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Oct 15, 2013

Help Consumers Do More With Their Money: An Open Letter to Retailers

 

Hard goods retailers: would you rather your customers have an extra $34 billion in their pockets every year to spend or have them needlessly waste that cash buying electricity? You can sell more products that use less energy and unlock a largely invisible source of value, costing the consumer very little or nothing extra in the process. Let us explain.

Electronics and appliances are driving residential electricity spending

The average American home consumed 11,280 kWh of electricity in 2011. At average residential rates, that equates to more than $1,300 a year. Half of that went to appliances and the countless other consumer products that use electricity; the other half went to lighting, space conditioning, and water heating. More than 60 percent of the $650 half that Joe and Jane Consumer spent on electricity for consumer products went to electronics like TVs, computers, and cell phones.

These energy-consuming products are going to drive residential electricity spending growth in the U.S. over the next 30 years (see Figure 1). This is true in the commercial sector too, though the products used there differ a bit.

Why are these products driving growth? Simple. Cell phones and smart phones, e-readers, portable MP3 players, tablets and laptop computers, digital cameras, and other electronics are ubiquitous and their numbers are growing—U.S. consumer electronics revenues are expected to hit a record $209 billion this year, according to the Consumer Electronics Association, with double-digit annual growth in many market segments.

The low-cost opportunity of efficiency

The fact is most of these products could be far more efficient. The problem? No one important has asked insistently enough to make them so.

The opportunity for savings is pervasive across most types of products. For example, computer electricity consumption can be reduced by about one-third, for little cost, with off-the-shelf technology. Clothes dryers in Europe use half as much electricity as many of those found in North America. It costs $0.10 in parts to make an $18 beard trimmer 40 percent more efficient and $0.65 to make a $60 cordless drill 50 percent more efficient. A broader combination of measures can reduce the energy consumption of devices that use battery chargers by more than 60 percent for about a $1.80 difference in retail price, generating $14 in savings on electricity bills over the life of the product.

Seemingly small-scale savings such as these can quickly ramp up to planet-impacting numbers. For example, the state of California has realized more than $37 billion in cost-effective savings since 1975 through implementing some of the most aggressive product efficiency standards in the world. Think of that another way: if you, the retailer, help put more efficient products in your customers’ homes they will have more money in their pockets. Sure, they’ll spend some or even all of that saved cash—including buying more products at your store—but at the end of the day the net result is that total energy consumption will go down, which is a win for the planet.

More than 230 million TVs were sold in 2012 and the average U.S. home has nearly three per household. Most were sold by big box stores or online retailers. So were fridges and computers and clothes dryers. That means that retailers have a tremendous opportunity to influence the efficiency characteristics of products found in homes—if you stock, promote, and sell energy-efficient electronics and appliances (ones that even go beyond ENERGY STAR designation), they are what we’ll find in Americans’ homes. What is this worth?

Efficiency’s large economic opportunity

Let’s assume that appliances and electronic products, on average, could consume 30 percent less electricity than those sold today—the low end of the range of previous examples. These are not high-priced solutions; just fixing the egregious design omissions that crept in because no one asked about energy consumption, or measured it.

This means that if every average American family went out and bought a full, new suite of products overnight—to the tune of $200 in energy savings per family per year—you’d unlock an extra $25 billion, and more than $34 billion by 2040 if you assume that the cost of electricity remains the same (in most regions it goes up one to three percent per year). That's more than half of Amazon's 2012 sales. Of course that won’t actually happen overnight, but it does powerfully demonstrate the sheer size of the opportunity.

Retailers, you have a chance to shape a $34 billion per year market by selling more efficient products for little additional cost to the consumer; you’d also help your customers use far less electricity, easing stress on the grid, reducing our country’s dependence on fossil fuels, and stimulating the American economy. And that’s only if you look at things sold in the U.S. As the world’s largest consumer market, the U.S. sets the standard for many devices globally, so for the planet-minded and multinational retailers there are great knock-on effects.

