Market Study:

Why Charity In Retail Is Good Business Analysts Greg Buzek, Austin Gutwein P u b l i c a t i o n D a t e : M a r c h 14 , 2 011

1064 Cedarview Lane | Franklin, TN 37067 | +1 615-591-2955 Phone | www.ihlservices.com

About IHL Consulting Group

Who We Are IHL Consulting Group is a global research and advisory firm specializing in technologies for the retail and hospitality industries. The company, based in Franklin, Tenn., generates timely data reports, offers advisory services and serves as the leading retail technology spokesperson for industry and vendor events. What We Do IHL provides customized business intelligence for retailers and retail technology vendors, with particular expertise in supply chain and store level systems. Our customers are retailers and retail technology providers who want to better understand what is going on in the overall technology market, or wish to identify specific equipment needs for the retail market. When We Started Greg Buzek served as Product Development Manager for two Fortune 500 retail technology suppliers for 6 years. Faced with making recommendations to senior management with spotty reports stuffed with technical jargon and unsubstantiated data, in 1996 he left to form IHL Consulting Group as an arms length consulting firm that delivers exacting research to corporate managers. How We Work Reliable market analysis is essential for corporations to accelerate revenue and expand their market share. Most research providers do not disclose data sources or statistically defend the validity of their assumptions. We do. We disclose in precise detail exactly how and why we reached our conclusions so that our customers can be comfortable with the data they are using. What We Know Our associates and advisors have over 100 years combined years of retail technology experience. Our associates have worked as product managers, sales representatives and executives in the retail market. We have the relationships, tools, and experience to meet your research and consulting needs.

1064 Cedarview Lane | Franklin, TN 37067 | +1 615-591-2955 Phone | www.ihlservices.com

Table of Contents Introduction ................................................................................................................................. 4 Management Summary .................................................................................................................. 4

Does Charity Involvement Affect Where Consumers Shop? ............................................. 5 Does a Retailer’s Charitable Involvement Affect Where You Shop? ....................................... 5 How Does That Influence Change by Age of Consumer? ......................................................... 6

Consumer Awareness of Company Charitable Involvement ............................................ 7 How Familiar Are You with the Charitable Involvement of Your Favorite Stores? .............. 7

What Is the Impact at the Product Level? ............................................................................... 9 Does Charity Have an Effect on Branding Decisions? ............................................................... 9

Specific Examples ..................................................................................................................... 11 Tom’s Shoes – An Example .......................................................................................................... 11

Have You Ever Bought Tom’s Shoes? ................................................................................... 12 How Many Pairs of Tom’s Shoes Have You Purchased?......................................................... 12

Concluding Thoughts .............................................................................................................. 14 For More Information ................................................................................................................... 14

INTRODUCTION

During the 2010-2011 holiday season, IHL, along with the charity Hoops of Hope (www.hoopsofhope.org), conducted a research study via a brief web survey that was spread virally through social media. The purpose of the questions was to see the level in which consumers were persuaded to pick one brand or one store over another based on the perceived level of charitable giving done by the retailers. Our goal, quite honestly, was to provide some anecdotal data for a presentation to be given by 16-year-old Austin Gutwein (who founded Hoops of Hope when he was 9 years old) at the Retail Orphan Initiative SuperSaturday event of analysts and technology executives. There were just a few questions, and the survey was very brief; yet the insight was staggering, so we wanted to share these results with a wider audience. The results included 137 participants. We learned that, although consumers of most all age groups are influenced to patronize a certain brand or store based on perceived charity involvement, over 72% do not currently know if their favorite stores are involved with charity in any discernable or visible way. This means that in a market that is ever more focused on wallet share, increasing margins and store visits, visible tie-ins with charity can be a big driver of increased business and increased profits. One could argue that it can become one of the key pillars of increasing traffic and customer retention. Below are some of the highlights of the research: • • • •

65% of consumers say they are influenced if there is a charitable tie-in from one store to another or one brand to another Yet only 28% know if the retailers they shop are actively involved in charitable giving 53% under age 35 will buy perceived “inferior” products if tied to charity • Great opportunity to tie private label products to charitable giving When consumers buy to support charity, they tend to buy more (as they assume more goes to charity)

We recognize that the results of the survey are limited by the size of the audience and somewhat of a skew based on social media spread of the study. Our intent is not to make this the end all, be all study of charitable influence on consumer behavior, but rather to demonstrate there is real business value to charity tie-ins to retail and brand awareness. It is, thus, a subject that is due for more research. With those limitations aside, we believe you will see many compelling reasons for tying promotions to charity in visible and public ways; and that doing so can be good business, increasing margins and improving customer retention. It can also create a tighter bond between customers and retailers in a time where customer loyalty is critical.

