &eneratin& enou&h power to supply three stores, and in 1220 !&S be&an purchasin& 1#H Tw* - of renewable ener&y from Kpower, enou&h to power all of its stores and offices in En&land and <ales by September 12-1# <hen Plan A w a s launched in 1226, the company belie%ed it would cost B122m o%er fi%e years# y 1220C12-2, Plan A had &enerated net benefits of B52m and in 12-2C12-- this was up to B62m, which was re@in%ested directly into the business# ?n an effort to push broad adoption throu&hout the or&aniGation, E)ecuti%e Directors at !&S all had one Plan A ob7ecti%e as a part of their %ariable bonus, while business unit and store mana&ers had ;balanced scorecards> to help pro%ide specific sustainability tar&ets they were re(uired to achie%e# ?n addition to its broader ambitions, Plan A in%ol%ed se%eral more specific initiati%es, some of which directly en&a&ed customers and employees# Aor e)ample, after a series of trials, in !ay 122. !&S introduced a 5p carrier ba& char&e in the food sections of all 89 stores, includin& Korthern ?reland# This initiati%e was initially met with some resistance' customers &rumbled about the carrier ba& incon%enience since many didn3t realiGe the positi%e effects, such as that the carrier ba& consumption dropped about 52: and that profits from sales of the ba&s had been donated to en%ironmental charities to fund local par"s, &ardens, play areas, and marine conser%ation# At the AG! meetin& that year, three (uestions were focused on the carrier ba& initiati%e, which left most of senior mana&ement di%ided on this initiati%e, which caused increased scrutiny and friction amon&st the sta"eholders in%ol%ed with Plan A#

RealiGin& they needed to &et the support of both customers and the or&aniGation, !&S3s Plan A team ad7usted the trainin& of employees to help them become champions of the initiati%e, with a "ey focus on e)plainin& the benefits to customers# Additionally, the company also undertoo" customer research, at the re(uest of Rose, which hi&hli&hted that the loyal customers who contributed to .2: of sales were supporti%e of the initiati%e, while some of the %ocal critics were occasional shoppers# As these chan&es were better communicated, acceptance of the initiati%e increased# $ne way in which !&S increased the acceptance of this campai&n was its partnership with the Daily Mail, a popular ri&ht@win& tabloid# <hen the company announced that it would be char&in& for plastic ba&s, it &a%e the story as an e)clusi%e to this publication, emphasiGin& to its customers that they had the support of a prominent and conser%ati%e newspaper# The combination of a modest char&e, transparent use of profits for community benefit, and pro%ision of affordable alternati%es was successful in reducin& sin&le@use food carrier ba&s by .2:# Also in 122., !ar"s and Spencer launched ;Clothin& E)chan&e with $)fam,> a pro&ram which encoura&ed customers to brin& their unwanted !&S clothin& to $)fam stores, for a discount on their ne)t purchase at !&S# 9rishan *undal, the head of Sourcin& and Technolo&y for all non@food items, described the immense success of this initiati%eJ ;?t was one of those iconic, en&a&in&, emotional connections with customersIa pretty special scheme#> <hile Plan A ori&inally intended to chan&e -22 aspects of its operations within fi%e years, it e%entually e)tended its &oal to -.2 commitments to be achie%ed by 12-5, ;with the ultimate &oal of becomin& the world3s most sustainable ma7or retailer#> Adam Elman, *ead of Deli%ery for Plan A and Sustainable usiness, ar&ued that Plan A was Lso popular that we recei%ed an o%erwhelmin& response internally of ideas and concepts that needed to be tested, promptin& us to e)tend the number of commitments past our initial estimates#L This holistic and inclusi%e customer@focus became a central emphasis of Plan A in 1220# As stated in the plan, the company reco&niGed that ;Mif we are serious about becomin& the world3s most sustainable ma7or retailer, we must ta"e a holistic approach to sustainability, focusin& on in%ol%in& our customers in Plan A, ma"in& Plan A how we do business, and e)tendin& our e)istin& social and en%ironmental commitments#> Gillies commented, ;8p until 1220 many of our tar&ets were internally focused, but now we are loo"in& for wider application = we need to en&a&e customers in a holistic way#> Elman continued, ;<e currently ha%e -2,222 factories and 12,222 farms in our supply chain# To truly influence a &roup of this siGe is a massi%e tas"Ia tra&edy of the commons# ?f we are &oin& to be successful we ha%e to ha%e our customers informed and acti%e in the process#> Time Frames $ne ma7or debate around the Plan A initiati%e was ali&nment between its lon&@term %ision, and the timeframe of capital bud&etin&# The benefits of many sustainability initiati%es were often not apparent for -5@12 years, yet re(uired si&nificant upfront in%estments in terms of money, human capital, and or&aniGational focus# Aron Cramer, the President and CE$ of usiness for Social Responsibility + SR,, a non@ profit or&aniGation which had wor"ed with !