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A 21st Century Retail Workhouse Should Worry Investors: Gadfly

Published on Dec 16 2016 8:30 AM in Retail tagged: Trending Posts / Workers' Rights / Ethics

A 21st Century Retail Workhouse Should Worry Investors: Gadfly

How to keep legions of low-paid shop-floor workers motivated and serving customers with a smile has long occupied Britain’s big retailers.

But this year the light has shone on the employees that customers don’t see: armies of staff working in giant warehouses, often fulfilling online orders as the growth of shopping via the internet has exploded.

The latest is JD Sports Fashion Plc, the successful seller of fashionable trainers. A Channel 4 news report that aired late Wednesday alleged workers were exploited in a warehouse that supplies all of JD’s stores and fulfills online orders.

JD said Thursday it would investigate the matter, and that it was 'deeply disappointed and concerned' by the report, which didn't offer an 'accurate reflection' of conditions.

A panel of lawmakers examining staff welfare in a changing work environment have noted allegations by Buzzfeed of poor treatment of workers by internet clothing retailer Asos Plc at its Barnsley, England distribution center. Asos said the charges were unfounded.

Investors and company executives would do well to recall the fate of Sports Direct, the poster child for bad publicity when it comes to working conditions.

The company warned on profit in March, just a few months after the Guardian raised concerns about conditions at its distribution center in Shirebook, England. But worse was to come. Mike Ashley, founder and chief executive, had to appear before lawmakers in June to answer questions about staff treatment. They subsequently branded the company’s working practices Victorian.

Sports Direct’s shares have lost more than half their value this year. Of course, that’s not all down to reaction to its employment practices. Profits have tumbled in part because it had no protection against the slump in the pound, and it's also been dogged by governance issues. But the public inquiry into staff welfare added to the battles it had to fight, and probably took up resources that could have been used to improve sales.

Shares in JD, which reached an all-time high earlier this month, have recovered some of the losses due to the report. Asos shares are trading higher than when the concerns about its warehouse staff emerged. But this might not be fully pricing in the risk to reputation and operations.

It’s unlikely the attention on retailers’ treatment of their workforce will stop with JD. And this is a peril that investors in Britain’s big retailers should monitor. As the chart below shows, they employ large numbers of people.

The supermarkets lead the way. While the majority of their staff will be employed in stores, the big grocers have been developing their online businesses for some time -- they now account for about 5% of UK grocery sales. And with about 12% of all non-food sales made online, according to the latest Office for National Statistics data, many companies’ staff will be involved in packing tacky reindeer sweaters, SelfieMics and mince pies to ship.

Retailers who have been used to managing large workforces for many years in stores might also be more adept at minimizing the dangers when it comes to building sizable warehouse staff. The challenge may be greater for those that are expanding at a break-neck speed, and need to add new staff quickly, perhaps supplied by employment agencies.

More than ever, companies need to ensure they are managing the risks in their supply chains, and that no corners are being cut as they rush out last-minute deliveries before Christmas.

This is another call on retailers’ time and resources in a period when the consumer backdrop is already looking shaky. But the alternative can be even more costly, as investors in Sports Direct have found out. The social importance of treating staff well also makes business sense.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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