DOES CHARITY INVOLVEMENT AFFECT WHERE CONSUMERS SHOP?

Are you more likely to shop if involved with charity? Maybe 29%

Not Sure 3%

No 3% Yes 65%

One of the first questions we asked consumers pertained to their likelihood of choosing where to shop based on whether those stores were involved in visible charitable activity. The results were overwhelmingly “Yes,” with 65% of the sample saying they were influenced. In fact, 94% mentioned they might be influenced by charitable involvement. As we see later, the data changes quite a bit based on the age of the consumer.

Are you more likely to shop your store if it's involved with charity?

51+

67% 36-50yrs

73% 25-35yrs

73%

19-24yrs

78%

12-18yrs

59% 0%

10%

20%

30%

40%

50%

60%

70%

80%

By segmenting the study by age category, we see that there are some pretty strong patterns. Although every age group is influenced by a store’s involvement in charity, the college-age students are most influenced; and that strength hangs on pretty solidly all the way through later life stages. Without a doubt, the influence of college, increased maturity and a desire to change the world has a major impact on the level of influence a retailer’s charity involvement might have on them as a consumer. Overall, 69% of those under the age of 35 are more likely to shop at a store that is actively and publicly involved with charity. For those retailers who target late teens and young adults, you are missing a real opportunity if your organization is not being clear about your charity involvement and how the consumer’s purchases make a difference.

CONSUMER AWARENESS OF COMPANY CHARITABLE INVOLVEMENT

Social awareness: Does your favorite store participate in charitable giving? Yes Overall

29%

51+

38%

36-50yrs

No

9%

0%

45%

19-24yrs

38% 19%

12-18yrs

55% 27%

27%

13% 50%

11% 70%

0%

20%

Unknown

63%

45%

25-35yrs

62%

0%

40%

60%

80% 100%

This figure gets to the heart of the opportunity for retailers. While 94% of the sample are at least open to influence based on charity, and 69% under 35 are more likely to shop a store based on their active involvement in charity, 62% of our total sample have no idea if their favorite stores participate in charitable giving of any kind. To make matters worse, for those most likely influenced by charitable involvement (those under the age of 35), 64% have no idea if the retailers they shop regularly support charity. This is a huge missed opportunity for retailers. While it is safe to say that many businesses practice their giving on the back-end, and there is no doubt a certain propriety in not being braggadocios about their charitable giving, retailers are missing an opportunity to connect with their consumers in a way that is far deeper than just their merchandise. In the soul of most every human being is a desire to make a difference for good in the world, and that fervor is never greater than the late teen/early adult years. Consumers are looking for companies they can partner with and are thrilled with the knowledge that where they shop and the specific products they buy help a cause greater than themselves. The data in this study suggests that retailers, as a whole, and many who target

those under the age of 35, are missing a great opportunity to connect with their customers through charity tie-ins, either at the product level or store level. The methods of involvement were not included in this study, but might include contributions at the Point-of-Sale, specially marked packages of products, or special sales, to name a few. The point to be made, however, is that the opportunity should not be limited to the method, but rather should be focused on the partnership with the consumer -- they believe they are helping the retailer give to a worthy charity, and they believe they are making the world a better place by simply shopping your store.

WHAT IS THE IMPACT AT THE PRODUCT LEVEL?

Percent that will purchase a lesser quality product if tied to charity

Overall

49%

51+

28%

36-50yrs

45%

25-35yrs

64%

19-24yrs

67%

12-18yrs 0%

51% 10%

20%

30%

40%

50%

60%

70%

As a research company in the retail industry, this question was perhaps the most intriguing of all in the study for IHL. Many of the results make common sense, although they might not have been expressed with data before. This one gets to the heart of retailing and product management. There has been a tremendous battle in recent years between national brands, who spend many billions of dollars annually on advertising, and store brands. The national brands spend this money with the hope of proving their products superior, not only to the other national brands, but to the store brands as well. As the economic downturn in recent years grew more severe, retailers devoted more and more effort to selling store, or private label, brands, because they are often cheaper for the consumer and provide, on average, twice the gross margin to the stores as the national brands. So every sale costs less for the consumer but provides more money for the retailer. This is where this research data provides some compelling insight. A full 49% of the respondents said that they would buy a product they believed to be inferior to another if they

