Brief
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Резюме
Imagine two retailers. Retailer One delivers above-average growth and profitability while also creating above-average value for its noninvestor stakeholders, including its customers, employees, suppliers, and communities. Retailer Two delivers similar financial results, but it burns out employees and disappoints customers in the process. Which retailer is performing the best and positioning itself for long-term success? If you chose Retailer One, we agree. Looking at a set of retailers over 10 years, we quantified their value creation on behalf of customers, employees, suppliers, and communities, then compared it with their financial performance. And we found the retailers that create the most value for all stakeholders also generate the greatest long-term shareholder returns when controlling for financial performance (see Figure 1).
Figure 1
Let’s consider the characteristics of companies in each quadrant. Enduring value creators deliver superior value to all stakeholders. This creates powerful systems that reinforce value creation for more than one group of constituents—we call this the “multiplier effect.” Consider, for example, customers and employees. Highly satisfied customers increase short-term sales and profits while also making work easier and more engaging for employees. Engaged employees, in turn, improve productivity, innovation, and customer service. Better employee-customer relationships promote enduring growth, which attracts the best suppliers, boosts benefits to local communities, and appeals to long-term investors. Similar multiplier effects exist across other combinations of stakeholders. Understanding the shared benefits of value creation, these stakeholders make sacrifices for the team’s common good during difficult times, bolstering resilience. As a result, under a variety of economic conditions over the past decade, enduring value creators have delivered total shareholder returns (TSR) that are 101 points higher than profit maximizers with similar financial performance. Profit maximizers achieve above-average growth and profitability by squeezing value from noninvestor stakeholders. Their purpose statements may express respect for all stakeholders, but their management objectives, operating processes, and reward systems all scream that money matters most. To save money, they may, for example, provide poor employee benefits, reduce product and service quality, postpone store remodels, or neglect maintenance. It’s reminiscent of the stereotypical profit maximizer, Ebenezer Scrooge, in Charles Dickens’s holiday classic, A Christmas Carol. These actions incur risks and liabilities that will eventually come due. Most profit maximizers maintain their extractive ways, and as a result, their financial performance declines over time. But just as the miserly Scrooge made a joyful turnaround by Christmas morning, it is possible for companies to change their ways through a purposeful strategy. It can be a difficult journey, though, and requires steadfast leadership. Profit postponers take actions to create value for all stakeholders in the hopes of eventually increasing scale and profitability, but they have yet to improve their financial performance. In some cases, the results take time, and in others, companies could be making the wrong investments. Investing in stakeholder assets like technology, new stores, or product development can spur either profitable growth or disappointing financial results that attract activist investors. However, they still outperform retailers with similar financial performance that don’t create value—the value extractors—by 161 points. Value extractors create significantly less value for investors or other stakeholders. Few companies can afford to stay in this quadrant for long. They often lack the financial resources and stakeholder goodwill to power through difficult times. As people lose confidence in the company’s success, they start fighting internally for a greater share of scarce resources. They turn to maximizing benefits for their own organizational silos, small teams, and selfish interests. But nobody wins when the team loses. A retailer’s positioning matters today more than ever: Since 2018, the spread in total shareholder returns has widened, separating enduring value creators from the rest (see Figure 2). There’s been a potent combination of recent macroeconomic and socioeconomic changes—customers are purchasing from fewer brick-and-mortar stores, workers are amplifying their calls for a living wage, shoppers and staff alike are taking to social media to air grievances, and geopolitical turmoil is threatening supply chain resilience. These shifts have shattered the industry’s decades-old model of extracting value from noninvestor stakeholders.
Figure 2
But retailers that act now can get ahead before the next inevitable disruption. To understand their company’s current position, executive teams can start with an unvarnished view of their current value creation across all stakeholders. They can ask themselves: Which archetype best describes the current performance of our company? Has that changed over time? What is impeding our progress toward becoming an enduring value creator? What will it take to overcome those barriers? Stakeholder Value SystemQuickly assess your company’s starting point. The path to enduring value creationIn an industry as dynamic as retail, companies can significantly change their position—for better or worse—in a matter of years. Plotting retailers’ positions from 2019 to 2023, we can see that several have shifted quadrants over time, while most enduring value creators sustain their position (see Figure 3). Profit maximizers are more likely to watch their short-term financial gains erode as they continue to extract stakeholder value. Meanwhile, profit postponers commonly decline in value creation, suggesting the need for a long-term vision and regular evaluations of investments.
Figure 3
Conversely, companies with an intentional, sustainable strategy can follow a winner’s trajectory to become enduring value creators—consider, for example, Dick’s Sporting Goods and Tractor Supply Company (see Figure 4).
