Going Green to Save the Economy Why Green Budgets are Growing Despite the Downturn By Hedy Veverka N otwithstanding the struggling economy, it seems that green initiatives continue to gain momentum in the retail sector. Sustainability has gone from buzzword to a competitive advantage among some retail concepts and changing attitudes of consumers appear to be the driving force. The implications for retail real estate are important because "green" is beginning to permeate many aspects of the business. According to a recent report published by the Aberdeen Group, a leading technology research firm, 75% of retailers have green budgets that will either stay the same or increase in 2009. Only 5% of companies either are not allocating budget dollars towards green initiatives, or foresee their current budget decreasing. These results are important considering the uncertain state of the economy and the slowdown in retail spending. The Aberdeen Group also found that retailers who have invested heavily in green initiatives have managed to achieve at least a 20% decrease in energy costs, an 8% decrease in their overall logistics and transport costs, and an 8% decrease in merchandise costs. The study also discovered that these "Best-in-Class" retailers are more likely to cite their Corporate Responsibility platform as a means of creating a competitive advantage. They also claim that their sustainability initiatives have given them major advantages over competitors in categories such as the ability to attract new customers, the ability to attract new trade partners and relations with existing trade partners. The retailers who have invested in sustainability have created a domino effect by exerting a considerable amount of pressure on their competitors to go green. The Aberdeen report found that more than half of retailers reported that competition to go green by their competitors was a driving force while more than one-third said it was also influenced by the need to increase their brand value/equity. Other reasons cited included rising energy prices and the need to innovate. The least-cited force was to comply with present or expected government mandates. The Rise of Conscious Consumers The market forces that retailers appear to be responding to are bolstered by a recent study of consumers by research at BBMG. According to their findings, Americans increasingly identify themselves as conscious consumers with 87% claiming they are more likely to buy products from companies that are committed to environmentally-friendly practices. An even greater percentage (90%) said they are more likely to buy energy efficient products if they are of equal quality and prices. Among the other categories that produced similar responses were companies that promote health and safety benefits (88%) and support fair labor and trade practices (87%). The BBMG research identified "doing good"; as one of the leading drivers of the conscious consumer. It is possible that these consumers are not only looking to shop around for the prices and quality of the products they're buying, but they now wish to reward companies that are addressing environmental issues and doing their part to invoke change in the world. The BBMG report concluded by stressing that companies must "practice what they preach" when it comes to sustainability. It comes down to an issue of trust for the consumers. More and more, they are looking for an involved relationship with the companies from which they're buying, and are willing to offer loyalty to those who demonstrate transparency, accountability and authenticity. Companies that meet the demands of quality, affordability and sustainability will possibly begin to win the hearts of the conscious consumer. And when the "conscious consumer" is classified as almost 9 out of every 10 Americans, the stakes are very high. Why Now? The "green" movement has been around for decades — at least since the first Earth Day in 1970. So why are consumers, almost forty years later during an economic slowdown, starting to buy with a consciousness for green causes? It may have something to do with what they view as the underlying cause of the struggling economy. The Pew Research Center recently released a report highlighting what Americans see as the causes for the current state of the economy. According to their findings, 66% of Americans agree that the competition for oil and natural resources has been the biggest contributing factor towards our nation's economic problems. They blamed this competition more than other factors such as subprime home loans, excessive spending and high government budget deficits. When asked what is the most important problem facing our country, 61% of Americans cited economic concerns (including gas and oil prices) as the most important issue. Although rising prices on all goods and services were a concern, the rising price of energy was cited most frequently. Americans may now see not going green as contributing to higher energy costs and therefore perpetuating the bad economy. By buying "green" products and supporting environmentally sustainable retailers, they empower themselves to help overcome the economic challenges facing the country, and the world. These underlying currents supporting green are only bolstered by relentless media coverage and celebrity endorsements. The Impact on Retail Real Estate Regardless of the causes, it would be risky to dismiss sustainability and "green" building as simply a fad. Retail real estate owners and developers are already confronting prominent national retailers such as Patagonia, PNC Bank, Whole Foods Market, Nike, L.L.Bean, Starbucks and REI that have increasingly strict criteria for green building standards. These demands will likely increase in the years ahead. Developers are also facing increased pressure from state and local governments that are demanding new construction meet certain environmental sustainability standards. Those demands are in addition to increasing subsidies and tax breaks being offered to build green. Consumer preferences for green centers are also being felt in some areas of the country. Madison Marquette has experienced very positive responses from consumers and local government officials following its "greening" of Bay Street near San Francisco. From development and leasing to marketing and management, green is beginning to impact many aspects of retail real estate and it is incumbent upon everyone to educate themselves on this sustainable trend. Hedy Veverka is Vice President, Leasing in our San Francisco office. She can be reached at (415) 277-6800 or hedy.veverka@madisonmarquette.com. P The Veterans of Green Green-ing Rookies Hedy Veverka VP, Leasing Hedy is responsible for remerchandising/ leasing Bayfair Center in San Leandro, Calif. and leasing Bay Street in Emeryville, Calif. She has over 20 years of commercial real estate brokerage and retail leasing experience, working for tenants such as Starbucks and Gymboree. Hedy has a Bachelor of Science in Business Finance and Real Estate from California State University and is a member of ICSC.