&S to de%elop sustainable business strate&ies, reco&niGed the potential disconnect between Plan A and the shorter paybac" period of the typical capital bud&etin& process# Cramer ar&ued that ;The misali&nment of time horiGons is at the core of almost e%ery dilemma that companies are thin"in& about, and !&S has

mana&ed to successfully transcend this disconnect by puttin& Plan A into action#> Additionally, he praised !&S3s efforts, describin& it as one of the first companies to set ambitious &oals for themsel%es %ery publicly, often pushin& the en%elope in the process of doin& so# *e belie%ed that ;The ob7ecti%es are %aluable not only in themsel%es, but also as an e)ample that has catalyGed other companies to act# The act of settin& these &oals should not be underestimated#> $ne source of tension in time frames e)isted with in%estments to impro%e the en%ironmental performance of e)istin& stores# An e)ecuti%e in new store de%elopment and construction at !&S lamented that the current paybac" model was focused on returns o%er a period of fi%e or se%en years, statin& that, ;?t3s a %ery primiti%e and simple accountin& mechanism# <hat we3re sayin& is we are really not interested in -5 to 12 years# <e are interested in today and tomorrow# The finance people need to realiGe there are other systems and methods for e%aluatin& the benefits of truly lon&@term in%estments#> *e used the addition of LED li&htin& to the stores as an e)ample# ;?f we spend more capital for LED li&htin& in order to reduce ener&y consumption, the benefits aren3t always understood or realiGed because most financial directors actually assess capital spent today and aren3t worried about re%enues tomorrow#> Gillies noted that ;securin& capital for pilot testin& is important but one must be %ery careful to not capriciously e)tend the re(uired paybac" periods on in%estments# Doin& so would ris" suboptimal results#> Achie%in& this balance between present in%estment, e%entual returns, and satisfyin& shareholders was a constant stru&&le# Aortunately for !&S, which was co%ered by 40 analysts and pro%ided re&ular &uidance for its annual financial results, se%eral of its lon&@time shareholders +/1#6.: were institutions, 56#-/: were indi%iduals and public, and 2#2.: were insiders, were not the typical short@ term in%estors that put pressure on public companies to ma"e decisions that deli%ered short@ term performance# Aor e)ample, one of !&S3s lar&est institutional in%estors embraced the lon&@term approach, with the portfolio mana&er commentin& that, ;Nthe fund3sO clear messa&e to mana&ement is that we are interested in the returns that we &et o%er a -2@year period and are indifferent to thin&s li"e (uarterly earnin&s and short@term share price fluctuation# <e see the role of the shareholder in terms of en&a&in& with the companies, in which we are in%ested, in helpin& them e%ol%e their lon&@term strate&ies#> Stewart pointed out that !&S had an unusual shareholder base# *e noted that while the company attracted a number of inde) funds, ;on the acti%e side we are probably more attracti%e to %alue in%estors and predominantly our re&ister isIand has been for a number of yearsI%alue@based in%estors# <e are %ery unusual amon&st lar&e 8#9# companies in that a lar&e percenta&e of our shares are held by retail in%estors#> Stewart described these in%estors as ;%ery loyal, lon&@term in%estors# <e3%e had a bit of tradin& amon&st them, but the core has held#> ?ndeed, many of these in%estors were re&ular, lon&@ time customers of !&S stores and fre(uently commented on specific initiati%es and acti%ities throu&hout the store@base# $utside of these e)amples, Stewart stated that in%estors and analysts had e)pressed limited interest in Plan A# !ar"s and Spencer pro%ided re&ular earnin&s &uidance for its annual financial results and was followed by 40 sell@side analysts, as of 12--# *e admitted that, L? can only thin" of a handful of (uestions ?P%e been as"ed by in%estors on Plan A# ?t is always at a %ery low le%el# Sometimes, part of the in%estor base has a different

