Study of Corporate Social Responsibility
Fred Brazelton, Scott ellis, Carlos Macedo, Alton Shader, and Ken Suslow
Poverty & Prejudice: Breaking the Chains of Inner City Poverty
June 2, 1999

We are confronted with evidence every day in support of the popular argument that corporate America has lost its conscience and will perpetrate any injustice in pursuit of greater profitability. But are these anecdotes merely television soundbites, or do they reveal a broader epidemic in business? In an effort to uncover the facts, we initiated this study of social responsibility in American businesses. Our primary concern was that many of the most prominent businesses in America may be exploiting inner city consumers and employees while generating a large portion of their profits, and neglecting to contribute anything back to the communities of those they exploit. A secondary concern was that these companies might in fact have a program of social responsibility, but that the mechanisms by which they contribute to society have been channeled incorrectly. Specifically, there may be instances in which a corporation donates to a politically convenient or popular group which may give it a high profile public relations boost, but may not benefit those that are being taken advantage of by the corporation. In essence, we sought to sift the social responsibility reality from the rhetoric.

We began by analyzing two of the more highly visible examples in Nike and McDonald's, then decided to expand the scope of our analysis. First, we determined that we required a benchmark against which to measure these companies. Consequently, we analyzed the policies of The Body Shop, a company that is generally recognized as a leader in the realm of social responsibility. Next, we shifted our focus from analysis to possible solutions to the problems. In particular, we outline the economics and impact of one potential solution involving a new Body Shop retail concept tailored specifically to meet the requirements of the inner city. Finally, we highlight the success of inner city fashion start-up FUBU, and explore possible ways in which it could leverage its success to improve the economic situation of its core urban customers.


Our first task was to identify companies that we believed could be potential exploiters. The requirements for these companies were as follows: i) they must market product(s) consistently in the urban areas; ii) they must derive a significant portion of their revenues from these urban areas; and iii) they must be domestic companies. The third requirement is in place to exclude foreign companies that would not necessarily feel the same sense of responsibility to their communities. We ultimately settled on footwear manufacturer Nike, and fast food purveryor McDonald's as ideal candidates.

After selecting the companies, we next performed an analysis of the businesses of each. We attempted to identify the any areas in which the company exploited the inner-city. We then examined the social programs undertaken by the company to determine what attempts they make, if any, to give back to the inner-city communities which they exploit. If they do make efforts to improve their communities, are these steps simply to appease vocal opposition, or are they having a meaningful impact? As a counter-example, we analyze the practices of a company generally regarded as a leader in social responsibility, The Body Shop, and compare these practices with those of our original set.

McDonald's Corporation

McDonald's Corporation is one of the most successful companies in the world. it is the largest and best-known global foodservice retailer with more than 24,500 restaurants in 115 countries. The return on the company's stock has been superior to the market, with a compound annual total return of 21 percent over the past ten years. The company's brand is one of the most recognized in the world. The image of Ronald McDonald and the "golden arches" are ingrained in the minds of consumers around the world. Some questions, however, remain about McDonald's commitment to the people and the neighborhoods in which it operates.

McDonald's vision is to be the world’s best quick service restaurant experience. The strategy to achieving this vision includes five key points. The first is to "develop our people at every level of the organization, beginning in our restaurants." The second is "foster innovation in our menu, facilities, marketing, operations and technology." The third is to "expand our global mindset by sharing best practices and leveraging our best people resources around the world." Their fourth goal is to "reinvent the category in which we compete and develop other business and growth opportunities." The fifth and final piece of McDonald's vision is to "continue the successful implementation of changes underway in McDonald’s USA."1

McDonald's often proclaims itself as a company with a strong sense of corporate responsibility. Their vision, however, does not directly address this point. The first strategy includes the development of their people, especially those working within the restaurants. The treatment of these employees, however, is often questioned by activists and community leaders especially those located in poor neighborhoods. Also questioned is the level of nutrition McDonald's offers in their food, the adverse effect McDonald's restaurants have on the environment, the effect McDonald's advertising campaign has on influencing children, issues regarding expansion into non-Western cultures, and their use of political and legal muscle in limiting free speech against their practices.2

