This Brands Blog is based on presentation given to members by Jonathan Gabay in March 2024. A video of this presentation can be found our YouTube channel e.

The 91猫先生 recently invited me to deliver a keynote to its members at its Annual General Meeting. My subject? FOMAI 鈥� Fear of Missing AI.

If you are one of the millions suffering from this disorder, I sincerely wish you a speedy resolution.

This anxiety is similar to a programme once offered by numerous zoos to help those battling arachnophobia. Often anxious and fidgety, visitors would start by observing spiders safely behind glass. Over time, those plucking up the courage would reach into the eerie tanks, allowing non-venomous spiders to wander over their hands.

In time, brave participants would hold a tarantula, their palms clammy with sweat. To their amazement, they often tolerated the spiders and appreciated their extraordinary natural abilities.

For many, FOMAI is a daunting, multi-eyed tarantula with one glaring eye seemingly intent on taking away jobs.

From a paralysing force to a force to motivate

听So, how worried should we be about AI? Is the fear merely fear itself?

In my keynote, I explored how AI supports teams.

Areas such as generative AI have had mixed success. However, the latest updates improve accuracy.

Professional training that combines technology with human expertise is helping professionals recognise AI as an enhancement to natural creativity, not a replacement.

More is good; too much is just a stomach ache

The real issue lies in the practical application of AI and related technologies.

While mindful of data security issues, managers can quickly become enticed by the substantial time and cost savings promised by AI 鈥� tenfold, twentyfold and even more.

So, they rush to implement AI in campaigns. Yet, the sheer quantity of content and immediate cost reductions remain alluring, especially in a volatile job market.

It’s a clear case of short-term tactics being favoured over long-term strategy.

Reaching beyond average

听Awareness and consistent messaging have always been critical facets of successful branding.

However, powerful messages are shaped by human insight and a deep understanding of the brand. Otherwise, a narrative may seem insincere or at best, fail to add real value.

That can be catastrophic for brands, their teams and customers alike.

So, before taking the plunge to purge yourself of FOMAI, it makes sense to get a grip on what drives AI.

It all boils down to a simple calculated truth: AI takes gigabytes of data, analyses it and delivers succinct answers; it calculates average popular answers, producing (guess what鈥�)听 鈥榓verage鈥� answers.

At Saatchi & Saatchi, I was taught the importance of at least aiming to settle for nothing less than excellence based on the agency鈥檚 creative principle: “Best is Better.”

Nowadays, it’s hard to avoid generic marketing messages that dissolve into a dull hum of background noise. AI risks exacerbating this trend, producing bland content mixed with synthetic elements. That’s the last thing consumers want or need.

They deserve engaging brand stories that inspire and resonate with their continuous search for meaning, purpose and belonging.

From radio ga-go to web-connected goo-goo

In a world increasingly steered by AI, young marketers are accustomed to feeding it data rather than employing their brilliant minds, often opting to press buttons rather than think critically.

This widespread trend transforms individuals into mere cogs in a machine governed by efficiency. From managers glued to analytics dashboards to creatives tethered to graphic and editing tools, every modern product pitch seems incomplete without the tagline 鈥減owered by AI.鈥�

In advertising and marketing, creative minds are becoming confined to monotonous tasks reminiscent of Charlie Chaplin鈥檚 鈥淢odern Times,鈥� with each low-level operator fine-tuning a small part of a bigger set of cogs controlled by a higher-level AI 鈥淲izard of Oz.鈥�

It strips away personal connection, preventing individuals from seeing the impact of their work on the larger vision. As widely reported, it even pushes the dreary mechanics of work towards a crisis of identity and mental well-being.

Reinterpreting truth

In advertising, the craft of shaping complex narratives into succinct headlines is well-established. Yet, we may reduce rich, multi-layered brand stories to overly simplistic snippets, infantilising consumers and diminishing brands.

