Walmart, Amazon Tame Packaging Rage - Analyst Blog

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Customers buying goods from Walmart Inc. ( WMT ) can heave a sigh of relief as the world's biggest retailer teams up with online giant Amazon.com Inc. ( AMZN ) to eliminate cumbersome packaging by manufacturers.

The two retail giants are also pushing other biggies like Procter & Gamble Company ( PG ) to design user-friendly packaging materials and do away with nearly impenetrable plastic packaging, known as clamshells.

These clamshell packages use excessive amounts of harmful plastic such as polyvinyl chloride. In order to make the packages tamper-resistant and also enable adequate display of the contents, manufacturers are often driven to packages that are difficult to open and come with excess packing materials, wire ties and plastic bindings.

Cumbersome packaging has been a problem for some time, with both retailers and manufacturers receiving complaints from consumers. Funnily enough, there have been instances where the package of a pair of scissors, bought from a well-known retail chain, had to be opened with another pair of a scissors, or a knife. Moreover, many emergency cases of injury caused by packaging materials have been registered at hospitals.

Better Packaging Initiatives

Some big retailers like Wal-Mart and Amazon.com have been more sensitive to these complaints. For instance, Wal-Mart introduced its 'Wal-Mart packaging scorecard', while Amazon.com introduced its 'Frustration-Free Packaging initiative'. In addition to convenience, these companies have also focused on the need for more environment-friendly packaging solutions

Wal-Mart Packaging Scorecard

Wal-Mart Stores, which pledged to reduce its clamshell packaging by 5% between 2008 and 2013, introduced the packaging scorecard in 2006 as a measuring tool for a package's sustainability. The scorecard was officially launched in 2007. The scorecard rates packaging on attributes of production, material value, recycled content, product-to-package ratio and renewable energy, among other criteria.

By encouraging suppliers and businesses to examine their packaging processes from production to disposal, the Walmart packaging scorecard can help reduce waste material and lead to more innovative, cost-effective and sustainable packaging solutions.

Amazon's Frustration-Free Packaging

Amazon introduced its Frustration-Free Packaging initiative in 2007. The main goal was to reduce "wrap rage" and make packaging safer and easier to open. It initially started with 19 products from manufacturers like Fisher-Price, Mattel, Microsoft and Transcend.

However, the company has come a long way since then and the initiative has been extended to 80,000 products this year, with more than 12 million items expected to ship under the program. Amazon expects to triple that number next year.

City Flooded by Trash?

The initiative comes at a time when the nation has just got over the 'Thanksgiving' and 'Black Friday' fever. With retail giants flooding customers with their promo offers that boost shopping, the environmentalists fear that the cities will be filled with trash, a third of which usually consists of packing materials.

Other Retailers Chip In

Recently, other retail giants are also shifting to user-friendly packaging. Target Corporation ( TGT ) for example has done away with the plastic lids from its Archer Farms yogurts. Moreover, it has redesigned packages for some light bulbs, which do not use plastic. The socks shelved in these stores are paired with paper bands, instead of being packed in plastic bags. 

At The Home Depot Inc. ( HD ), Husky tools are going from clamshell to paperboard packaging, and Eco Smart LED bulbs are about to be sold in a corrugated box, rather than in a larger plastic case.

However, brick and mortar retail stores prefer traditional packaging, as it helps to display products properly and also prevent shoplifters.

Also, a lot of products sold by online retailers still cannot be sold in frustration-free packages. It seems that inflexibility of big manufacturers, the complexity in having different packages for physical retail and electronic retail and differences among major e-commerce companies are the main reasons for the slow adoption of new packaging technologies.

However, Wal-Mart appears to be more focused on its own initiative to use renewable technologies. The company has set a target of using 100% renewable energy in its stores. We thus remain confident that Wal-Mart will continue to grow its solar energy program in the U.S. and around the world.

Wal-Mart reported better-than-expected second-quarter 2012 results on November 15, with quarterly earnings of $1.09 a share, up 12.4% over the year-ago earnings of 97 cents a share and surpassing the Zacks Consensus Estimate by a penny.

However, Wal-Mart faces stiff competition from Target Corp . and Costco Wholesale Corporation ( COST ), and has a Zacks #3 Rank, indicating a short-term Hold recommendation.


 
AMAZON.COM INC ( AMZN ): Free Stock Analysis Report
 
COSTCO WHOLE CP ( COST ): Free Stock Analysis Report
 
HOME DEPOT ( HD ): Free Stock Analysis Report
 
PROCTER & GAMBL ( PG ): Free Stock Analysis Report
 
TARGET CORP ( TGT ): Free Stock Analysis Report
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMZN , COST , HD , PG , TGT

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