The exploitation of workers is a common accusation in today's global economy, yet very few highly successful, "well respected" companies need to fend off accusation as often as McDonald's. The basis of the argument for exploitation is as follows. Workers in the fast food industry, and at McDonald's in particular, are paid very low wages due to the pressure to keep profits high and wage costs low. This also leads to understaffing during peak periods, thus putting excessive strain onto the workers. This, in turn, creates a stressful working environment and leads to a high number of accidents (most commonly burns). McDonald's also does not pay overtime. All of these factors lead to high turnover, which makes it virtually impossible to unionize. The majority of employees at McDonald's has few job options and is forced to accept this exploitation. This is especially true in poor areas, where jobs are much more scarce than in more affluent neighborhoods. McDonald's working conditions have led to the expression "Mcjob." McJobs are low status, low wage, non-union jobs with no fringe benefits and little chance of advancement. This is pervasive in the U.S. and around the world. In the U.K., 88% of McDonald's staff works less than 35 hours per week, McDonald's has been a leader in the wide scale introduction of part-time labor in Britain.3

McDonald's response to the above includes the fact that it has over one million people on staff-mostly young people that would not have jobs without the company. McDonald's believes that they have created countless number of jobs for the inner city, giving young people an opportunity that simply would not exist without its restaurants. Others, however, argue that McDonald's is a net destroyer of jobs. By using low wages and because of the large size of their business, McDonald's undercuts local food outlets, forcing them out of business. While this is merely a byproduct of capitalism, some argue that it is a trend that is much too common, and that McDonald's needs to somehow make the jobs it creates more financially attractive.

The quality of the nutrition in a typical McDonald's meal is also under heavy fire from activists worried about the declining health of the average American. This argument is even more important in lower-income neighborhoods, where the number of healthy dining options is limited (When was the last time you saw a salad place in the inner city?). The main fuel behind this argument is that a high fat, high cholesterol, low fiber diet has been linked to serious diseases such as cancer, heart disease, obesity and diabetes. These diseases are now responsible for over one-half of all the deaths in the western world. Many are angry that, despite the lack of nutrition their menu provides, numerous McDonald's restaurants can now be found in hospitals across the nation.4

The company's response to this accusation is two-fold. The arguments are that the scientific evidence is not conclusive and that their food can be a part of a balanced diet. While, this may seem a bit ridiculous, many would contend that it is in McDonald's right to sell their food, much as 7-Eleven is allowed to sell junk food to its customers. Activists contend, however, that McDonald's using misleading advertising techniques aimed at children to increase sales.

McDonald's spent over $2 billion in advertising last year, helping the golden arches become one of the most recognized symbols in the world (some reports note that they are more recognized than the Christian Cross). Those opposed to McDonald's argue that its use of collectible toys, promotional programs in schools and figures such as Ronald McDonald influence children to become mesmerized by the company. Once again, this does not seem to be too abusive of a practice. The problem lies in the fact that children become hooked on the idea of eating at McDonald's, which could lead to eating there quite often. This, in turn, will likely lead to a higher chance of obesity and the other negative byproducts associated with consistently eating McDonald's food. It should also be noted that less advantaged families will likely be affected in other ways as well. Despite being relatively low priced, eating at McDonald's is not an inexpensive alternative to cooking at home. This provides quite a dilemma to the head of a low-income household. lf his/her children constantly crave McDonald's, it is likely that the family will dine there at least once a week (especially if few other low-cost dining options exist). This constant dining out is likely to put pressure on the family budget, while potentially contributing to a decrease in overall health of the family members.

McDonald's is also under fire for using a high percentage of their advertising budget to advertise during and at major sporting events. Critics wonder how such unhealthy food can be advertised as "athlete's fuel." Critics also worry that McDonald's will further lure kids by sponsoring top athletes and featuring them in commercials. McDonald's, however, sticks to the fact that their sandwiches can be apart of a healthy diet.

