from trash to cash

No one buys Rooms To Go's products for the stuff they're shipped in. The cardboard, plastic wrapping, hardwood and plywood, and foam padding are mere afterthoughts, literally tossed aside by customers eager to try out their new furnishings.

But the privately held Seffner, Fla.-based retailer, which generates $1.75 billion in annual revenue selling mid-priced furniture, accessories, and home theater equipment, has a different take on trash. Through a recycling program launched in the early 1990s, one man's garbage has become Rooms To Go's gold, helped along by robust aftermarket demand for the packaging materials returned to the company's five U.S. distribution centers.

As for how much gold, Rooms To Go's recycling business produced $3 million in gross revenue in 2007. That's roughly triple what the program generated in 2005—an increase the company attributes to both its overall growth and the rapid run-up in scrap material prices. John Zapata, who conceived the recycling initiative soon after the company's founding in 1991 and is today senior vice president of distribution, estimates 2008's recycling revenue will be roughly equal to 2007's.

Not only has the program been profitable, it's also having a significant environmental impact. By year's end, Zapata projects the company will recycle more than 26,200 tons of solid waste, up from more than 21,400 tons in 2007. Of the 2008 total, 96 percent of all cardboard and foam is expected to be recycled, along with 87 percent of all plastic and wood.

Since the program began, 96,000 tons of solid waste—the equivalent of a 25-mile-long train pulling more than 2,200 boxcars—has been recycled rather than dumped in landfills. That figure includes 7,000 tons of plastic and foam, neither of which is biodegradable. The recovered scrap material is sold to a variety of buyers. The regional sites are responsible for determining their own aftermarket, with the consent of corporate headquarters.

Although the recycling program operates solidly in the black, the company did have to allocate funds for startup and maintenance expenses. Zapata estimates Rooms To Go has spent $3 million on the initiative—roughly equal to one year's revenue from the recycling operations—since its launch. That includes a $1 million investment in 2005 to upgrade and modernize recycling operations at the company's Lakeland, Fla., and Atlanta distribution centers, which has already been repaid, he says. Most of the remainder has been allocated to shredders, chippers, and balers, equipment that paid for itself in roughly half the time originally projected and that has also long since been paid off, Zapata adds.

The ongoing recycling expense mostly consists of routine maintenance on equipment and systems that is performed at relatively nominal cost. This means virtually every dollar in recycling revenue flows to Rooms To Go's bottom line, Zapata says. He adds that the program has also saved the company thousands of dollars in shipping and administrative costs, and has helped protect the environment, an achievement the company's founders—furniture retailing pioneers Jeffrey and Morty Seaman—"are most proud of."

Starting small
The recycling program was launched in 1991, after Zapata, who was one of the company's first employees, realized that the returned materials represented the kind of clean waste that could be profitably recovered for reuse. Because Rooms To Go is primarily a retailer and performs little manufacturing, its facilities were largely free of the tar, grease, and other gunk often found on factory floors. "We couldn't afford to have greasy stuff on any of the furniture, so the material that was shipped out was always shipped out clean," Zapata says. "When the materials came back, we knew we had clean refuse that could be recycled and that had value."

Today, about 60 percent of the company's waste stream comes from trucks returning to the DCs from home deliveries, retail sites, and other distribution centers. The remaining 40 percent is generated through internal processes (like repackaging) within the DCs themselves. Rooms To Go's DCs are high-throughput operations: Collectively, the facilities stage 8,000 to 10,000 individual pieces per day.

The recycling program has come a long way since its inception. The company's early recycling efforts consisted of a nearly 40person army of employees collecting 800 tons of cardboard—equivalent at the time to 60 percent of Rooms To Go's cardboard waste—and stuffing the pieces willy-nilly in 40-foot open-top construction containers and into compactors. No other materials were being recycled during the early 1990s.

The company was also unloading trash and returned furniture at the same time, a process that would sometimes result in furniture damage. "It could be something as simple as allowing a piece of cardboard to rub against an inbound dresser or sofa," Zapata says. "If the cardboard had a staple in it, damage to the dresser or sofa could occur."