The barriers to capturing this opportunity are not technical or economic. They are largely due to poor information flow and broken market signals. For example, a handful of products that place a premium on battery life, such as ultrabook computers (think the MacBook Air), have already been designed with efficiency in mind, whereas desktop computers that are plugged in all the time are much less efficient because there isn’t a clear signal to manufacturers to push for efficiency. In fact, since many of these products are more traditional, they aren’t fundamentally redesigned for lengthy periods, compounding the problem.

The good news is that these barriers are surmountable.

How can retailers open this market?

Large retailers already require their upstream suppliers adhere to various corporate social responsibility and sustainability requirements. Apple limits worker hours in its supplier’s factories in Asia, for example, and Walmart is working to make sure that its product supply chain is sustainable in many ways. But few are driving efficiency, because the average retail buyer does not have the data to argue why it should be easy and cheap, or free.

To unlock the $34 billion efficient-product opportunity, retailers need the data. How much energy do products sold consume? How much better can they be and at what cost? Retailers are not test labs, but by teaming with experts they can develop procurement specifications that drive suppliers to make far more efficient products. These procurement specifications could move the efficiency needle far more quickly and effectively than mandatory standards and voluntary specifications developed by governments, both of which are slow and highly political.

The first step in developing a specification is understanding the impact of the products already on the market. What’s the range in energy consumption and price for similar products (e.g., French door refrigerators, e-readers)? This information is increasingly available for some products, and this can be accelerated—many products are very similar to each other so the challenge is smaller than it looks. Bottom line: if a few suppliers are already making more efficient products, it is likely that others can too. It makes the most sense to test the procurement specification waters with products that have the widest range in energy consumption. Find the suppliers that make the most efficient versions of the products you sell and reach out to them. How much better (i.e., energy efficient) can they make their products? Innovative suppliers will leverage a procurement specification to drive a competitive edge.

There are benefits to being the first to move—demonstrating clear economic and environmental leadership, harnessing innovation on behalf of customers, etc.—but there is also potential value in partnering with other retailers and key manufacturers in harder-to-change categories. There is strength in numbers and less risk of investing time and money in something that doesn’t have the critical mass to actually transform a market. There are many non-affiliated groups and labs that can help retailers understand what the specific opportunity is and help you use your market power to drive change for little cost.

If you require better, more efficient products from your suppliers you’ll put more money in the pockets of your consumers. It’s a win-win situation for consumers, retailers, and the environment. And it’s what manufacturers do for a living—design and build new products. They just need to be told energy efficiency is a priority.

Retailers, you can move now to unlock this market. Let’s get started.

Images courtesy of Shutterstock

Join the Discussion


Showing 1-2 of 2 comments

October 22, 2013

This is a welcome & fresh perspective on the benefits of energy efficiency for retailers. Most retailers are already familiar with the motivating force of rebates. By offering their own certified efficient products, retailers could advertise energy/money savings without needing to partner with utilities. Retailers and customers would also benefit from the green aura of making energy-wise choices - similar to hybrid vehicle market today. It's helpful to remember that customers often spend more upgrading to hybrid than the fuel savings they can expect over the life of the vehicle. With a combination of reduced energy bills resulting in more consumer cash and retailers' ability to appeal to customers' desire to show off their "green" gadgets, forward-thinking retailers could capture a new sales opportunity.


October 24, 2013

An interesting article. The risk here is that the $34billion retail opportunity described risks undermining the efficiency efforts that have created it - by selling more stuff that will consume more resources! I'd reframe this challenge to be how to use this $34billion opportunity to create a market for more resource efficient products and services. This would still increase revenues and grow the economy, but do so in ways that have lower resource impacts. Such as making higher value longer life products more attainable, providing product service systems and so on. Is this ambition within reach - can the case be made for making more money from using less resources?

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