component of their or&aniGation which mi&ht ha%e a &o%ernance and ethics remit, and they would as" our in%estor relations about Plan A from an ethics perspecti%e# ut honestly, there seems to be little feedbac" between this branch and the direct in%estment branch#L Sustainable Sourcin& !&S acti%ely wor"ed with food suppliers to ensure that all factories had an en%ironmental action plan, so that by 12-5 15: of !&S food +by turno%er, would be produced by factories that had impro%ed ener&y efficiency by at least 12:, as well as impro%ed water usa&e and resource mana&ement# To systematically dri%e this, !&S wor"ed with suppliers to de%elop a Aood Supplier Sustainability Aramewor" which rated performance on en%ironmental, ethical, and lean manufacturin& standards# This was then incorporated into a balanced scorecard which ser%ed as the basis for supplier performance assessment# !&S decided to pilot and test the initiati%es with a small number of suppliers and then ;let it sell itself throu&h the rest of the supply chain by lettin& the benefits spea" for themsel%es,> Elman commented# ?n addition to the framewor"s, Elman noted that ;<e are committed to pro%ide financial and consultin& support when necessary to help our suppliers achie%e sustainable practices, while focusin& on continuous producti%ity impro%ements in the process#> Carmel !cQuaid, Climate Chan&e !ana&er, continued, ;Ainancin& and the time consumin& nature of many pro7ects were "ey pain points for suppliers, so this focus really helped &et the pro7ect up and runnin& successfully#> Plan A also promised the establishment of &reen factories, an initiati%e that was particularly well@ recei%ed by one of the company3s suppliers, !AS *oldin&s +!AS,# !AS, Southeast Asia3s lar&est apparel manufacturer for companies li"e Ki"e and Dictoria3s Secret, produced lin&erie for !ar"s and Spencer# !&S in%ited !AS *oldin&s to desi&n such a model &reen factory, which became "nown as !AS ?ntimates Thurulie, and was completed in 122. in Thulhiriya, Sri Lan"a# All items produced at the factory were sold wholesale to !ar"s and Spencer# The buildin& cost R1#H million, and !ar"s and Spencer financed R/22,222# y focusin& on pilot factories, !&S was able to test different technolo&ies and e%aluate the business case# As a result of learnin& from the &reen factories, !&S identified three actions that deli%ered a paybac" in less than -. months = li&htin&, heatin& controls and insulation# As a result, there was a re(uirement for the top -22 factories to implement these practices which deli%ered a -2: reduction in ener&y impro%in& li&htin& efficiency, insulation, and better mana&ement of heatin& controls# Dian Gomes, a director at !AS *oldin&s, admitted that ;<e had to e)plain to the board why we needed to ha%e such an e)pensi%e endea%our# <e had to e)plain the sustainability philosophy#> *owe%er, he belie%ed that it was worth the in%estment for both !AS and !&S# *e stated that, ;The internal brandin& in the country is &oin& towards &reen and Thurulie set the platform in Sri Lan"a towards buildin& more &reen factories#> !AS was therefore ea&er to participate in the trend toward &reater sustainability# *owe%er, Gomes emphasiGed that &oin& &reen couldn3t in%ol%e any compromise in terms of the product, citin& the factory3s manufacturin& of the first carbon@neutral bra, which was sold at !&S for the same price as other bras# As he put it, ;The price can3t chan&e, and the %alue needs to be more abstract# ?t3s about brand, rather than price#>

A pamphlet put out by !AS describin& its new factory reflected a &reat deal of pride, statin& that ;As a model buildin& under !ar"s & Spencer3s eco@initiati%e Plan A, the pro7ect sets an e)ample for the company, the apparel industry, and other industries# As the fla&ship factory of !AS *oldin&s, the buildin& is a &lobally publiciGed icon that symboliGes the company3s commitment to sustainable de%elopment#> Employee and Customer Communication !&S had &reater success communicatin& and en&a&in& Plan A amon&st their employees than their customers# Stewart belie%ed that ;Plan A has been e)ceptionally well@ communicated internally and has resonated well with the wor" force# ?t has been a stron& platform for employee en&a&ement#> Fenny <alla&e, the *ead of Employee Support, headed up the inte&ration of all the people aspects of Plan A into the company3s *R strate&y, which was intended to foster broad employee en&a&ement# !&S encoura&ed employees to de%elop personal health plans, which included impro%in& their sleep habits, drin"in& more water, and reducin& stress le%els# !