Does the environmental movement give a green light to fresh retail strategies? Some out-of-the-shopping-bag thinking.
Your friend's email:
When the subject turns to environmental issues in a retail setting, discussion typically goes either to doing the politically correct thing (such as, saving trees or eliminating plastic shopping bags), or to taking advantage of direct benefits, such as tax incentives for using energy-saving equipment. These are all worthwhile, of course, but represent only part of the possibilities. Beyond the obvious reactive benefits of the eco-friendly gestures of image building and tax efficiencies, there are significant proactive strategies to consider.
An effective, proactive approach begins with viewing a point in time as a unique era of opportunity. President Dwight Eisenhower’s program to build the Federal Interstate Highway System in 1956 is a case in point. Tax incentives and government programs helped send retail on a whole new course, spawning the birth of suburbs, shopping centers and malls, drive-in dining and roadside motels. Similarly, the green movement and its focus on environmental sustainability present the same level of opportunity today, opening up green fields of opportunity for businesses to respond with new products and services as well as entirely new processes or ways of working.
The early adopters of any movement always realize the greatest advantages over the long term.
At Deloitte, we call this a transformation to the Wholly Sustainable Enterprise, where a company generates growth, profitability and value by applying principles of sustainability across the entire base of activity. In our view, sustainability is not about “going green,” it is about ensuring an enterprise’s long-term viability. In order to make this transformation, retail leaders need to consider their environmental and social performance across six dimensions: products and services, supply chain, technology, workforce, workplace and corporate governance.
Transforming to a Wholly Sustainable Enterprise is a journey that requires a defined strategy and vision linked closely to business strategy. Once the strategy and vision are defined and in place, retailers need to develop a roadmap for implementing sustainable business practices across the entire base of activity. A comprehensive tax strategy that takes advantage of available federal, state and local credits and incentives is a critical component to the roadmap and execution of the strategic vision.
Early Adopters Seize Advantages
The early adopters of any movement always realize the greatest advantages over the long term. You do not have to go back any farther than 10 or 15 years, when conventional wisdom held that the Internet would be the death of bricks-and-mortar retail. While the Internet has transformed a great deal about how retailers operate, the traditional retail store lives on. The early Internet-only retailers are now opening stores and leveraging Internet use to boost sales, showcase more SKUs and drive in-store traffic.
Today’s green movement may very well represent a similar chance to capitalize on what may otherwise appear to be a daunting challenge. In short, this is another one of those times for retailers to see the glass as half full and then fill it. Join the solar and wind innovators, the building materials providers, the alternative energy suppliers, the green product manufacturers and everyone else who is investing time and enthusiasm in the ecological movement. Share their expectation that their investments today will yield significant dividends for business in the future, driving revenues and growing profits for the long term. Green-conscious consumers may constitute a new customer affinity group and provide an opportunity to “do well by doing good,” aligning your corporate philosophy with their passions.
The name of the game in sustainability is efficiency, so this is likely to be where innovative thinking will pay off. For truly efficient thinkers, this means after-tax savings is the end game. It means embracing the reality that the environmental movement is a strategic business imperative and that a coalesced industry can be a major force in bringing solutions to reality and being rewarded for that support as time goes on.
Sustainability is not about "going green," it is about ensuring an enterprise's long-term viability.
Retailers: Carpe Diem!
Retailers who seize the day and take advantage of available tax credits and incentives can enhance the value of sustainability to their business by cutting energy use, as well as packaging and material costs throughout their supply chains and in their stores, and through green building practices. They may further speed the greening of the planet (and experience a bottom line boost) by seeking out geographies, programs and vendor partners who reward or help subsidize retailers who write the checks for these improvements. Retailers who adopt early the use of solar or wind power sources and participate in recycling programs need to understand the tax and grant benefits available to them or their suppliers in order to reap the full rewards of sustainability programs.
Looking back over a century of energy tax history, it seems the future of the carrot-and-stick approach is clear and bright for greening. In the early 1900s, federal energy policy through tax “carrot” incentives encouraged oil and gas production. The ability to expense otherwise capitalized costs, such as intangible drilling expenses, were replaced by implementation of tax “sticks,” such as gas-guzzler taxes. Today, new tax carrots are available for those looking to the sun or wind for power. Moreover, consumers are rewarded with various federal, state and local tax carrots as well as attractive utility programs in growing numbers. Last year alone, more than 500 such changes, modifications and new programs were instituted around green themes.