knew a portion of the proceeds was going to charity. And, since the store brand is usually cheaper to begin with, plus provides greater margin, this is a potential win-win-win-win. It’s a win for the consumer, a win for the charity, a win for the retailer in greater margin $$$over the national brands, and a big win for the consumer-retailer relationship. So, for instance, if Kroger brand detergent had a tie-in to water purification projects around the world and P&G’s Tide detergent did not, the consumer can purchase the Kroger brand knowing they are not only saving money, but they are helping people get clean water. They are also more likely to buy other Kroger branded products as a result, believing those might also benefit worthwhile causes. This conclusion, however, does not have to be limited to private label products. The same idea can be used for national brands to protect themselves from private label brands. And because of the mass media campaigns that the national brands are able to offer, the charity/brand reinforcement can be attained through repeated exposure. The bottom line is that tying a charitable cause that consumers identify with to a product is good marketing and might be another powerful motivator rather than simply discounts and coupons.

SPECIFIC EXAMPLES

Are you familiar with Tom's Shoes? No 22%

Yes 78%

One of the questions to test the previous data looked at Tom’s Shoes, a company synonymous with charitable activity. Tom’s is very open that they donate one pair of shoes to needy children for every pair of shoes purchased; and the company is growing faster than almost any other retailer, even in the midst of recession. Of the sample, 78% of total respondents were familiar with Tom’s Shoes; but 100% of those under the age of 35 reported they were familiar with the company, as they have created a sort of cult following. What this shows us is that consumers under the age of 35 remain aware of, and pay attention to, companies that have a strong charitable focus. It resonates and greatly increases brand awareness, providing a great opportunity for retailers of all types, but specifically those who cater to a younger demographic.

HAVE YOU EVER BOUGHT TOM’S SHOES?

Purchase history for those familiar with Tom's Shoes (overall)

1 pair 17%

Never bought 64%

2 or more pairs 19%

One of the fascinating findings in follow-up conversations with these consumers was that it wasn’t the quality of the shoes that drew them to Tom’s Shoes (many who owned them were not even that enamored with the product); rather it was the cause that they identified with -- it was worth “trying” a pair or two of Tom’s Shoes, because children in need would get shoes. In our sample, 36% said they bought at least one pair of Tom’s Shoes for themselves and 19% said they purchased two or more pairs of the shoes. Those numbers increased to 44%, overall, and to 22% who have purchased two or more pairs in the under-35 age group.. What these numbers suggest is that charity tie-in can be an effective way to get consumers to try a product and can be more cost effective than trial products or discounts. In addition, by combining a discount or trial with a charitable contribution, retailers have an even stronger opportunity to gain new customers. Recently, Gap offered a 30% discount plus a 5% contribution to Big Brothers Big Sisters of America during a traditional slow period for their stores. New programs such as KidsCause and Sharing Spree bring a Groupon/ social-buying

component to the process as well. Retailers can offer discounts and tie-ins to charity in very focused regions and test the willingness of their customers to redeem. These are the types of programs that the Retail Orphan Initiative (www.retailroi.org) hopes to foster throughout the retail community, because it helps both the retailer and children in need.

Note: this coupon was for 2010, not 2011

CONCLUDING THOUGHTS In a period of retail history that is increasingly defined by lack of loyalty among customers, most retailers have resorted only to discounts, coupons and product giveaways to woo existing customers back to their stores or to entice new customers. This research suggests that there is an opportunity for retailers to connect with their customers by tying themselves to visible and public charitable giving. Customers want to know their purchases are making a difference in the world, not just lining the pockets of management and shareholders. This is especially true for consumers under the age of 35. With the rise of social-media shopping and group-buying opportunities, services such as KidsCause and Sharing Spree provide a unique opportunity for retailers to connect with their consumers and drive business during non-peak times. Coupons and discounts can bring a customer in once -- a connection to a favorite charity can be a reason that consumers come back time and time again. It’s a win-win for the retailers, as the good will from the visible charity involvement will last well beyond the initial experience, and it reinforces a brand identity that this retailer is thinking beyond themselves to social responsibility. And even in tough times, that speaks volumes to consumers. Once again, we realize that this is not a particularly large or detailed study. Within the limitations, however, we hope the reader sees the value in the data and does their own experimenting, thus helping worthwhile charities and increasing your revenues.

If you would like more information on Hoops of Hope, please visit the website at www.hoopsofhope.org. For more information on the Retail Orphan Initiative, visit www.retailroi.org. And for more information on IHL Group and our other syndicated research, see the following page, or visit us at www.ihlservices.com.

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