Woke or Broke™ Covid-19 edition : Q2, 2020
“A time of crisis is not just a time of anxiety and worry. It gives a chance, an opportunity, to choose well or to choose badly” — Desmond Tutu
The coronavirus pandemic is putting woke capitalism to the test by revealing how companies respond when hit with sliding share prices and cash flow crunches. Have the majority responded with compassion towards their employees, customers and suppliers? Or have they done the equivalent of selling hand wash at a 5000% markup and hoarded all the toilet roll?
Chief executives and boards are finding that there is a very fine line between cutting non-essential costs to free up cash, and protecting the rights (and dignity) of their stakeholders. This balancing act is made even more challenging in sectors that have been decimated by Covid-19: airlines are grounded; automotive factories are closed; oil is trading at $20 a barrel; and hospitality and leisure are concepts that belong to a time before Corona. Analysis by JP Morgan suggests that the median small business has a cash buffer of only 27 days, which makes it highly likely that many will never reopen.
The stresses of this crisis are already revealing the true colours of different businesses and their leaders. With the help of the Woke or Broke matrix (WoB™) let’s take a look at which ones, in the words of Desmond Tutu, have so far ‘chosen well’ and which ones have ‘chosen badly’.
Amazon, Walmart & eBay (Globally)
Crisis response rating: 🦠🦠🦠
Verdict: Hands off. Less Woke than you think.
The price gouging of items like hand wash and kitchen cleaner was one of the first consumer stories to emerge from this pandemic. Social psychologists predict that people respond in one of two ways during a crisis. The first is to collaborate and help their brethren (a skill that is unique to humans and naked mole rats). The second is a Darwinian survival instinct (protect my tribe, f*ck everyone else). A third, perhaps, is to exploit a crisis for profit. Amazon, under pressure from consumers encountering bottles of hand gel costing $350 (RRP $1.49), responded by blocking and delisting sellers. But this reactive, and quite frankly blunt measure, did little to free up the supply of hoarded items. In fact it stranded them and denied them to people in need (Walmart and eBay took similar steps). These organisations should play a smarter role in correcting market failures, and do more than claim it is “too difficult” to police such a big marketplace.
LVMH & Brewdog (France and UK)
Crisis response rating:🦠🦠🦠🦠
Verdict: Hand washing beats woke washing.
Land of Soap and Glory, Killer Clean, Smells Like Clean Spirit, I Want To Wash My Hands (ok, I’ll stop). But never before has hand washing been more important, or musical. The W.H.O (the World Health Organisation, not the band), are urging us to hum a tune and wash our hands for at least thirty seconds. According to IRI’s consumer spending tracker, this has led to a 250–450% increase in weekly like for like sales of soap, hand sanitizers and alcoholic hand gel. Which means, shorty got low, low, low, low (on hand wash). So thank god that luxury goods companies like LVMH, and craft breweries like BrewDog have been able to re-purpose production lines to churn out the stuff. They are our hand wash Angels (sing with me now!): “through it all they offer us protection, a lot of soap and affection…down the waterfall, wherever it may take me, I hope Corona won’t break me…I’m loving hand gel instead’ — Rubby Williams (2020)
Aldi & McDonalds (Germany)
Crisis response rating: 🦠🦠🦠🦠🦠
Verdict: McSharing is McCaring. Woke.
Big Mac’s are off the menu. Supermarkets are being stripped bare. Staff are stretched. What to do? Aldi and McDonalds responded in a McHurry by entering into a staff sharing agreement where McDonald’s employees (who are currently unable to work due to the lockdown of non-essential shops) can provide extra capacity at Aldi supermarkets. Holger Beeck, the CEO of McDonald’s Germany, said ‘“everyone in Germany is currently being asked to do their part to cope with the crisis […] This is a classic win-win.” An honourable mention also goes to Aldi UK for paying hard working staff a 10% bonus in recognition of their graft.
