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Misfi(RED)?

June 15th, 2007 · by Tim Minahan · 1 Comment · best practices, enviro/social sustainability, supply management, supply risk

By now, Supply Excellence readers know my stance on the critical importance of sustainable supply strategies. Over the past year, I have littered these virtual pages with case studies of how industry leaders have embraced environmentally and socially responsible sourcing and supply management practices. (Thankfully, no trees were killed in the process of these writings.)

The important message from these leaders: sustainability is not just good for the planet. It’s good for business. Leaders have found that sustainable practices lower costs, mitigate supply risks, and, ultimately, boost profits.

Retailers and manufacturers have also recognized that concerned citizens will pay a premium for products that utilize environmentally responsible materials and manufacturing procedures or fair trade and labor practices. Global brands like Apple, American Express, and Motorola have used this consumer dynamic to launch an extremely worthy campaign know as (Product)RED, which is part of the broader (RED) program launched by U2 frontman Bono among others in support of The Global Fund, an organization to fight AIDS, Tuberculosis, and Malaria in poverty-stricken regions of the world.

The concept is simple and altruistic: participating retailers, manufacturers, and service providers donate a portion of the profits from select products “to buy and distribute anti-retroviral medicine to our brothers and sisters dying of aids in Africa.” The graphic below from the (RED) website does a great job of illustrating the (Product) RED program:

(Click graphic to enlarge.)

RED graphic.jpg

Great and worthy program. However, exeuction has been less than perfect.

Specifically, some (Product)RED sponsors have overestimated just how high a premium consumers will pay for environmentally or socially responsible products. And this may undercut the overall value and impact of the program.

Case in point, I recently picked up a limited edition RED branded shirt at The Gap. The shirt was made from 100% African cotton, suggesting that The Gap is embracing sustainable supply practices itself. (A fact which is verified by on the social responsibility section of its website.) What’s the problem? The shirt, originally priced at $80, had been marked down to $9.00. And this wasn’t a one off anomaly. The Gap store I visited had a table display and two racks of chock full of (Product)RED merchandise with similarly shocking markdowns.

I have no insight into what it cost The Gap to buy materials, manufacture, ship, stock, and promote the shirt. But it doesn’t take a math major to realize that the drastically reduced sale price doesn’t leave much profit to fund the RED donation chain described above. Knowing The Gap, they likely fully funded the program anyway, taking a loss. While truly altruistic, this type of program is not sustainable — in the literal sense — for any business.

To be fair, other (Product)RED sponsors, have achieved a sustainable balance by pricing their RED-branded products more reasonably. For example, Apple offers a (Product)RED iPod Nano that is priced the same as like regular Nanos in its portfolio. This encourages customers to make the right choice and buy the RED version products, increasing the volume of fully funded donations.

(Others like Walmart and Starbucks have also kept a lid on the premiums they charge for products made using socially and environmentally responsible practices. Although, to be clear, neither of these companies is associated with (Product)RED.)

This episode is further evidence that sustainability is really about good business. It requires developing supply, manufacturing, and business strategies that are environmentally and socially responsible and that can generate benefits and profits for the business. In short, a company can’t provide the funds and support to sustain the planet, if they can’t sustain their own business.

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1 response so far ↓

  • 1 Supply Excellence » The Gap: Corporate Grinch or Globalization Victim? // Oct 31, 2007 at 9:55 am

    [...] Earlier this year I questioned the viability of The Gap’s (RED) Program, which nobly donated a portion of profits for certain products to fund vaccinations against AIDS, tuberculosis, and malaria in poverty-stricken regions of the globe. (The Gap even doubled-down on its charitable actions by sourcing the cotton for these products from local farms in Africa.) Unfortunately, the hip retailer misjudged the level of premium consumers would pay for socially or environmentally responsible products. The result: dramatic markdowns on its (RED) product line and lower profits and, subsequently lower funding to this charitable cause. [...]

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