Amazon, Best Buy and the free rider problem

What happens when a company embraces social responsibility, and a competitor does not?

Aug 5, 2015

by Marc Gunther, Guardian Sustainable Business

When my wife’s printer recently went on the fritz, she ordered a new one from Amazon, which arrived two days later. I took the broken printer to Best Buy, which offers free and easy recycling of electronics.

Is this a problem for Best Buy, I wondered? Collecting and recycling electronics costs money, and Best Buy’s program is open to anyone with electronic waste, from any manufacturer. No purchase necessary.

By contrast, Amazon, a key competitor – and the seller of both our old and new printers – offers little in the way of recycling and more broadly has been a laggard when it comes to corporate responsibility.

The Seattle-based online retail giant says on its website that it “recognizes, as do many of our customers, the importance of recycling electronic equipment at the end of its useful life”. But the company offers only a mail-in take-back program limited to its own products, like the Kindle e-reader.

Electronics recycling is challenging because the cost of properly disposing of e-waste – particularly heavy, old-fashioned TVs – is greater than the value of the materials. Global commodity prices are low.

“It’s not quite break-even,” said Alexis Ludwig-Vogen, Best Buy’s director of corporate responsibility, of the program. This means, to put it bluntly, that Best Buy is collecting trash generated by Amazon, Walmart and other competitors.

The dynamic between Best Buy and its competitors is analogous to what economists call a free rider problem. Best Buy is providing what could be considered public goods, free recycling, at its own expense, and Amazon, Walmart and, for that matter, all the rest of us benefit. Electronics make up the fastest-growing waste stream on the planet, and recycling preserves metals and plastics, and reduces pressures on landfills. Efforts like Best Buy’s also help fend off regulation, which could benefit other companies.

Best Buy says recycling is the centerpiece of its corporate responsibility program, which includes monitoring the labor conditions in its supply chain and underwriting Teen Tech Centers where disadvantaged young people can learn technology skills.

“Recycling is our flagship program,” Ludwig-Vogen said.

Best Buy’s other corporate responsibility efforts also create public good. Providing inner city teenagers with tech skills benefits not just those teens but society as a whole, when they become productive citizens. The same goes for its rigorous efforts to protect the safety of workers in the factories where its products are made.

By contrast, Amazon for many years did little to measure, disclose or improve its performance around the environment, workplace issues, diversity or charitable giving.

That may be changing. Amazon last year hired Kara Hurst, former CEO of the Sustainability Consortium, as its director of worldwide sustainability. Amazon Web Services, the company’s cloud computing division, said in July that it had contracted with a renewable energy company to build a 208-megawatt wind farm in North Carolina to power a data center there. The company also now audits the factories in its supply chain.

“Kara’s team is growing and Amazon is committed to these issues,” Ty Rogers, a company spokesman, said by email.

Well, maybe. With $89bn in revenue in the 2014 fiscal year, Amazon remains mostly a black box when it comes to sustainability. It has yet to reveal its carbon footprint, it rarely joins coalitions and until it publishes a corporate responsibility report, it will be next to impossible for outsiders to assess its social and environmental impact.

Barbara Kyle, the national coordinator of the Electronics TakeBack Coalition, called Amazon the “king of laggards”. The coalition is campaigning against nine retailers, including Amazon and Walmart, over their lack of recycling programs. “If you’re selling huge quantities of electronics, as Amazon and Walmart are, and you’re not doing any to recycle, you’re part of the problem,” Kyle said.

Amazon doesn’t have physical stores where it could take back products, but it could join a coalition like the Closed Loop Fund, which was started by Walmart, to improve municipal recycling. As part of a coalition of activist shareholders that asked Amazon to do more, Kyle met with company executives who, she said, showed little interest in taking on added costs.

On a recent visit to Best Buy’s Richfield, Minnesota, headquarters, I asked Laura Bishop, the company’s vice president of public affairs, and others about the contrast with Amazon. They declined to discuss a competitor, but said they believe there’s a strong business case for Best Buy’s corporate responsibility work.

Recycling, in particular, benefits Best Buy, they said, because it brings people into the stores. Best Buy’s retail stores, which aim to provide superior customer service, are its best weapon for remaining competitive, the company says.

Five million people have visited Best Buy stores to recycle, according to the company. “Many of them stay to shop,” Bishop said. “Our research shows that our recycling customers are some of our best customers.”

Hugh Cherne, another Best Buy sustainability executive, added: “One of the things that [CEO] Hubert Joly says is once we get the customer into the store, it’s ours to lose.”

Eric Olson, a senior vice president at Business for Social Responsibility, or BSR, a nonprofit that has advised Best Buy, says the company’s sustainability work can pay dividends in ways that aren’t always apparent.

By taking environmental and social issues in its supply chain seriously, Best Buy can work with other companies, NGOs and even governments around such issues as labor rights, women’s rights and climate impacts. “Collaboration is so important,” Olson said. “You can draw in other people’s brains and other people’s money.”

Besides that, he said, Best Buy’s corporate responsibility programs should boost Best Buy’s reputation, which leads to real – albeit hard to measure – financial benefits from engaged employees and a small but growing percentage of customers. Bishop said the company’s research has found that “sustainability can strike an emotional chord with customers”.

I’m not ordinarily a Best Buy customer. But after learning more about the contrasts between Best Buy and Amazon, I decided to make a purchase – a portable speaker, with a charger, for my iPhone, for $59. I hope the profit margin covered the recycling costs.

After all, if Best Buy stopped recycling, even more electronic junk would pile up in landfills, and all of us would pay the price.