The hazards of constantly staring at screens aren鈥檛 limited to neck strain, which can eventually lead to conditions like Temporal Arthritis; it鈥檚 also about complacency, akin to cognitively dissonant smokers laughing off health warnings whilst cracking open one more box of sticks. We’re happy to offload daily thinking to one of the major tech-run cognitive processing warehouses operated by Microsoft, Anthropic, Google and soon, with the introduction of ReALM, Apple.

If it sounds like I鈥檓 a Neo-Luddite opposing progress, I assure you that I celebrate technology that enhances creativity without dominating it, like predictive analytics that streamlines customer experiences.

Yet, handling technology wisely calls for critical thought, ethics, balance, respect, and integrity.

Balancing justice

At the 91猫先生 keynote, I met several legal experts who specialised in brand IP and digital privacy. They pointed out that while AI is a valuable tool, it cannot supplant the nuanced experience and refined legal judgement of professionals.

Many legal practices use Microsoft Office 365’s Copilot to create introductory slides, design graphics and summarise documents. While AI models are adept at handling predefined variables, including those trained on legal decisions, they cannot 鈥� and should not 鈥� replace human intellect and empathy.

Law and precedents may be clear-cut, but circumstances reflecting the principles of Iustitia often sway the scales towards a guilty or not guilty verdict. (A reason why juries are a cornerstone of the British criminal justice system).

In this context, AI is a strict judge sticking to the letter of the law, whereas AI users, including lawyers, are more akin to barristers who engage the jury’s sense of compassion and wisdom.

Technology and digital transformations have revolutionised both our lives and our relationship with marketing and brands.

It is accepted that this has led to a mix of good and bad practices, behaviours and interventions.

The digital world has also created a new lexicon of terms and jargon that marketers need to keep up with! The dark nudge or sludge is one such new addition to our world.

Thaler and Sunstein, leaders in behavioural thinking, describe a nudge thus:

鈥楢 nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.鈥�

A dark nudge is an aspect of choice architecture that encourages a consumer to make a bad or personally detrimental choice. It magnifies cognitive bias to encourage or discourage changes in behaviour. Not all dark nudges are created equal and this creates a nudge-spectrum and shades of grey. This varies dramatically from genuinely harmful choices to digital marketing or AI that simply encourages consumers to make fast, System 1 (S1) choices, without the time or energy for full consideration.

The Behavioural Hub of the Competition and Markets Authority has recently published a on the taxonomy of online choice architecture (OCA) and how certain practices may harm consumers as well as competition. An accompanying provided supporting evidence. Mapping out and bringing structure to such practices help lead the discussion on how to regulate the digital environment and how to best prevent activities that are obviously harmful.

Playing devil鈥檚 advocate for a moment… the marketing world has long contained a range of nudges of various shades that have encouraged S1 approaches long before we even knew what they were! The purpose of this Brands Blog is to highlight one that has been a cause of much debate and angst between brand owners and retailers… look-alike, copycat or ‘parasitic’ packaging. This is where a competitor uses shape, typography, language, copy and colour to make their product look as much like the trusted branded product as they can possibly get away with.

In practice, copiers can mimic influential elements of brand packaging largely unchallenged. Unless they infringe trade marks, copyright or other enforceable IP [intellectual property], they can sail very close to the wind as the standard of evidence required by the courts to find against them is challengingly high.

础尘补锄辞苍鈥檚 to the Groceries Supply Code of Practice () is 鈥榩robably the biggest news in years鈥�, fundamentally affecting Vendors鈥� relationships with Amazon. The detail will emerge over time, though big questions are already in play, such as how will Amazon maintain its profitability if upfront fees, price matching with margin support and chargebacks are constrained? Key for Vendors is to prepare and make sure they know GSCOP in detail.

This was the verdict of an online meeting in March 2022 hosted by the 91猫先生 and , exploring Potential Implications of GSCOP for Vendors.

Fair negotiations and agreements regulated by GSCOP could result in 础尘补锄辞苍鈥檚 designation proving mutually beneficial to all involved, as has been the case when other grocery retailers have been designated.