&S e%en initiated a company@or&aniGed e)ercise re&ime that en&a&ed rou&hly 12: of the company3s employees in 12-2# Another internal initiati%e that was %ery popular was the personal de%elopment pro&ram, founded in April 12--, which allowed employees to ta"e one day3s paid lea%e to wor" with a charity of their choice, &i%in& them an opportunity to en&a&e in their community and an acti%ity different than their day 7ob# <alla&e stated that this pro&ram, ;has been &reat for our wor"ers and for the charity, but we need to thin" about how we can &et our customers en&a&ed#> She ar&ued the two arenas of employee and customer en&a&ement needed to be inte&rated in order to ;&et !&S to be a &reat place to wor" and to shop# <e want to show that we are en&a&ed with our employeesIand ha%e that translate to en&a&ement with our customers#> She su&&ested the possibility of offerin& healthier food options, and creatin& a pa&e on the website where customers could &o to retrie%e concrete information about the food they were consumin&# Aoster admitted that ;?t is easy to put your arms around the internal audience, but the e)ternal one tends to %iew thin&s with a hi&her de&ree of s"epticism and cynicism,> especially due to the press3s sensiti%ity to &reen@washin&# She pointed out that the initiati%e launched in 1226, ;at the hei&ht of the &reen Geit&eist, which was then followed by the economic downturn# ?n the face of tou&h financial times, customers focused less on sustainability and more on price#> She too noted the star" contrast between Plan A3s internal and e)ternal reception# As she put it, ;it is e)tremely embedded in what we do and the boldness and coura&e of this plan has instilled a lot of internal prideMbut it now needs to be warmed up, to be more customer@ friendly#> alancin& Product and Customer Aocus Kot only was there a disparity between communicatin& Plan A to employees %ersus customers, but !&S also continued to focus more on product de%elopment than customer relations while implementin& many of its en%ironmentally@friendly initiati%es, carryin& on the companyPs historic focus in its uni(ue brand# Stewart lamented that despite this initiati%e, customers did not ran" !&S hi&h on their list of ethical and en%ironmentally@friendly

companies# As he put it, ;?f you as" someone if !ar"s and Spencer is a company with hi&h ethics, the answer is STes#3 *owe%er, if you as" which companies you would thin" of as ha%in& hi&h ethical standards, people &enerally don3t list !ar"s and Spencer as one of them#> *e belie%ed this perception was a result of the company3s ;inward focus> and product@dri%en nature, lar&ely a result of the fact that the company only sold its own branded products# As he e)plained, ;the product has to be well@made in order to be bou&ht> and that ;because the product has sold, !ar"s and Spencer hasn3t focused as stron&ly on the customer#> *e also noted that the company3s hi&h media profile tended to result in an internal focus# ;<hen we whisper, it &ets ma&nified %ery loudly in the consumer media#> Some elements of Plan A were more customer@friendly than others, for e)ample, the $)fam clothin& e)chan&e, which directly en&a&ed customers# Aoster belie%ed that the same sort of en&a&ement needed to happen with food, and hoped that the ;Aore%er Aish> campai&n would &et indi%iduals to care passionately about the fish they eat# 9rishan *undal echoed Aoster3s concerns about the lac" of customer outreach# *e belie%ed that if customers were as"ed why they trusted !&S, they were unable to &i%e specific e)planations, that their fidelity was based on a %a&ue awareness of the brand3s credibility# *e stated that, ;<e need them to be more specific = it3s dan&erous to "eep li%in& on this trust by association#> *e belie%ed this was why the carrier ba& initiati%e wor"ed, because they raised a %ery tan&ible issue that could be easily understood, and the results were e%ident# *undal also emphasiGed the importance of a%oidin& the accusations of &reen@ washin&# As he put it, ;The best approach is a humble positionin&#> Cramer also pointed out the difficulty of ali&nin& customer decisions with sustainability, concludin& that ;Consumer tastes are chan&in&, and they3re payin& more attention to their products, how they3re made, and what3s in them# They want a more enhanced product from a sustainability point of %iew, but they don3t want to pay more#> An outside fund mana&er noted that, despite his support of the company3s lon&@term %ision, he belie%ed that, ;The basic problem with !ar"s and Spencer is that mana&ement and senior mana&ement ha%e been focused on the product, but in the last -2 or -5 years the customer has become more important in terms of the success of the product#> Refri&erator