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By Allison Asplin on May 10, 2013 with 3 responses

Retailers Chase Energy Efficiency for a Competitive Edge

Walgreens says that lighting retrofits completed at 80% of its locations nationwide not only saves money, but also improves the customer experience.

Walgreens says that lighting retrofits completed at 80% of its locations nationwide not only saves money, but also improves the customer experience.

When it comes to energy efficiency, retailers are on a roll. Convenience store chain Wawa announced last year that it saves over $1 million a year in energy costs thanks to an LED lighting retrofit. Nationwide department store Kohl’s saved $50 million in energy costs over four years and has continued to improve its energy performance with lighting and energy management systems upgrades.  As a result, Kohl’s claims, “we have one of the lowest energy usages per square foot in the retail industry.”

Walgreens, the country’s largest drugstore chain, recently completed lighting retrofits at 80% of its locations nationwide. The company said this change not only saves money, but also improves the customer experience: “Colors appear more vibrant and more like they would in daylight, so customers don’t need to second guess themselves in the cosmetics aisle.”

For retailers like these, energy efficiency offers an edge over their competitors. It’s about the bottom line, pure and simple.

The quest for a competitive edge may explain why retail stands out as the only sector of the commercial real estate industry that has shown appreciable success in overcoming the plague of the “split incentive.”

Quick background on the split incentive: in most leased buildings, the owner is responsible for capital improvements, including most energy efficiency upgrades, while the tenant often bears responsibility for the utility bill. The owner, therefore, has no incentive to invest in energy efficiency. (For a more detailed explanation, see “Why Energy Efficiency and Buildings Don’t Mix”.) Yet a recent evaluation of a retail-oriented energy efficiency program in Wisconsin indicated that approximately half of participating retailers completed retrofits in leased spaces.*

We can’t say exactly why the Wisconsin program had such a good response from retail tenants, but I suspect that the structure of retail leases plays a part.  Compared to a standard office lease, the most common type of retail lease gives the tenant much more control to make improvements. Could this arrangement work as a model for a “green lease” in other types of buildings? Tell me your thoughts in the comments.


*Full disclosure: I worked on this evaluation as part of my responsibilities at Cadmus.

  1. By d fletcher on May 10, 2013 at 8:50 pm

    Very interesting question raised. Other states should look at the Wisconsin example.

  2. By Stephanie Fletcher on May 10, 2013 at 8:55 pm

    It sounds as if the Wisconsin program COULD work as a model. How can the retail lease structure be promoted in other states?

  3. By Forrest on September 18, 2013 at 8:30 am

    Kohl’s did the following per gov’t website Energy Stary Success Story:

    Replacing 3,000 metal halide fixtures with six-lamp T-8 fixtures in four distribution centers
    (two year payback)

    Installing more than 1,200 variable frequency drives on rooftop units at 150 stores (two year

    Converting existing 88 watt three-lamp T-8 fixtures to 55 watt two-lamp T-8 with energy
    efficient ballasts for more than 800 fixtures
    at more 100 stores (three year payback)

    Replacing 250 existing 75 watt incandescent spotlights with 24 watt ceramic metal halide spots in 714 stores (two year payback

    My take on their efforts- T8 florescent lamps and variable frequency drives controllers have been around for awhile. Nothing new. Commercial and industrial buildings typically very inefficient as business concerns for meeting market demands far outweigh immediate concerns of facility cost savings. Management typically stress over variable costs and know little of fixed building energy cost savings. Payback per time period is the measuring stick to evaluate cost savings as this measure includes the investment required. They have a log book of cost savings and will spend money on the most lucrative and always on the ones that improve product cost or quality. Buildings are a low priority for business success. That is until they learned to reap huge PR benefits and good goodwill per the current fanfare for such activities. These managers are not stupid. They haven’t magically become competent per energy star government programs. Mostly it’s a reaction or publicity act for the retail stores to position upon leadership upon current societal values. Retail listen’s to marketing and they are pushing for this goodwill. So, my point is, this energy efficiency discovered by retail is not a big deal if put in perspective of entire accounting of the business, but it’s good PR. They can save much energy per improvements of supply chain.

    The retail chains have a big advantage as the buildings are numerous and conform to corporate standards. They can make good decisions at the top and magnify cost savings per duplication. It’s difficult to balance or satisfy all departments and proceed with a project especially when the project is a remodel. Lot’s of concerns and ideas to work within. The local Wallmart store quickly put skylights in one summer. I noticed they shut off the lights during bright days and lower artificial lighting at other times. Looks nice and must save money. Funny, they didn’t advertise or promote the action locally.

    It’s very interesting to go to Chicago ASRAE show to investigate the plethora of devices offered to save energy. The difficulty is evaluating best alternatives, reliability, savings, investment, implementation costs and to convince management who have no need for extra headaches. For example the local hospital could implement a micro turbine generator, but I know they have maintenance or facility people who have no expertise with the technology and fear problems. They have their hands full and limited staff to keep up with current demands. If it’s currently working, don’t change it.

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