Coronavirus: Are Companies Prepared to Take Care of Their Employees?

Posted on May 1, 2020

Roxana Dobre
Roxana Dobre
Associate Director, Consumer Goods Research
Jessica Grant
Jessica Grant
ESG Research Lead Analyst, Consumer Goods

In April 2020, the International Labour Organisation (ILO)[i] estimated that in the second quarter of 2020 there will be a 6.7% decrease in working hours globally (approximately 195 million full-time employees), primarily in the sectors hardest hit by the Coronavirus pandemic: food service, manufacturing and retailing.

Across the globe, affected regions are expected to be the Arab States (8.1%, equivalent to 5 million full-time workers) followed by Europe (7.8%, or 12 million full-time workers) and Asia and the Pacific (7.2 per cent, 125 million full-time workers).

According to the International Labour Organisation (ILO) an estimated 20% of the world employment is active either in retail (14.5%) or food service and accommodation sector (4.2%).  Analysis of the European employment market by McKinsey found that 74% of total sector employment in the accommodation and food sector, and 44% in the wholesale and retail sector were jobs at risk.

Retail and Apparel

The retailing industry is among the deeply affected by the Coronavirus crisis in 2020. Due to its discretionary nature (no primary use products), the industry is particularly vulnerable to economic shocks like a global pandemic. As the virus started spreading globally it not only disrupted supply chains in Asia triggering shutdowns and delayed deliveries, but it also resulted in stores shutting in key markets.

The State of Fashion Report[ii] issued by BoF and McKinsey in March 2020 indicated that the global fashion industry (apparel and footwear sectors) will decrease by 27 to 30 % in 2020 year-on-year as a result of the spread of the Coronavirus, adding to an already struggling industry that faced high inventory rates[iii] and changing consumer demands.

In addition to dealing with dropping sales, retailers[iv] also face the dilemma of how to deal with employees as stores are closed and production slows. Most retailers announced that they would close stores to ensure the safety of their employees.

On March 18th, Inditex[v] announced that it would close 3,785 (50%) of its stores worldwide. The company agreed to pay its store employees in full during the shutdown. However, recent reports indicate that should the situation continue beyond mid-April, Inditex is looking into potentially laying off 25.0000 store employees, to account for the losses; however, the company is committed to paying the difference between the unemployment benefits and the salaries.

Rival H&M[vi] is faced with a similar issue, as the company temporarily closed 70% of its stores due to the virus outbreak. In early April, the company announced that it would continue paying store employees for another 2 weeks, but that the company is also in talks with employee representatives to cut store jobs due 46% drop in sale in March 2020.

Restaurants

The global lockdown has spelt disaster for the high street. Restaurants, by and large, have closed their doors to customers while some have adapted through food delivery services or drive-throughs/takeaway options. The National Restaurant Association (NRA) estimated that 3 million US industry jobs had already been lost and this figure could creep up to 7 million[vii] over the next quarter.

For restaurants that continue to operate and where employees are kept on, occupational health and safety has never been so important and COVID-19 has highlighted an industry attitude towards employment, which does not work in the best interests of its employees, nor its customers or the general public. In short, workers have to turn up to work in order to get paid. This approach pressures workers who cannot afford to forgo a paycheck to work through bouts of sickness. Only 25% of food service workers in the US receive paid sick leave[viii] according to US Federal Data.

In light of COVID-19, some multinational restaurant chains are introducing or improving their policies on sick leave. McDonald’s rolled out a new policy increasing paid sick leave from a maximum of five days to two weeks, for those exposed to or infected with the coronavirus. However, the policy was applied to company-owned stores, which only accounts for 7% of the business and approximately 205,000 employees (as at the end of 2019). For the millions of other workers, that are at the mercy of the individual franchisees, disputes over sick pay and sanitation have resulted in protests and walkouts. Companies that deploy strict health and safety measures and have control over the working conditions of all employees which represent their brand are better placed to outride this rough period.