Figure 4
Dick’s Sporting Goods has made gains in financial performance and strengthened stakeholder relationships over time, through several initiatives across the business that benefit multiple constituents. Dick’s Sporting Goods taps into the customer-employee-investor multiplier effect through technology investments. Prioritizing e-commerce to meet customers where they are, Dick’s has purchased and amassed shopping data to personalize its online experience. Early in the pandemic, Dick’s was one of the first to offer seamless curbside pickup, providing a key service in a time of distress, while giving the retailer a boost over its competition and exceeding quarterly revenue expectations by $250 million. Similar investments, like a customer-facing app that scans products for availability, not only enhance the cross-channel shopping experience but also simplify the day-to-day employee experience. The commitment to creating stakeholder value through digital retail has bolstered the company's financial success—its stock price has increased more than 375% in the last five years. Other initiatives create multiplier effects for suppliers and customers: In 2022, Dick’s launched DSG Ventures, a $50 million fund for investing in innovative companies that support athletes and their communities. For example, by investing in Moolah Kicks—a basketball footwear brand built by and for women—Dick’s has brought a unique product to its stores and customers. Such investments can build customer and supplier loyalty, generating even higher financial returns. Some investments take longer to play out. For years, the youth sports market has been shrinking, with team sports participation dropping to 37% of American children ages 6 to 12 in 2021 and with funding waning, especially in low-income communities. In response, Dick’s has signed a pledge to provide access to sports for 1 million young athletes by 2024 and invested more than $7 million in local youth sports leagues and public schools. In 2020, the retailer also launched its Sports Matter Giving Truck to donate equipment to young athletes when the pandemic impeded sports participation. These community investments go beyond ensuring future business survival: The company’s fundamental purpose is to deliver the benefits of sports—from lower depression rates to higher school test scores—to future generations. In living out its brand purpose, Dick’s encourages athletes to become lifelong customers, leading to long-term financial gain. Tractor Supply has also captured the long-term benefits of the multiplier effect. The retailer has invested in technology for end-to-end supply chain resilience, including software that enables real-time data flow between suppliers’ systems and Tractor Supply’s sales channels, allowing both parties to quickly respond to changing market dynamics and better predict demand. Such investments were especially beneficial as customer habits evolved during the pandemic. Through its partnerships and investments in inventory tracking systems, Tractor Supply was able to quickly stand up same-day delivery across all its stores in the early days of Covid-19, creating value for suppliers, customers, and investors alike. By guaranteeing the right products are in the right place at the right time, Tractor Supply has improved its online and in-store shopping experiences. Its customer loyalty program membership grew 47% from 2021 to 2023, and retention has never been higher, as of October 2023. And these technology-based supply chain investments don’t just help suppliers and customers but also boost employee engagement, earning the retailer recognition as one of the best places to work in IT. Tractor Supply also recently refreshed how it selects suppliers, prioritizing those that demonstrate progress in sustainability. It has joined the Environmental Protection Agency’s SmartWay Program to find ways to improve freight efficiency while reducing costs, and now it requires SmartWay certification from all carriers. In working closely with suppliers on sustainability, Tractor Supply aims to generate long-term value for them and the broader community. It may become more attractive to investors too: Research shows that more than 60% of personal investors take sustainability into account in their portfolios. Just as the best retailers capitalize on the multiplier effect, when ignored, the complex interdependencies of stakeholders can also exacerbate challenges. For example, if a high-touch, high-service retailer hires too few seasonal employees to reduce costs, its current employees may feel stretched and unhappy during the holiday rush. This kicks off a domino effect, leading to employee churn, unhappy customers, and, ultimately, lower financial returns. How to build enduring valueStakeholder value creation isn’t about altruism or increasing charitable donations. It’s about creating enduring value for all stakeholders in ways that make solid business sense. The effects can take months, even years, to play out, so leading retailers commit to a long-term mindset. Three steps can accelerate progress. 1. Attract and unleash the right stakeholders. The key to successful value creation is to build a system of stakeholders that are all aligned to the same purpose. When stakeholders want very different things—such as investors who want more dividends, investors who want innovation, and employees who want greater job security—conflicts increase and teamwork disintegrates. Retailers commonly segment customers to tailor their marketing messages, but few segment other stakeholders. This is a mistake. Retailers can only attract the right stakeholders and unleash their full potential by segmenting them, identifying those with shared values and common visions, and communicating their value propositions to each stakeholder. If a technology retailer’s value proposition is to provide knowledgeable customer service, it needs to prioritize expert employees who are passionate about its products. The retailer can use creative recruiting methods to attract these employees, such as access to software classes or tuition reimbursement for education in relevant fields. And it can highlight success stories internally to celebrate desired behaviors, such as an employee who helped a confused shopper find the right product. 2. Maximize value through multiplier effects. Creating value for multiple stakeholder groups often requires trade-offs, but it doesn’t need to be a zero-sum game. Effective strategies benefit multiple stakeholders. Consider a general merchandise retailer looking to provide a higher quality of life for its store employees and an investor group that wants higher profits. Rather than focusing solely on wage increases—which any company can match—it could increase employee discounts on food, clothing, and visits to its in-store healthcare clinics. Through this multiplier effect, the retailer improves its employees’ quality of life, satisfaction, and retention, while keeping investors happy with profitable growth. Multiplier effects can be even more powerful over peak seasons, when the added pressure makes stakeholders more reliant on one another. For example, during the holidays, customers rely on employees to help them find the perfect holiday gift, and employees rely on suppliers to ensure those gifts are on shelves and in warehouses. By looking at areas of heightened seasonal stress, retailers can identify creative ways to deliver for all stakeholders. 3. Measure and manage stakeholder value creation. Successful execution of a stakeholder strategy typically requires changing multiple components of the company’s operating model—its purpose and values; its organizational structures and accountabilities; its strategic planning and budgeting processes; its leadership and culture; its talent pool; its technology and data systems; and, especially, its demonstrable results. To do this, the best retailers will build a system that measures and tracks net stakeholder value creation over time. The authors would like to acknowledge Aubrie Borton, Travis Dauwalter, Chad Girnun, Austin Krusko, Leigh Marshall, Khushi Surana, and Nicholas Zullo for their contributions. |