While the economic effects of COVID-19 mitigation measures have been felt across all sectors, the consumer discretionary sector has experienced an outsized demand shock. Many retail, entertainment, and leisure companies have seen sales drop by as much as 90%. But if it’s been hard on companies’ bottom lines, it’s been even harder on employees across the sector. How these companies support their employees now may be a critical driver of their future success.
Which attributes have mattered most through the crisis?
We're still in the early stages of assessing how consumer behavior will adjust once widespread stay-at-home orders are lifted, but here are our preliminary thoughts. We believe that each of the following characteristics have helped provide stability in the downturn and should help companies on the other side of the crisis.
- Differentiated products or experiences. We’ve seen evidence of customers continuing to patronize retailers with unique products and services that have established brand loyalty.
- Greater international exposure. This has helped offset the impact from localized shutdowns.
- Online leadership. This attribute has proven to be a point of resiliency as digital capabilities have defined so many companies’ success or failure in continuing to reach their customers. Many companies are reporting that they’re seeing online traffic similar to what they see during peak holiday periods.
- Employee-focused management. We believe that responsiveness to employee needs during the crisis will enable companies to restart more quickly once social distancing guidelines are relaxed.
Human capital management today may be the defining factor for future success
It sounds simple, but companies that show more concern for their employees are more likely to experience greater employee loyalty than companies that act callously toward their employees or prioritize maintaining dividends and share buyback programs over their workers. And employee loyalty matters for the sustainability of a company’s business success.
For companies whose stores have remained open during the shutdown, we’ve been reviewing company policies on workplace conditions and employment flexibility. Are companies providing proper protective equipment and a clean work environment? Do they offer hazard pay or bonuses for exposed employees? Are companies providing paid sick leave and long-term leave options as well as flexibility for employees unable to work during this time—for example, because of family care responsibilities or family illness? What benefits are provided for employees or retirees particularly affected by the coronavirus?
For companies that have had to close stores, we're reviewing their policies on employee retention. If they've had to furlough employees, are they still covering benefits? Have they paused or ceased stock buybacks to continue benefits for employees? Are they keeping employees fully paid so they can reopen as quickly as possible? Have they cut or restrained CEO board and executive pay to keep employees as long as possible and to fund operations until business can be restarted?
We're pleased that many retailers in which we invest have met these challenges. They recognize that how they treat their employees is a clear representation of their brand and that their employees ultimately create the customer interactions that will drive future customer loyalty. Our analysis suggests that reputational benefits from actions taken to support employees are persistent and will benefit employers and shareholders in the long term.