The background to GSCOP

Introduced by the UK鈥檚 Competition Commission in 2010 to prevent the misuse of buyer power by large supermarkets, GSCOP primarily protects consumers by ensuring they have a choice of innovative, high quality products to shop. Providing a fairer, more certain trading climate for suppliers is a means to that goal, encouraging product investment. The Code doesn鈥檛 differentiate between online and offline and is supported by an independent regulator, the (GCA), who monitors compliance and has enforcement powers including the ability to require information, publish guidance, investigate designated retailers and impose fines.

When GSCOP was introduced more than a decade ago, Amazon was small in grocery but now has a grocery turnover exceeding 拢1 billion, hence its designation on 1^st March 2022. This means that Amazon must comply with the Code in its relationships with all its grocery Vendors, no matter their size or where in the world they are based.

In addition to complying with the Code, Amazon, like all designated retailers, must have written supply agreements, appoint Code Compliance Officers, have dispute resolution procedures, train their staff and formally report on compliance.

The practical effects are to change fundamentally the dynamic of the relationship between buyer and seller, such that both parties are motivated, admittedly by different forces, to resolve differences and reach agreements at point of trading. However, for this to work, Vendors must know the Code, understand its subtleties, recognise the different options available to resolve issues and be familiar with the best language to use to keep the trading relationship positive.

Amazon in GSCOP

础尘补锄辞苍鈥檚 business model differs from that of other designated retailers so Vendors are taking a keen interest in how the Code will be applied and interpreted, a level of interest borne out by the high numbers joining the meeting.

础尘补锄辞苍鈥檚 move to share contact details with all Vendors of its Code Compliance Officer, senior category buyers and supplier helplines is a very positive first step although potentially only a short-term stop gap. It opens the floodgate for thousands of suppliers to contact Amazon, when historically human contact has been difficult, with most business conducted online and automated via Vendor Central. There is also now a clear escalation process. The impact of this has yet to become clear and, long term, Amazon may need to evolve its approach to provide the necessary points of contact required by the Code in a way that is efficient, effective and compliant.

Amazon has issued a Groceries Supply Code of Practice Notice to Vendors, bringing its supply agreements into compliance. These agreements need to be clear, as Vendors must know what they are signing up for, for example in relation to payments, charges and rebates. Once an agreement has been reached, there is limited potential for retrospective changes, the basis for them having to be set out up front and agreed.

Damage allowances are a case in point. These tend to be mandatory, with currently limited detail presented to Vendors on what they cover. GSCOP has specific provisions for wastage and shrinkage, with charges being appropriate only where fault lies with the Vendor. So now any charges levied must be in line with GSCOP.

Marketing spend is a further area where Vendors may reasonably expect greater clarity and transparency. What will they receive for what they are being asked to pay? If that is unclear, and if marketing spend remains a mandatory requirement for trading on Amazon, might that be interpreted as a listing fee, an area regulated under the Code?

Pricing

The Code does not regulate pricing, though there are potential restrictions on what Amazon may now do. This is a potentially significant area where Vendors need to be prepared. Key is what Vendor鈥檚 sign up to in their Supply Agreements. In the past Amazon approached Vendors for margin support during the year as it price matched against its retail competitors. This approach will now need to be agreed with the Vendor upfront.

Closely related is the ability for Amazon to reduce the visibility and competitiveness of a Vendor鈥檚 products when the Vendor does not provide the margin support required, a practice known as CRAPing (Can鈥檛 Realise a Profit). This applies pressure 鈥� or in GSCOP language 鈥榙uress鈥� 鈥� on the Vendor to pay the required margin support which may, in certain circumstances, be deemed requiring a listing or 鈥榩ay-to-stay鈥� fee, something that the Code regulates.

An interesting variation on this is when Amazon price matches against a promotional price in a competing retailer and requires margin support from the Vendor to fund it. Might the new Amazon price be also deemed a promotional price? If so, it cannot request or require a Vendor predominantly to fund the price match.