Rather than implementing a comprehensive initiative that covered the four main recyclable commodities— cardboard, plastic, foam, and wood— at once, Zapata decided to tackle the project one commodity at a time. The cardboard recycling program was launched in 1992, followed by plastic in 1996, foam in 1998, and wood in 1999. Zapata says the key to the program's overall success was a "practical approach" taken by his managers in "working out some of the particulars over time as opposed to trying to get every element captured at the outset."

A "leap of faith"
As part of the initiative, Zapata and his managers re-engineered the company's DCs and work processes to compartmentalize the flow of the returned materials. Starting with the cavernous 1.7 millionsquare- foot distribution center in Lakeland, they developed procedures for separating the incoming refuse from the furniture arriving on the same trucks. In the past, the company had sometimes experienced problems with goods' being mislabeled because tags from empty boxes would be mistakenly entered into the system in place of tags for the items passing next to them. By separating the two streams, Zapata hoped to eliminate those problems.

Zapata initially thought that adding the separation step would lead to increased costs. As it turned out, however, the company realized savings from more accurate labeling of incoming merchandise and a clearer alignment of employee duties, which ended up reducing staffing requirements.

Zapata then reorganized the dock door area to even out and streamline the material flow from truck unloading to the sortation areas. Two conveyors centered between an eight-door, 100-foot dock now shuttle the material from the dock to specially designated sorting areas. After sorting, the materials are transferred to shredding, chipping, or baling stations for further processing.

What happens next depends on the type of commodity. For example, cardboard is sorted at the incoming doors and then placed on dedicated conveyors. Most cardboard requires no further handling and can be brought directly to balers. The finished bales are then weighed and placed in a container in the same general work area, where they await pickup.

The plastic and foam materials are conveyed to the sort area, where they are separated and sorted by hand, then placed on special conveyors. The plastic is routed to a baler, while the foam is conveyed to a chipper. Items not sorted out ride the conveyor belt into the trash truck and are then taken to landfills.

Companies buying the materials are mostly responsible for arranging and paying for the pickups; Rooms To Go is charged with taking any nonrecycled materials to landfills.

Zapata says his biggest challenge was to convince upper management to budget for three balers, each of which cost approximately $300,000. Buying the high-cost equipment required a leap of faith, he admits. Zapata told his bosses that it would take 27 months to recoup the cost of each baler. "As it turned out, the reality was actually 14 months," he says.

To house the operation, Zapata has had to allocate 5,000 to 50,000 square feet in each distribution center. This has generally not been a problem due to the overall size of the company's warehouses.

A side benefit of reorganizing and streamlining the material flow has been a reduction in labor requirements, which has freed up employees for other tasks. Today, 21 employees work on the recyclables program, down from 39 when the program began, Zapata says.

In the past few years, Rooms To Go has fine-tuned its procedures for identifying and extracting recyclable materials from its waste pile, according to Zapata. As a result, the company has been able to keep its recycling revenues constant even though its total "waste stream" has actually declined since 2006.

Overall, Zapata reports that the company is pleased by the recycling program's results. "All of the unexpected things that have happened have been positive," he says. "I never could have predicted the success of all this."

Above the crowd
In a world where everyone's eager to go green, why haven't more of Rooms To Go's competitors copied its programs? One difference, according to Zapata, is that Rooms To Go will ship directly to its customers, while its rivals ship first to their stores and then on to the end user. Because those competitors have an extra layer between the customer and the DC where the packing materials are returned, their operations incur more cost and are less efficient, according to Zapata. "They may generate as much recycled material, but they won't be as profitable as [we are]," he says.

Zapata believes that reluctance to make the significant initial capital investment required for equipment—especially in a tough economy—is also an obstacle. "I don't think many companies looking at recycling focus very carefully on the ROI. What they see are costs," he says.

But a deliberate, carefully constructed recycling plan, along with a "take the long view"' mindset on equipment expenditures, can carry almost any company with recyclable materials a very long way, according to Zapata. "Anyone with even half of our distribution capabilities can execute this successfully," he says.