Has Seventh Generation Sold Out by Working with Wal-Mart?

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I've sometimes said that hell would freeze over before Seventh Generation would ever do business with Wal-Mart. In fact, at times I've made even more strongly worded statements. Now I've got to concede that I was wrong. For the first time ever, the Seventh Generation logo is appearing in a handful of stores that are owned by Wal-Mart.

This weekend, Wal-Mart launched a new retail concept, dubbed Marketside, which initially consists of four small (10,000 to 12,000 square feet) stores in Arizona. Marketside delivers fresh, ready to eat meals along with natural and organic foods. The stores are debuting with ten Seventh Generation cleaning and paper items; ours is the only natural home-care brand that's offered.

Marketside stores are operated and staffed independently from Wal-Mart. Their look and feel, as well as their value-proposition, is unlike anything you'd find at one of the Bentonville behemoth's super-sized emporiums. This is not a discount store with rock-bottom prices. But Marketside is a wholly owned subsidiary of the world's largest retailer, so make no mistake: While we're selling to Marketside, we're doing business with Wal-Mart.

We are not, however, about to put Seventh Generation's products in Wal-Mart's supercenters. Far from it. Our partnership with Marketside is akin to a software product that's entering beta. It's a small first step that's very much under development. There remain many issues to explore, questions to answer, and bugs to discover. We will rely on the early adopters among our customers, consumers, and other stakeholders to test the concept and help us decide whether we should even think about taking a next step.

Nevertheless, this was not an easy decision to make and it was not made alone. In fact, it might have been the toughest call we've ever made. Please bear with me while I explain our thinking.

Some Background

For many years, Seventh Generation has refused to sell to Wal-Mart and I have been highly critical of the company, even as I (and many, many others) have worked to help make it better. As recently as July, I laced into Wal-Mart for tolerating abusive store managers who forced employees to work off the clock. But while the smiley-faced giant continues to give us much to frown over, it's an undeniable fact that Wal-Mart is changing in a very big way.

Wal-Mart's audacious environmental goals (which we played a small role in formulating) -- to be supplied by 100 percent renewable energy and create zero waste -- certainly got our attention. The goals are as immodest as they are improbable. But Wal-Mart is making real progress -- and progress towards principled social goals as well.

To cite just a very few examples (a full evaluation would fill an entire book): Wal-Mart improved the efficiency of its sprawling truck fleet by 15 percent. It launched experimental, energy-conserving stores that feature wind turbines, solar panels, and xeriscape gardens. It became the world's largest buyer of organic cotton; it slapped more than 40 percent of its audited factories with “high risk” violations; and it's filled almost 40 percent of its management ranks with women.

True, Wal-Mart's performance is far from unblemished (more on that below). But as we watched Wal-Mart change, we began to change, and we soon found ourselves openly discussing what once was unthinkable: Should we do business with Wal-Mart? Whatever the answer, it was clear that we couldn't decide without hearing from you.

Last November, we floated the idea in an interview I gave to Fortune.com. We followed up with an article in our newsletter, the Non-Toxic Times. Many of you responded with thoughtful, often impassioned emails. And as anyone at Seventh Generation will tell you, the debate flared within our associate community. Simply contemplating selling to Wal-Mart often sparked more heat than light. So we got strategic and came up with three criteria to arrive at our decision:

1. Don't just trust -- verify.
Last summer, we put a spin on that old Reagan axiom, “trust, but verify.” We created an index that rated 19 mass retailers, including Wal-Mart, on their social and environmental performance. The companies were scored in 15 categories, which compared each retailer's average hourly wage, the percentage of employees covered by health insurance, their carbon- and waste-reduction goals, their commitment to green building, and more.

To our great surprise, we found that Wal-Mart scored at or near the top in most categories. Which begged the question: How can we not sell to Wal-Mart, when it is out-performing some of our own retail partners?

2. Change that matters.
We are impatient with the incremental changes and timid half-steps toward corporate responsibility that too many big, public companies have taken. Wal-Mart is to business what California is to Detroit -- both are giants that can reshape entire industries. So we not only wanted to see Wal-Mart begin to change itself, we wanted to see it begin to change its vast ecosystem of suppliers, retail partners, and consumers. And it has.

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