The announcement by the Competition and Markets Authority (CMA) on 9 February 2022 that Amazon was to become a designated GSCOP retailer and must comply with the Groceries Supply Code of Practice is an unquestionable milestone for the company.

Amazon has been on the CMA鈥檚 radar ever since it set up the Amazon Fresh programme in 2016. Despite this, designation has been difficult to pin down as Amazon never discloses the proportion of its business derived from grocery in its annual accounts. Now that Amazon, together with its two UK subsidiaries Amazon EU Sarl and Fresh and Wild, have UK grocery sales over 拢1 billion, it has been placed amongst the top fourteen largest grocery retailers in the country.

The GSCOP designation is great news for the grocery manufacturers in a First Party (1P) relationship. And in time, this will also be great news for Amazon.

GSCOP explained

The Code interprets 鈥榞roceries鈥� broadly, covering household, toiletry and cleaning products as well as food and drink. What is key is that the Code influences behaviour, affecting the way retailers and suppliers work and talk to each other.

At its core, GSCOP is the requirement for designated retailers to treat their suppliers fairly and lawfully. It was introduced by the Competition Commission over concerns that large retailers were passing unexpected costs and excessive risks to their suppliers. That created commercial uncertainty of sufficient magnitude that it risked harming suppliers鈥� scope to invest in choice, quality and innovation that would in turn harm shoppers and consumers.

Now, suppliers can look forward to a more favourable relationship through greater certainty and reduced business risk.

For example, a supplier has enough incentive to try and resolve situations where it feels it has been treated unfairly or unlawfully, incentives that may not be matched on the retail side. For designated retailers, motivation to resolve potential breaches comes from an active and dedicated Code monitor and enforcer in the form of the Groceries Code Adjudicator and the prospect of a maximum fine of up to 1% of the retailer鈥檚 total UK turnover for egregious breaches. In the case of Amazon, that would include turnover from Vendors, Sellers, Fresh and Wild and, potentially, Amazon Web Services. That鈥檚 a potential maximum fine of 拢260 million.

Such incentives have proved sufficient for existing designated retailers to introduce internal procedures highlighting when suppliers have GSCOP concerns, the ability of their Code Compliance Officers to have confidential discussions with suppliers and dedicated supplier helplines to resolve financial disputes, separate from the buying team. This approach does not readily sit within 础尘补锄辞苍鈥檚 model, where automation rules, suppliers must pay to have access to a Vendor Manager and there are no ready channels to resolve payment queries.

The Amazon Supplier view

Currently, the overall relationship between Amazon and grocery manufacturers is strained. Negotiating terms are often unstructured, tense, time consuming and protracted. The suspension or delisting of products without notice and other negotiating tactics are resented by Sale Directors. As a result, many large grocery manufacturers have pulled back from Amazon due to the challenging sales environment.

GSCOP could spell good news for suppliers in this regard as it significantly constrains retailers鈥� ability to impose charges and make deductions without suppliers鈥� agreement. If a supplier queries a deduction within 30 days, the deduction cannot be made until agreement is reached. Retailers鈥� supplier helplines have been introduced to bring efficiency to this process, something not currently available to Amazon vendors.

The last year has brought big changes in how brands get their products to market and maintain their brand relevance, but it also has seen changes in the broader priorities and behaviour of brands, retailers and consumers.听 Not just buying and selling behaviour, but also broader societal priorities such as sustainability, environmental issues and diversity, have seen remarkable shifts during the past year.听 These changes were discussed at a 91猫先生 鈥淐hanging Lives, Changing Behaviour and the Implications for Brands鈥�, the second of two in the series Don鈥檛 Panic! How Brands Can Thrive in Chaos and chaired by Rita Clifton CBE, Deputy Chairman of The John Lewis Partnership.听

How has consumer behaviour changed?