Decathlon (Italy)
Crisis response rating:🦠🦠🦠🦠🦠
Verdict: Rescue divers. Woke
We (humanity) have too few respirators or ICU ventilators to respond to surges in critical cases of Covid-19. The shores of Italy and Spain have already been struck, whilst wards in Great Britain, the USA and beyond are expecting a deadly surge of new cases in coming days. This is frightening, because manufacturing new ventilators will take too long to save lives. In response, Decathlon donated 10,000 snorkelling masks after ingenious Italian innovators figured out that a 3D printed part could convert them into functioning respiratory aids. Decathlon’s impact will not be measured in items ‘donated’, but lives saved.
Zara (Spain)
Crisis response rating: 🦠🦠🦠🦠🦠
Verdict: Frontline fashion. Woke.
“I don’t want no scrub, a scrub is a guy that can’t no love from me’. Well, no actually. Medical workers want more scrubs (just a different type of scrub), and they need them now. Zara have stepped up to the plate to provide Spanish hospitals with extra medical scrubs and personal protective equipment (PPE) including masks, gloves, goggles and caps. I presume the range will be slim fitting, affordable and updated every few weeks. This is a great example of a company leveraging existing assets and capabilities (being able to produce any fashion item in under 6 weeks) in support of a public health emergency.
Adidas, H&M, Deichmann (Germany)
Crisis response rating: 🦠🦠
Verdict: Short term cash gain may result in longer term brand pain.
Adidas announced that “like many other companies” they would be “temporarily suspending rental payments” while their physical retail sites were unable to trade. Swedish fast fashion retailer H&M and Deichmann (Europe’s largest shoe seller) have said the same. At first glance it makes sense to axe costs that are non-revenue generating. So is there anything to complain about? Well German Finance minister Olaf Schulz certainly thought so, “We will only get through this crisis together if we show consideration and cohesion. Corona teaches us that we will fail if we show egoism”. His verdict was echoed by Katarina Barley (Vice President of the European Parliament), who described Adidas’s move as an exploitation of “protection clauses for tenants with existential problems”. The spirit of German government measures suggest that solvent companies should take the hit so that Government support is guaranteed for those in greater need. Verdict: CEOs with healthy balance sheets should think twice before pursuing a tactic of deferred payments. With reported free cash flow of $3.1bn (Adidas) and $1.56bn (H&M) neither of these companies should be at the front of the line.
Sports Direct (part of Frasers Group, UK)
Crisis response rating: 🤮🤮🤮🤮🤮
Verdict: Morally bankrupt.
Shops, bars and restaurants have closed to contain the spread of a deadly virus. These measures follow fact based medical guidance. But this didn’t prevent pantomime villains Mike Ashley and his CFO from “clarifying” if these measures should apply to them. After all, their sporting goods and cycling stores support the “physical and mental wellbeing” of the nation. Just imagine a dystopia where Sports Direct is temporarily closed. Birds no longer sing. Naked feet walk on cold floors unable to locate a fresh multipack of Donnay socks. Despairing millions huddle in groups drinking from tiny mugs. Children cry forlornly for their favourite oversize tennis ball…this should not be allowed to pass — even if it risks a few lives!
Or maybe not. After vociferous complaints from Sports Direct employees, the public, politicians and everyone on Twitter, Mike Ashley backed down. In a separate letter he acknowledged that the pressure his company had put on Her Majesty’s Government was “ill judged” and “poorly timed”, and that his communication with employees had been “poor”. Profit before people, self interest before national interest. Any lingering doubts about the moral integrity of this organisation and its CEO should now be dispelled.
No one is immune, but we all have the ability to safeguard ourselves against sensationalism and ‘fake news’. I can recommend JUST capital as a resource for tracking the companies that matter most to you. I hope this is one of many resources that helps you make your own Woke or Broke judgements. In the meantime, stay safe, stay healthy and keep washing those hands.
