From coffee, chocolate and bananas to shoes, clothing and cosmetics, consumers have become powerful dictators of which brands they support, and which they don’t.
While the links between doing ‘good’ and a company’s subsequent financial performance are hard to identify, there is strong reason for companies to embed ethical behaviour. This is so they don’t become subjected to the punishment meted out by consumers, who hold the power to boycott brands like Cotton On and McDonald’s.
Unions are now actively targeting brands they perceive as recalcitrants in the industry – those slow to move their feet at the collective bargaining table on matters of wages and other HR benefits.
Mike Treen, national director for Unite Union is unabashed about using this big-stick approach. The union represents about 27,000 workers in the retail, hospitality and hotel industries, among others.
“We want to devalue [unethical companies’] brands, we want customers to think about where they shop, where they get their next meal.” This, Treen says, helps make up for the union’s lack of industrial muscle, “so we are going after their brand”.
The perils of unethical business
It’s becoming clear that retailers can’t ignore the ethical side of their businesses. Cone Communications and Echo Research, in a survey covering 10,000 consumers, reported that 91 percent of global consumers are likely to switch brands to one that supports a good cause, given similar price and quality. Further, 92 percent would buy a product with a social and/or environmental benefit if given the opportunity, and nine out of 10 consumers say they would boycott products from a socially irresponsible company.
Buying fair trade marked products is becoming increasingly popular. Retail sales of fair trade certified products such as coffee, bananas and chocolate grew by 28 percent in New Zealand last year, with sales reaching $89 million. The rise in sales alone equals $19.7 million.
Fairtrade Australia New Zealand CEO Molly Harriss Olson says the huge growth was linked to good performance in the key categories of coffee and chocolate, steady growth in new product innovations, and a big increase in the availability and consumption of fair trade bananas.
“This result clearly shows that Kiwis are an ethical bunch who are dedicated to supporting farmers in developing countries through their purchasing habits,” she says.
There is suspicion, however, that some customers remain reluctant to dish out too much money for ethical products. A study published by the Journal of Consumer Affairs in 2005 – ‘Do Consumers Care about Ethics’ showed that only 10 percent of the 808 Belgian respondents were prepared to pay the fair trade price premium of 27 percent.
Not by chance
Ethical companies don’t materialise by chance. For those who believe in the ethos, conscious effort and money are committed to embed it into the company’s way of life.
Good examples are The Warehouse Group (TWG) and Flight Centre. Both have chosen to focus on people as their key assets.
Mike Powell, chief executive of TWG, is convinced that being ethical is central to a company’s success. Focusing on building a highly engaged workforce means a happier worker, and happier customers, he says.
“Ultimately, the customer’s experience – it tells all. Customers notice when you have employees who are merely compliant, compared to those who are fully engaged,” Powell says.
Being an ethical employer does not come cheap. In TWG’s case, its retailer’s wage programme, which used to cost around $3 million annually, is now $6 million this year, which he says is “not an insubstantial sum”, given the group’s earnings before interest and tax of $118 million.
While free market proponent Milton Friedman would argue monies spent on employees is money stolen from shareholders, past academic research has shown there is harm done when companies are seen as bad boys.
Researchers continue to struggle to find strong links between ethical behaviour and strong profitability. But there is strong data supporting the theory that doing good does not destroy shareholder value. (A particularly good resource is: ‘Does it pay to be good? A meta-analysis and redirection of research on the relationship between corporate social and financial performance’.)
Locally, TWG looked at whether it could afford to implement higher salaries – what it calls the retailer wage – for its workers.
Powell says the group considered the $15-$16 per hour wage typically paid to a breadwinner and trained worker and asked what it would cost the company to lift that to $18-$19 per hour.
“The question you ask is, can you afford to pay these people the living wage? If you can’t, why not?” The additional cost, he adds, is “generally more affordable than what people think.”
Pizza retailer Hell New Zealand employs around 1000 staff across its 65 franchises, with each store owner employing around 15 staff. Company general manager Ben Cummings says the franchisees are trained to incentivise the staff and pay them according to what they are worth to the business, but the living wage is not right for Hell.
“The living wage is not something we specifically encourage – partly because that kind of cost is not sustainable for our type of business, but also because we believe in paying staff according to their skills and experience.”
How to keep employees happy
Highly successful retailers usually have a mix of compensation systems and career development paths that resonates well with employees.
Travel consulting company Flight Centre last year achieved a record turnover of A$16.05 billion (NZ$17.1b), and employs over 15,000 people in 11 countries. It is one of only two companies to achieve membership into the IBM Kenexa Best Workplaces Survey’s 10-Year League for those who have made the survey’s finals more than 10 times.
Flight Centre was founded in 1973, when veterinarian Graham Turner started an overland bus travel company called Top Deck with his friends Geoff Lomas and Bill James. The company has since been sold.
Now, Flight Centre’s New Zealand operation is a major profit centre, with an EBIT of A$16 million on a turnover of A$871 million.
Its New Zealand managing director Chris Greive says when Turner founded the company, he quickly realised that people are the most critical part of building success.
“For Flight Centre, our company is our people. The company has managed to build an enjoyable workplace, as well as a very profitable business. The company’s (global) profit was A$378 million (year ended June 2014) – this profit is a by-product of looking after your people well.”
Future of retail
Greive is a contrarian when it comes to predicting the industry’s future. “People are predicting the end of the retail business. We see the brightness of the future.”
Similarly, Trish McLean, founder of Retail World Resourcing, says increasingly, Kiwi schools are beginning to embrace retail as a viable career choice for school leavers.
In the past, schools’ career guidance teachers wouldn’t encourage kids to go into retail, but now they are highly engaged. Retail, McLean says, offers opportunities for students who are not necessarily university material, but have leadership qualities – some jobs offer a starting pay of $30,000 per year.
Creating a future for employees
Flight Centre’s Greive says it is important for employees to be able to see what their future holds, to stay happy and engaged. “Our senior people have got to be able to create the bright future – that’s an expectation we have of them. If people don’t feel they have a future with us, we feel we have let them down.”
At Flight Centre the travel consultants are privy to a fully transparent view of how their commission works, and for the motivated ones, the reward is compelling. Greive says: “Last year, our best travel consultant earned over $150,000.”
The company is big on celebrating rewards, he says, with a national awards night seeing 1500 people attending. Around 3000 employees come to the global awards. “That’s a lot of money spent as a percentage of our profit,” Greive says.
Family, village, tribe, to globe
The founder of the company, Turner, is zealous about modelling the company’s operation along how Stone Age people evolved, grouping business units into “families”, “villages” and “tribes”.
Flight Centre’s family teams contain three to seven people, which feed into villages made up of three to five teams built around geography. Around 25 villages form a tribe, each of which has its own identity. The teams all work on their own profit and loss centres.
Greive emphasises the way that work becomes intertwined with life for most employees. “We employ a lot of young people, they go through a variety of changing experiences, get married, have children.” That’s the nature of the business, he says, and the company thrives by focusing on generating happy, engaged workers.
At TWG, staff can come in fresh off their final year of high school and follow a planned career pathway mapping their eventual move into management.
TWG made local history last year when it funded a new chair at Massey University – the Sir Stephen Tindall Chair in Retail Management. This is the first time any New Zealand university has offered a degree dedicated to producing retail specialists.
This story was originally published in NZ Retail magazine issue 738, June / July 2015.