Online sales to consumers increased by 50% last year, according to .听 Richard Chataway, CEO of , told the meeting, 鈥淲hat that means is that those brands that are well-equipped to deal with that, and have built great digital experiences for customers, obviously stand to benefit.鈥�

Some brands have even been helping consumers make the transition to digital services, even though the consumer initially might have been resistant or not know how to do so.听 BVA Nudge has been working with a savings bank whose customer service reps encourage customers who ring the bank鈥檚 call centre to use their digital services, and then help the customers get onto the bank鈥檚 website and talk them through how to navigate the service.

鈥淚t would be a mistake to think that people have really changed fundamentally,鈥� said Chataway, 鈥渂ut some of the circumstances 鈥� contextual environmental factors that are a big influence on our behaviour 鈥� have changed a lot over the last 18 months鈥�.听 That means that making those experiences good and easy for people is even more important.鈥�

How have brands鈥� behaviours changed?

Given that many retailers rationalised and reduced their product ranges over the last year, brands have had to work harder and differently with retailers to keep their products on-shelf, to introduce new products and to get those products in front of consumers.

Amelia Harvey, Co-founder at , said that launching new innovations has been challenging, because there have not been as many opportunities or slots on-shelf, and the time to prove success has become shorter and shorter.听 鈥淏rands can go in and have probably less than 12 weeks to prove a point, and then they’re in or out.鈥�

The Collective鈥檚 strategy has been to push big retailers hard to offer a number of different flavours from their range, and the company has worked to get their products in front of consumers in new physical and digital ways.听 For example, when The Collective launched a new plant-based yoghurt range during lockdown, they partnered with Deliveroo and Uber Eats 鈥渢o put our plant launch out there with other vegetarian or vegan deliveries,鈥� said Harvey. 听鈥淲e’ve had to really pivot and think about different ways to get the products in front of the consumer to taste.鈥�

How are brands dealing with broader societal issues?

Brands have become more aware and more vocal about important issues in society, not necessarily leading public campaigns on such initiatives themselves but often being supportive both internally and publicly.

鈥淏rands can definitely have a credible role in helping here,鈥� said James Parnum, Managing Partner, Head of Planning at .听 鈥淭hey can help you eat better, buy better, travel better, protect nature, waste less packaging. We鈥檙e starting to see some really good examples.鈥澨� Some notable companies and initiatives highlighted by Parnum and others at the meeting included:

Britain鈥檚 brands have done well during the COVID pandemic, according to a recent , with 76 of the top 100 brands increasing their sales in 2020.听 But brands are having to adapt to significant changes in consumer, retail, and online buying and selling behaviour.听 These changes were discussed at a recent 91猫先生 鈥淐hanging Routes to Market and the Implications for Brands鈥�, the first of two in the series Don鈥檛 Panic: How Brands Can Thrive in Chaos.

Reduced product ranges in-store

How the markets for brands have changed is complicated, said the meeting鈥檚 host Adam Leyland, Editor of . 鈥淲e know that the world has changed forever,鈥� he said, 鈥渂ut we don’t know how much of the new normal is permanently normal, and how much is temporarily normal. And we don’t even know what normal is!鈥�

One area where the pandemic saw substantial changes at retail outlets was in a reduction of the number of product SKUs (stock keeping units, aka product range) that retailers maintained at their supermarkets.听 Studies done by Nick Theodore, Founder and CEO of , discovered what he called an 鈥榰npopular fact鈥�: Shoppers actually like these range reductions.

鈥淥n average we were looking at about 20% reduction in SKUs across the lines of Tesco and ASDA last year,鈥� said Theodore. 鈥淲e saw some really interesting average findings across these, which was a 7% sales increase and a 5% faster shopping trip.听 There were real commercial benefits in reducing SKUs, given that shoppers were actually picking up more items and trading up when they saw fewer items available,鈥� he said.

