Wednesday, November 30, 2005

Consumers Seek Politically Correct Products

Beth LeGrande doesn't seek out politically correct retailers, but she was pleased to learn that Home Depot, her paint supplier, is eliminating products that contain wood from endangered forests.

"That would make me want to go there," the Raleigh legislative assistant said. "Every little thing helps."

After spending decades competing on price, a growing number of retailers are now focusing new marketing efforts on people such as LeGrande who care just enough about social values to be selective in how they shop.

Terms such as "recycling," "organic," "animal welfare" and even "labor rights" have been introduced, albeit selectively, in the marketing material of companies such as Staples, McDonald's, Wal-Mart, and Target, suggesting that it takes more than just low price to survive in today's competitive market.

This marketing push coincides with an effort by some discount retailers to diversify and reach out to a new and often more affluent segment of shoppers who can bolster their sales and revenue.

Consider, for example, that Wal-Mart -- the retail giant that conquered the world with the slogan "Always Low Prices" -- now stocks Horizon organic milk at nearly $3 a half-gallon, alongside containers that cost 30 percent less.

Or that OfficeMax would find a good market for 100 percent recycled computer paper when consumers can pay 20 cents less for a package of regular paper.

"Price is becoming secondary for most retailers," said Nicholas Didow, an associate professor of marketing at the University of North Carolina at Chapel Hill. "Their tradition in the marketplace is to serve a consumer segment that is very price sensitive, but that doesn't mean they cannot also carry other lines of merchandise that is appealing for other reasons. And when the elephant walks, the jungle trembles.

"When Wal-Mart heads in this direction, you can fully expect other low-price retailers to move quickly as well."

Companies also have to worry more today about their role in the global economy, and how their reputation can be affected by events thousands of miles away.

Eddie Bauer, the global apparel chain, recently went through a rigorous, three-year monitoring process to gain certification from the Fair Labor Association. The nonprofit organization seeks to improve working conditions in Third-world factories that produce goods for American retailers, and having a Fair Labor letter of approval can improve a company's public appearance.

Many companies, including Eddie Bauer and Gap, have been stung by conditions at their vendors' manufacturing plants in recent years.

News of infractions can travel fast, especially in a country sensitized to layoffs and plant closings that occur when businesses move operations overseas, and that can hurt sales. Corporations are learning how to respond.

Last year, Gap issued a report detailing conditions at factories that produce its clothes and accessories, disclosing a number of infractions and problems -- and getting praise from labor activists about its candor.

"Consumers are asking more questions about how and where apparel is made and about the impact of the food that they eat, and like any smart business, companies are gearing up to address those concerns," said Matt Hirschland, a spokesman for San Francisco-based Business for Social Responsibility, an industry trade group that consults with businesses on social and ethical issues.

Since its inception in 1992, Business for Social Responsibility has gradually added global Fortune 500 companies to its membership roll. Large retailers such as Toys "R" Us, OfficeMax, Gap and Sears are now among them.

Critics question how deep the commitment of this new generation of politically correct companies truly is. Businesses are, after all, in the business to make money, not policy.

Costco, a discount retailer known for its high wages and strong employee benefits, knows firsthand what a difficult balancing act that can be.

The company has come under fire from some Wall Street analysts who complain it's prioritizing employees over shareholders.

Costco has countered that by treating its employees well, it's reduced turnover and kept well-trained and skilled employees, realizing savings in other ways.

And so far, shareholders appear forgiving. Costco's stock has held steady over the past year at about $49 a share while its main competitor, Wal-Mart, has seen the value of its shares drop 13 percent to $49.50.

Wal-Mart isn't about to let its competitors gnaw away the edges of its business empire. Instead, the company is fighting back, recently introducing a new fashion collection for women, Metro 7, to appeal to stylish, yet price-conscious, customers. It also announced a new environmental initiative that includes a switch from petroleum-based to corn-based plastic packaging for some of its groceries.

This announcement came about the same time McDonald's began selling Fair Trade Certified organic coffee in 658 New England stores.

Bill Whitman, a McDonald's spokesman, said consumers in Massachusetts and New York were already very familiar with its new coffee partners, Vermont-based Green Mountain Coffee Roasters and Newman's Own Organic Blend. It's still too soon to say whether the coffee will be offered nationwide, he said.

"It's not unusual for McDonald's to look for regional products that have great appeal and to incorporate the great taste of those products into our local menu," he said, downplaying the suggestion that organic coffee would represent a bigger shift in how the fast-food chain does business.

But Paco Underhill, a retail and consumer behavior expert in New York, said retailers are learning that the same person who shops at Neiman Marcus may also consider grabbing a hamburger at a fast-food restaurant, or go to Wal-Mart for groceries.

His company, Envirosell, has conducted studies showing that people of all educational backgrounds and income levels now read labels to find out exactly what they're spending their money on.

"People want to know why Eckerd's own face cream is $2 less than Johnson & Johnson's, or how much salt is in this soup versus that soup," he said. "We have become much more informed as consumers."

The organic coffee or milk could tip the scale for many of those label-conscious shoppers who now care about content as much as price, he said.



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