Doors The company3s dilemma o%er whether or not to install refri&erator doors in their &rocery section captured many of the fundamental issues surroundin& Plan A, customer, and in%estor relations# Almost 42: of total ener&y usa&e was consumed in coolin& refri&erators in the food halls, so the addition of refri&erator doors would ha%e undeniable benefits in terms of ener&y cost sa%in&s# $%erall, food refri&eration contributed to 42: of operational carbon emissions and total ener&y costs +B-.m,# ?n Simply Aood Stores, stores focused more on food sales, food refri&eration contributed up to H2: of operational carbon emissions and ener&y costs# Sa%in&s were estimated to be between 42@/2: in terms of carbon emissions and ener&y costs durin& shoppin& hours and H2: durin& non@ shoppin& hours# This e(uated to a potential sa%in& of about B6m per year in ener&y costs for refri&eration# !oreo%er, !&S could sa%e money from reducin& heatin& costs for food halls# Costs for the installation of slidin& &lass doors to all display cases were estimated to be appro)imately B-12,222 per store#

Reputational benefits were also analyGed# A clear statement of intent to customers that !&S was acti%ely reducin& its ener&y consumption and associated carbon emissions could increase the brand %alue of the company# Re&ulatory de%elopments supported this line of thou&ht# The Carbon Reduction Commitment +CRC, increased the need for ener&y efficiency and the ris" of reputational dama&e for companies with unnecessarily hi&h ener&y usa&e# *owe%er, some in the company worried that these doors would not be well@recei%ed by customers# Stewart stated that ;? thin" the presentation can loo" %ery neat and clean, but the difficulty is that 8#9# consumers don3t li"e refri&erator doors = they &et in the way of a (uic" and con%enient purchase#> Aurthermore, a hi&h percenta&e of the company3s &rocery re%enues came from lunchtime traffic with a &rab@and@&o mentality, with H5: of sales comin& from chilled food# An e)ecuti%e in the food di%ision a&reed that, ;There are some thin&s which consumers won3t &et behind, unless the industry itself made a chan&e or le&islation forced it# So companies won3t be prepared to ma"e that in%estment because what we lose in sales would more than offset the ener&y costs# And if our customers are sayin& no, then actually our shareholders are sayin& no as well#> An e)ecuti%e in the lo&istics di%ision disa&reed that the refri&erator doors posed a serious obstacle, commentin& that, ;?f ? had to open the door to &et my product, ? wouldn3t care# ? mana&e to do that with my frid&e at home# ?t3s all about ma"in& the product loo" &ood#> The same e)ecuti%e belie%ed that the successful addition of refri&erator doors mi&ht ha%e more to do with customer en&a&ement and cultural chan&e# *e pointed that, ;<hen ? as" my collea&ues at wor" about addin& frid&e doors, they say we can3t, that the customers won3t li"e it# ? say S*ow do you "nowU They close their frid&e doors at home#3 Do we really "now our customersU *a%e we as"ed themU> $ne possibility was to trial the inclusion of refri&erator doors in a few of the store locations, li"e Tesco, Sainsbury3s and Asda had done, and &au&e customer reaction# *owe%er, many e)ecuti%es pointed out that in order to be successful, customers would need to be better informed about the impact of such chan&es# ?n autumn of 12--, !&S trialled different layouts in -5 of its 8#9# stores that included chan&es in the layouts of cafes, ba"eries, and clothin& sections, as well as different store en%ironments and si&na&e# As part of these trials, employees were trained on how to cope with these chan&es, includin& on how to communicate the reasonin& behind them to customers# Aoster wondered whether similar trainin& would help ease the implementation of refri&erator doors# She also pondered whether or not to en&a&e the press, as had been done with the Daily Mail when the carrier ba& initiati%e was launched, but admitted that ;!aybe with frid&e doors, it would be tou&h and we3d ha%e to wor" hard to successfully educate our consumers and employees#> Additionally, while any potential sa%in&s would benefit !&S as a whole, the positi%e and ne&ati%e impacts from a cost perspecti%e would show up on indi%idual department3s scorecards# Aor e)ample, the capital team would be ne&ati%ely impacted on any new refri&erator purchases, whereas the ener&y efficiency team would &et credit for any realiGed sa%in&s#

As Gillies e)ited the !&S store with a LT sandwich in hand, he wondered ;<ould openin& a refri&erator door one day discoura&e me from buyin& chilled food from !&SU>