Working with retailers to get good shelf layout, and communicating a future vision for their SKUs backed up by data and insights, are key steps that brands need to take to maintain visibility in these new times of smaller in-store product ranges. 鈥淚 think retailers react well when you openly target your own range first,鈥� said Sarah Hepworth, Head of Sales 鈥� eCommerce for . 鈥淚t’s really holding yourself to account that your product has got a point of difference, or will attract a different shopper, or whatever it is.鈥�

Online opportunities and challenges

Online shopping has boomed during the COVID pandemic, in what independent analyst called 鈥榝ive years of growth in one year鈥�.听 Online grocery retailing doubled from a fairly low base of 5% to 10% last year.听 Online non-grocery retailing, what Evans calls 鈥榯ruck retail鈥�, went from 10% to 50% last year.听 The different customer experience and logistics involved in online retailing have produced a number of changes and new issues for brands and retailers to deal with:

• Increased logistics and marketing costs. 鈥淚f you sell online and save all this money on rent, half of this money goes on the treadmill of faster and faster delivery and on returns鈥攁 third of your sales might be returns鈥攁nd the other half goes on marketing, telling your customer that the product exists,鈥� said Evans.
• New online sales options. Amazon remains very popular (at least for non-food retailing), but the relatively new online platform Shopify has appeared, providing tools for any brand or company to build its own online store fairly cheaply and easily.听 Shopify鈥檚 gross market value grew to about $120 billion last year, about 40% of the value of Amazon Marketplace.
• Growth in on-demand delivery (鈥極DD鈥�). The area of rapid pickup and delivery of grocery, restaurant, and other consumer retail orders has also been growing quickly.听 Trendsetters like Deliveroo and Uber Eats, as well as the large grocery delivery players including Ocado, Tesco, and Sainsbury鈥檚, are being joined by some new small ODD players, including Getir, Gorillas, ASAP and others.听 听

A wide choice of products at a range of prices across the country remains a good measure of an effective grocery market for shoppers. Retailers and suppliers play distinct roles in delivering this and it is important to understand the differences when considering policy. A refinement in one area may cause harm in another. Here we take a look at the financial models of retailers and brand manufacturers, highlighting their respective strategic priorities and suggesting that a comparison of their financial measures is unenlightening, being a comparison of apples with pears.

The retail model

Historically, the nature of bricks and mortar retailers has been to control the means of distributing fast moving consumer goods, from many branded and own label suppliers, to large numbers of domestic consumers in a concentrated space, in a cost-efficient way.

Small shops developed into larger stores and then into multiples and huge shopping centres like Bluewater. These retail emporia used to guarantee large store traffic and massive turnover often running 365 days of the year.

Retailers have controlled display and promotion in an intimate experience for consumers. That is why so much has been spent on the customer experience and enhancing the retail experience. It has all been about convenience, availability and service at a competitive price. Whether the consumer products concerned are food, electronics, durables or clothes, the principle is the same.

Traditional retailers have relied on high footfall and high spend with modest gross and net margins but with very large turnover. Fixed costs include, distribution, staffing, heating, lighting, rent, rates etc., all of which can be very high in absolute terms, so traditional retailers are highly geared in an operational sense. If they don鈥檛 keep the financial wheels turning and hit a certain level of turnover, they won鈥檛 even break even. If they don鈥檛 make enough to cover all these high operating costs, they rapidly fall into operating losses. This highlights the predicament of retailers in this Covid world.

While they may make relatively small margins on turnover, if they can keep absolute turnover high then the absolute margin they make can be financially attractive. This is known as high stock turn or high operational gearing. High stock turn leading to higher overall turnover at relatively low margins can still add up to a good return on capital employed at the end of the day, in a normal world.

The problem with retail is that if store traffic drops, if stock doesn鈥檛 turn over fast, if operating costs rise even a few percentage points, the whole business model goes haywire.

In the 1980s and 1990s Tesco, Sainsbury鈥檚, Asda, Safeway and Morrisons were locked in a vicious grocery retail price war. Prices were driven down in the battle for market share and all small players were crushed. Aldi and Lidl created the same conditions with the same results.

