How bad PR affects a business’ bottom line

Sports Direct has come under fire for strict working conditions and low pay for casual workers. Image: Lisa Ferguson
Sports Direct has come under fire for strict working conditions and low pay for casual workers. Image: Lisa Ferguson
Share this article
0
Have your say

With sportswear monolith Sports Direct warning of a drop of up to £40m in annual profits following a scathing investigation into working conditions, how much of a retail company’s sales performance is really down to newspaper exposés or challenging market conditions?

An investigative report by the Guardian, which last year accused Sports Direct of paying less than the national minimum wage of £6.70 per hour to thousands of casual workers, may have had an effect on the company’s drop in trade over the Christmas period.

Amazon's Fulfilment Centre in Dunfermline, Fife ahead of the Christmas peak. The company's taxation policies are controversial for under-payment via legal loopholes. Image: Alex Hewitt

Amazon's Fulfilment Centre in Dunfermline, Fife ahead of the Christmas peak. The company's taxation policies are controversial for under-payment via legal loopholes. Image: Alex Hewitt

The UK’s biggest sportswear retailer predicts that profits will only be within the region of £380-£420m for the financial year ending in April 2016, but bosses have instead blamed the downturn on a “deterioration of trading conditions on the high street and a continuation of the unseasonal weather over the key Christmas period,” in a statement released to the City earlier this month.

Indeed, the unseasonal weather has been blamed by businesses such as Next and Morrisons for falls in yearly sales and footfall across Scotland and the UK.

Intensive scrutiny over working conditions at Sports Direct played in role in the company announcing it would pay its workers above the national minimum wage at the end of December.

It is expected that this will cost the Newcastle United owner’s business £10m per annum.

READ MORE: Oil downturn dents Scots car sales as UK motors ahead

But Mike Ashley’s firm isn’t the first to weather a media storm, with Amazon engaging in a very public spat with the New York Times in October last year following a report into working conditions at the company.

The report, titled “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace,” told a story of secret feedback measures to report on colleagues, an always-on working environment and barely any time to recover from major illnesses or family events.

Jay Carney, a senior vice president of global corporate affairs for the company, responded to the story by addressing its main criticisms and prompted a high-profile debate between the two men. But the effect on Amazon’s sales performance is expected to be negligible thanks to the release of innovative new features such as Amazon Prime and Amazon Pantry last year, bringing new revenue streams to the company.

While Amazon does not readily make available its sales figures, the most up-to-date figures from June 2015 for 2014 show that its Luxembourg office racked up £5.3bn worth of sales from UK internet shoppers. In the same timeframe, Amazon.co.uk Limited’s official profit was given as just £34.4m.

The use of continental European bases allowed companies such as Google and Starbucks to dramatically lower their tax payments. Amazon managed to reduce its UK tax bill to just £11.9m in 2014, before tax reform measures were enacted in April 2015 to put a 25 per cent levy on companies’ UK-earned profits if they were artificially shifted abroad.

Despite the bad press surrounding Amazon UK’s working practices (including at its only Scottish “fulfilment centre” in Dunfermline), the company’s sales performance continues to exceed expectations.

German carmaker Volkswagen, however, risked irrevocable damage to both its reputation and its sales figures last September when it emerged that it had installed “defeat devices” on turbocharged diesel cars to cheat vehicle emissions tests in the US and Europe.

The effects of “Dieselgate” led industry experts such as those at Autocar and What Car? magazines to state that the deception and resultant media coverage were partially-responsible for falling UK sales figures at the end of last year.

In October 2015, the beleagured carmaker saw sales fall 9.8 per cent on the same period in 2014. The gulf then widened to 20 per cent by the following month.

Closer to home, the effects of the North Sea oil downturn on the new car market have begun in 2016, giving another example of how market forces trump negative press in terms of economic performance. A decline in new car registrations of nearly 0.5 per cent is responsible for ending four years of consecutive growth.

It remains to be seen whether Scottish confectionary stalwart Tunnock’s will see profits affected by its recent decision to remove the Lion Rampant from products sold in England as it recently restyled one of its products as “The Great British Teacake”.

The decision has so far proved divisive within Scotland, with many seeing the rebranding as an aftershock of the Scottish Independence referendum.