It’s Time to Fish or Risk Becoming the Bait!
The time to act is now! The days of opportunities presented by greening “carrots” could be short lived. After all, carrots are often offered as an incentive to build momentum. The temporary nature of tax provisions generally means that retailers should not rely on tax incentives always being available. In addition, those not seizing opportunities of green initiative incentives now will run the risk of losing out on reducing their greening costs and will likely be labeled as something less than good corporate citizens. They may find themselves subject to additional excise taxes, levies or regulations due to their delayed adoption of helpful programs.
In the final analysis, sustainability offers a very real and unusual opportunity for members of the retail industry to lead the way on a major trend that affects every aspect of life. Get started on an individual level by talking with your business advisors about assessing your potential role in green solutions.
Identify steps you can take to fully leverage the clout you hold with your buying power and confirm that your ability to promote sustainable solutions is supported by your bottom line. Those who answer this wake-up call stand to be more competitive and positioned to lead in a compelling new era.
Will sustainability change life as we know it? We will not know the answer for years to come, but what is clear is that we are at the crossroads of a major policy debate in this country and around the world that will impact the costs and benefits of green businesses. How long the carrots will be around before the sticks are brought out is hard to say. Much will depend on who is at the table debating the issue. Early retail adopters would be wise to learn about the incentives available, and their business advisors should develop a means of measuring ROI for sustainability incentives. As in all things, knowledge is power for retailers, and the more they can educate suppliers and customers about greening incentives, the more they can seek out both direct and indirect tax benefits to reward their efforts. In the end, those actions may just make going green quite a retail bargain.
State and Federal Incentives
As federal funding for the adoption and development of renewable and efficient technologies wanes, several remarkable programs at the state and local levels will continue for a few more years. The following are noteworthy examples:
• Maryland’s Income Tax Credit for Green Buildings is provided to owners or tenants. The credit equals 8 percent of the allowable costs ($120/square foot of the base building or $60/square foot of the tenant space). This will expire Dec. 31, 2011. Source: Local Leaders in Sustainability and DSIRE.
• New York’s Green Building Tax Credit has many components. Up to $150/square foot for base building and $75/square foot for tenant space are allowed under the Whole Building Credit component, while 30 percent of capitalized cost of each fuel cell is permitted under the Fuel Cell component. The rest of the components are broken down as follows: 25 percent of incremental cost of nonbuilding integrated modules for photovoltaics and 10 percent of cost of new air conditioning equipment using an EPA-approved non-ozone-depleting refrigerant is available from the Green Refrigerant component. Credit certificates will be available until Dec, 31, 2009. Source: Local Leaders in Sustainability, DSIRE and New York Department of Environmental Conservation.
• Oregon’s Business Energy Tax Credit is 50 percent of the eligible project costs for qualifying renewable resource projects. For other projects, the credit is 35 percent of the eligible project costs. The credit is taken over five years: 10 percent each year for the 50 percent tax credit; 10 percent in the first and second years, and 5 percent each year thereafter for the 35 percent tax credit. It was not specified when this program will end.Source: Oregon Department of Energy.
• Georgia’s Chatham County Tax Exemption gives full property state and county tax abatement for commercial buildings achieving LEED Gold certification from 2006-2010, then tapers off by 20 percent each year until 2016. Qualifying projects are new or expanding businesses in an enterprise zone that increase employment opportunities. Source: USGBC.org and Minutes of the Board of Commissioners of Chatham County, Ga. Held on May 12, 2006 p.81.
• Cincinnati, Ohio’s 100 percent tax exemption for LEED-certified buildings was established May 9, 2007. The exemption cannot exceed $500,000 over 15 years for new buildings and over 10 years for renovations. There is no maximum exemption for LEED Platinum. Source: USGBC.org.
• Texas’ Harris County Tax Abatement program is effective up to 10 years. Adopted in May 2008, the partial abatement is based upon the level of certification obtained after completion of construction. It is 1 percent for the basic level, 2.5 percent for silver, 5 percent for gold and 10 percent for platinum level. Source: USGBC.org and Harris County Guidelines p.6.