At that time net margins on turnover decreased to no more than 2-3%.

When the price war was over and many competitors had been rationalised, the surviving players had achieved close-to-dominant market shares. By the 2000s Tesco had acquired over 30% of all grocery retail spend and it was often said that 1 in every 7 pounds spent in the UK went through Tesco tills.

After that price war the major players focused more on quality and novelty rather than just on price. 听As a result net margins on turnover rose to as high as 7-8%. Tesco and the others became very profitable and highly valued in the stock market.

What Tesco shareholders cared about most was the absolute return on their invested capital not the percentage net margin on sales.

So the managers of Tesco, and similar 听retailers, aimed:

1) to relentlessly drive down prices, stimulate customer loyalty and generate higher turnover,

2) to attack all operational costs, thereby boosting net operating margins on higher turnover and thereby drive up absolute net profits,

But also…

3) to drive down the amount of capital employed in the business so that percentage returns on capital increased. If you make the same amount of net operating profit with lower capital employed, you are achieving a higher return on invested capital which is bound to please shareholders!

In a vulgar fraction, quite an appropriate term in relation to down and dirty retailing, the higher the numerator (the net profit) and the lower the denominator (the capital employed), the higher the magic Return On Capital Employed (ROCE) percentage.

In pursuit of objective 1), retail buyers became notorious for driving hard bargains with all suppliers. I am sure this would be regarded as an understatement by many fresh produce and packaged goods suppliers to companies like Tesco. Low prices, free product, slotting fees, volume discounts, co promotional discounts, in-store advertising, retrospective discounts were all part and parcel of the purchasing function鈥檚 role to reduce prices, pass operating costs to suppliers and improve net margins.

In pursuit of objective 2), retail managers sought zero hours staff contracts, minimum wages, imported labour and reductions in all costs per square foot.

In pursuit of objective 3), directors of retailers made strategic decisions to sell their freehold properties, take capital out of the balance sheet and lease instead. This worked well for decades but backfired when rents and rates rose in recent years. Many retailers have been forced to renegotiate and restructure and they are all lobbying for business rates reductions.

They also sought to reduce working capital by demanding that suppliers retain ownership of stock right through the supply chain to the store shelf, thereby cutting the cost of stock and debtors on their own balance sheets. Taking this one step further, they have charged cash, or immediate credit card payment, for the products to customers but then paid the suppliers on 30, 60 or even 90-day terms. They effectively trade with no stock or debtors but hold the cash receipts until settlement.

These techniques to reduce capital employed can sometimes lead to very odd-looking balance sheets.听It is quite normal for a grocery retailer to operate with 鈥榥egative working capital鈥�. This means suppliers are effectively lending their retail customers free working capital.

In a 鈥榥ormal鈥� manufacturing company there will be stock, work in progress, debtors and cash as assets employed, with some creditors reducing the need to fund all the short-term assets required to operate. The need for 鈥榳orking capital鈥� grows as a business grows and is normally financed by shareholders or by banks. This often creates a forceful squeeze on manufacturers as they grow.

But in the case of highly sophisticated retailers, there is no stock (because the supplier is left funding it), there are no debtors (because customers pay immediately), there is limited need for cash and there are usually huge creditor balances, meaning that suppliers fund the retailers balance sheets!

So, looking at a retailer鈥檚 balance sheet, it may have virtually zero property assets (because all stores are leased) and no working capital but large credit balances to suppliers and cash sitting around with nowhere to go except in dividends! At least that is how the retail business model is meant to run and for several decades did run.

But the wheels have come off in the last decade mainly because of the internet, online retail and discounters. The likes of Aldi, Lidl, Ocado and Amazon have cut the number of consumers going into retail stores. With lower overheads and costs, they have stripped demand from traditional bricks and mortar retailers. This means reductions in turnover, further pressure on margins and net operating profits falling. Meanwhile, the fact that online retailers have lower business rates and pay lower taxes has created a perfect storm for the retail business model. It is not surprising therefore that many retailers have gone bust in all retail sectors over the last 5 years. Company Voluntary Arrangements are at an all-time high.