Food Retailers

As COVID-19 takes hold, and bars and restaurants close their doors to the public, food retailers are seeing a surge in demand as households are stocking up on food, drink and other essentials. It was reported that grocery sales in the UK hit a record of GBP10.8bn (USD13bn), up 20.6% in March[ix]. Alcohol sales alone were up 22%[x].

Looking at share value, food retailers Walmart (down 10%), Costco (down 12% and Kroger (Up 2.6%), were some of the lucky few to outperform the volatile market which saw a 28% drop in the S&P500 index[xi]. Despite the boom in grocery shopping, COVID-19 presents its challenges to food retailers and the millions of workers supporting the industry. Many retailers have had to reduce their opening hours and employ more staff to allow for extra sanity measures and the restocking of shelves as the number of shopping trips soared[xii] and customers have succumbed to panic buying. Tesco’s, Walmart and Kroger, all halted their 24-hour operations to cope with the extra strain.

Aside from supply chain disruption, human capital and occupational health and safety has been particularly challenging for food retailers during this period. Employees within the food retailer industry are among the most exposed to COVID-19, as they continue to serve millions of customers and in the past few weeks, there has been a spike in labour disputes as workers have expressed their concern over health and safety measures. Workers are walking out and threatening to close cash registers as retailers fail to provide masks, gloves and protective screens. Some employers have even been accused of prohibiting the use of protective gear. Unions have called for extra compensation for the risks taken on by workers who are propping up this essential industry. A Japanese minister re-iterated this, stating that supermarket cashiers deserved cash pay-outs to award hard work and to compensate for the risk of infection[xiii]. US senators are also calling for hazard pay for essential frontline workers[xiv].

Sustainalytics Research

The fact that companies in these subindustries are faced with issues in managing human capital during difficult times, does not come as a surprise. Sustainalytics research data shows (Figure 1) that only 10% of analysed companies show strong management (including mitigating controversies) of human capital related issues, while the rest of 90% is divided equally between average and low management of the issue. However, even companies with strong management like Inditex or H&M find themselves struggling in protecting their employees, during this pandemic, but they are nonetheless in a better position to address it.

FIGURE 1: HUMAN CAPITAL ISSUE MANAGEMENT SCORE

Source: Sustainalytics

Sources

[i] https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_740893/lang–en/index.htm
[ii] McKinsey, The State of the Fashion 2020, Coronavirus Update
[iii] https://www.businessoffashion.com/articles/professional/hm-inventory-retail-supply-chain
[iv] https://www.statista.com/statistics/266595/leading-20-retailers-worldwide-based-on-revenue/
[v] https://www.bloomberg.com/news/articles/2020-03-20/inditex-considers-plans-to-lay-off-25-000-in-spain-next-month
[vi] https://www.bloomberg.com/news/articles/2020-04-03/h-m-forecasts-loss-as-retailer-considers-job-cuts-due-to-virus
[vii] https://www.reuters.com/article/us-health-coronavirus-usa-restaurants/u-s-restaurants-seek-325-bln-of-federal-aid-due-to-coronavirus-hit-idUSKBN2152JW
[viii] https://www.vox.com/the-goods/2020/3/13/21178879/coronavirus-covid-19-restaurant-workers-sick-leave-chipotle-mcdonalds
[ix] https://uk.finance.yahoo.com/news/coronavirus-covid-19-groceries-kantar-worldpanel-supermarket-sales-march-2020-record-074519464.html
[x] https://www.theguardian.com/commentisfree/2020/apr/08/business-supermarkets-government-rishi-sunak-coronavirus
[xi] https://www.latimes.com/business/story/2020-03-15/grocery-store-industry-coronavirus
[xii] https://www.theguardian.com/business/2020/mar/31/coronavirus-britons-made-80m-extra-grocery-shops-in-less-than-a-month
[xiii] https://www.ft.com/content/43f98ef8-ce90-4014-ae95-557c9f3fc388
[xiv] https://www.forbes.com/sites/terinaallen/2020/04/22/up-to-25000-hazard-pay-for-essential-workers-one-of-our-very-highest-priorities/#39b9d62b36d1

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