Corporate social responsibility is more important than ever before. Companies are becoming more transparent as employees, conscious consumers, and investors flock to the Internet to expose or learn about business practices in order to make informed decisions. Social media and user-generated content help drive coverage and sentiment on retailers and other businesses. With so much more information available to consumers than ever before, we wonder how it affects consumer spending, and ultimately the bottom line. Below we explore four companies (CVS, Target, Warby Parker, and TOMS) and their transparent business practices to find out.
CVS’s Path to Better Health
If ever a corporation has lived up to its brand slogan, it’s CVS Health. The pharmacy made headlines in 2014 when it stopped selling tobacco products because the merchandise conflicted with its mission of “helping people on their path to better health.”
And now the company is doing it again. The company announced it will no longer sell sun-care products with an SPF less than 15. The decision is based on the FDA standard for effective sun protection. Products with an SPF lower than 15 come with the warning,
Skin Cancer/Skin Aging Alert: Spending time in the sun increases your risk of skin cancer and early skin aging. This product has been shown only to help prevent sunburn, not skin cancer or early skin aging.
By not selling these sun-care products, CVS is hoping to protect consumers from skin cancer by putting them in a position to purchase a more effective product – one with a higher SPF.
However, observers predict that removing products from shelves will alienate and frustrate customers who come to the store for those items, rather than prompting them to purchase alternatives.
But CVS Health’s own experience begs to differ with critics. Although the company projected a $2 billion loss in yearly sales when they stopped selling tobacco, sales actually rose by $12.6 billion. In states where CVS has greater than 15% market share, consumers purchased 95 million fewer packs overall, meaning they weren’t simply ditching CVS for other pharmacies – they just weren’t buying cigarettes.
Ethics as Advertising
Although the company can’t directly attribute an increase in sales to its decision not to sell tobacco, it isn’t far-fetched to believe some consumers have chosen (and continue to choose) to patron CVS because of its moral commitment to health.
In fact, recent studies/surveys indicate that consumers are making more purchasing decisions based on company ethics instead of more typical factors like price. So even though CVS’s moral decisions might look unprofitable on paper, they might actually be good for sales.
According to a Stash survey reported through Tech.co, “Consumers ‘overwhelmingly agree’ that a company’s employee ethics influences the consumers investing and buying decisions.” Furthermore, “Millennials in particular refrain from purchases and investments that conflict with their moral compass.” Specifically, “84 percent of millennials would consider ethics before investing.”
A Mintel survey from 2015 also found that “56 percent of US consumers stop buying from companies they believe are unethical.” Furthermore, “over one third (35 percent) of consumers stop buying from brands they perceive as unethical even if there is no substitute available.”
More relevant to CVS, perhaps, is the finding that “29 percent of consumers take to social media to share their support of ethical companies.” So while it’s unlikely consumers are avoiding other pharmacies because they still sell tobacco, it is plausible that consumers are now choosing CVS because it doesn’t.
Environmental Health and Sustainability
Target* (which stopped selling tobacco back in 1996) stopped selling farmed salmon in 2010 and sand-blasted jeans in 2012. Both items are high in demand and doing away with them limits customer options. However, as executive director of the Monterey Bay Aquarium has said, “Target’s decision to source sustainable wild-caught salmon, instead of farmed, will have a real impact in the marketplace – and ultimately, on the health of our oceans.” In the same way CVS has chosen to limit consumer options for health, Target has chosen to limit consumer options for the environment.
In addition to consumer health and environmental sustainability, retailers and other businesses are also concerned with the wellbeing of their workers, as was the case with sand-blasted jeans. According to Target, the company stopped selling the product because the manufacturing process “contaminates the air garment workers breathe, which can lead to an incurable lung disease called silicosis.”
Warby Parker calls itself a socially conscious business. The company “[believes] that everyone has the right see,” so they “partner with non-profits like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need.”
However, unlike TOMS (which donates a pair of TOMS shoes for every pair purchased); Warby Parker doesn’t directly donate its merchandise to people in need. Instead, the company supplies the funds for nonprofits to source the glasses that will be distributed.
The nonprofits train men and women in developing countries to give basic eye exams and to sell glasses to their own communities at ultra-affordable prices. This process creates a lasting and sustainable system that insures communities will have continued access to vision care.
Social Enterprise Alliance defines social enterprises as “organizations that address a basic unmet need or solve a social problem through a market-drive approach.” Although such businesses have been around for more than a century, they’ve only just recently become their own business sector, gaining attention from investors, consumers, universities, media and policymakers.
It’s this recent focus on social enterprise which caused backlash against TOMS for simply donating shoes (which are temporary) instead of creating a lasting impact. As the company expanded to include products in addition to shoes (eyewear, tote bags, backpacks), it changed its strategy from donation to social enterprise.
TOMS eyewear funds not just prescription glasses, but also sight-saving surgeries and medical treatment. Bag purchases provide training for skilled birth attendants to help women safely give birth worldwide. Lastly, sales from backpacks go toward training school staff and crisis counselors to help prevent and respond to bullying.
The Bottom Line
Whether its pharmacies, department stores, eye wear, or shoes, consumers continue to care about social responsibility, environmental sustainability, and company ethics. Although the direct impact to sales is difficult to quantify for many of these practices, it’s clear these businesses are thriving.
CVS Health reported a 3 percent increase in revenue for the first quarter of 2017. Although Target’s revenue declined 1.1%, it was significantly better than expected. After the company reported the quarterly sales, stock rose by 7.4%.
According to The Motley Fool, Warby Parker is “the second most valuable e-commerce start-up in America and one of the few e-tail start-ups to top the $1 billion ‘unicorn’ mark without being acquired.” Warby Parker is so successful, in fact, that the company has opened dozens of brick-and-mortar showrooms and full retail shops across the country.
*It’s no wonder why Target’s pharmacies were acquired by CVS. The two businesses seem to have a similar dedication to ethical practices.