Can brands benefit from their sustainability efforts?听 In the words of Professor Oliver Koll of the Universit盲t Innsbruck School of Management and IMark Strategy & Research, 鈥楧o people care?听 Do people inform themselves about these kinds of activities?鈥�

At a recent 91猫先生 meeting, Prof. Koll reviewed a number of studies on how the public perceives sustainability, how brands are implementing and making people aware of their sustainability initiatives, and what seems to be working and not working.

If done well, sustainability initiatives can help brands to succeed, and he gave some practical suggestions for what can be done to implement these initiatives well within a company.

Prof. Oliver Koll, Universit盲t Innsbruck School of Management, IMark Strategy & Research

Social responsibility and shareholder returns?

Ever since issues of corporate and social responsibility (鈥楥SR鈥�) began to be considered, there has been talk of a 鈥榯rade-off鈥� between doing good and making a profit.听 Studies started looking at this question about 25 years ago, and by and large have found that there are commercial benefits to brands鈥� socially responsible activities.听 One of the earlier studies (M. Pava and J. Krausz 1996) looked at hundreds of companies and what they were doing in the way of CSR, finding a positive correlation (if not necessarily a causation) between material investments in CSR and better financial performance.

More recent research has expanded on and refined this idea further.听 A 2016 paper (M. Khan, G. Serafeim & A. Yoon) looked at a large number of companies and their sustainability investments, finding that sustainability investments that are material鈥攖hat are necessary for the business and go directly to the core of the organisation鈥檚 activities鈥攊ndeed enhance shareholder value.听 And immaterial investments at least don鈥檛 hurt them.听 The overwhelming evidence of this research is that sustainability investments pay off when one looks at shareholder value as the relevant outcome.

A range of responses by consumers

Further research has looked at the conditions under which consumers might change their purchasing behaviour as a result of a brand鈥檚 CSR or sustainability efforts, and has shown that consumers鈥� reactions are not automatic but are nuanced, depending on such things as timing, local community, positioning, product type, and visibility. For example:

• People may have a short memory. 鈥淢ost papers at the outset agreed that if you do bad, consumers are going to be mad, they are going to stop buying from you and they will be talking negatively,鈥� explained Prof. Koll.听听 Poor CSR behaviour and publicity do indeed have a negative impact on corporate product evaluation (Brown & Dacin, 1997), but these effects may not last very long.听 There have been studies, for example, showing that after BP鈥檚 oil spill in the Gulf of Mexico, BP experienced downturns in sales for several weeks but recovered fairly quickly.
• Activities relevant to consumers鈥� own communities can have a greater impact. Sustainability activities toward community, customers, corporate governance, employees, and suppliers, all enhance brand equity (Torres 2012), but companies that do something focussed on the local communities in which they do business benefit even more from sustainability efforts.

A trend towards a more friendly class-action regime in the UK needs careful watching, particularly by companies that depend on their brand(s) for their competitiveness. Experience of class actions in other jurisdictions, in particular the US, indicates that the negative implications for business of a permissive class actions regime in terms of both costs and reputation could be significant, particularly if claims with limited benefits for individual claimants proceed unchecked.

The increased litigation risks that come with a more permissive regime can be expected to enhance compliance and increase consumer empowerment. These positive effects need to be offset against potentially negative effects which policymakers must heed for a holistic view. The US experience, where the courts operate an 鈥渙pt out鈥� approach, presents a salutary picture of the potential winners and losers.

Class actions based on clear consumer harm are uncontentious, though the US experience suggests that litigation can be driven more by lawyers seeking out minor regulatory infringements where there is no consumer injury or detriment. Whether any specific case is considered vexatious is down to the individual judge.