While we have focused primarily on the accusations made against McDonald's, it would not be fair unless we described the number of charitable contributions McDonald's and it's franchise owners make to their respective communities. The charities fall under the umbrella of Ronald McDonald House Charities (RMHC). McDonald's corporation provides free goods and services covering 100 percent of the general and administrative costs for National RMHC. Funding and volunteer support come from McDonaldts owner/operators, restaurant and regional staff and suppliers. McDonald's customers support RMHC through a variety of fund-raising events and programs, including donations to canisters in McDonald's restaurants. According to the McDonald's web site:

Ronald McDonald House Charities provides comfort and care to children and their families by supporting Ronald McDonald Houses in communities around the world and by making grants to other not-for-profit organizations whose programs help children in need. McDonald's Corporation is committed to giving something back to tile community by supporting RMHC initiatives.5

Currently, RMHC has a network of over 160 Local Charities serving in 27 countries, and has awarded over $200 million in grants to children's programs worldwide.

RMHC focuses its giving to two distinct types of children's charities-those that sponsor education and social responsibility and those that promote healthcare and medical research. Under the education and social responsibility umbrella, McDonald's main charities include the Ronald McDonald House, the McPrep After School Program, the Healthy Families America Initiative, the Kids These Days '99 Program, and a number of scholarship funds including HACER (Hispanic American Commitment to Educational Resources). The primary charities in the healthcare and medical research area are the Ronald McDonald Children's Hospital of Loyola University Medical Center, Team Up to Save Lives Program, and the Changing the Face of the World effort. Going forward, we will focus on those programs that most directly impact those most economically disadvantaged.6

Ronald McDonald House is the cornerstone of McDonald's charitable programs. Ronald McDonald Houses provide a "home-away-from-home" for the families of seriously ill children receiving treatment at nearby hospitals. There are currently 197 Ronald McDonald Houses in 16 countries. RMIIC nationally provides each House seed, expansion and emergency grants, as well as in-kind goods and services. Each House, however, relies on its own community to provide additional funds, goods and services necessary for operations. The Houses are supported by nearly 20,000 volunteers who donate one million hours of their time annually. Families staying at Ronald McDonald Houses are asked to make a donation ranging from $5 to $20 per day.7

The McPrep After School Program provides academic, recreational and "nutritional" support to children beyond traditional school hours. It is designed to improve students' comprehensive reading and math problem-solving skills, while providing a safe place for them to receive tutoring, do homework and eat dinner. Piloted in 40 elementary schools in 1996 in the Chicago Public Schools System, the program helped average test scores increase. 39 of 40 schools showed gains in math scores and 30 of 40 schools showed gains in reading scores. Currently, 239 schools in the Chicago area have instituted the program. it should also be noted that the Chicago Public School System changed the program name to McPrep in appreciation for the donations made by RMHC.8

HACER Scholarship Program was established in 1985 to address the escalating high school drop-out rate and low rate of college attendance by Hispanic students. To date, approximately $5 million has been awarded to nearly 4,500 students through the program. The RMHC/HACER Scholarship Program is the largest high school scholarship initiative in the nation helping Hispanic youth pursue higher education. During the 1998-99 school year, an estimated $1 million was awarded to deserving Hispanic students. The program is currently available in 21 states and reaches 75% of the Hispanic population in the U.S.

Another program that McDonald's has instituted to help give back to the community is the institution of MHOA (McDonald's Hispanic Operators Association). MHOA is a network of McDonald's franchisees that serves as a voice within McDonald's and also are active in community service. Charitable examples include contributing heavily to HACER and other sponsorship programs.

McDonald's is also attempting to help children around the world with their Changing the Face of the World Program. McDonald's has donated a total of $2 million to Operation Smile and Interplast to fund reconstructive surgeries for nearly 8,000 children around the world. Local RMLIC chapters and McDonald's restaurants in participating countries also provide free meals, host welcome receptions for visiting medical teams, and donate clothing and toys to patients.9

Overall, McDonald's has a number of programs in place to address the issue of corporate responsibility. Despite this fact, critics have tried everything in their power to highlight the fact that McDonald's actually exploits its employees and the communities in which its restaurants operate.

When you really examine the amount McDonald's Corporation gives back, the numbers are not overwhelming. While McDonald's should be applauded for the numerous programs it has instituted and for the way it really encourages its franchisees to volunteer and give back to the community, it seems that monetarily, McDonald's may fall a bit short. Since its inception decades ago, McDonald's has given approximately $200 million in grants through RMHC since its inception in 1974. This translates into under $10 million a year. Obviously, this is not the extent of McDonald's community service or giving programs, but is it even in the ballpark of what one of the largest corporations in the world should be providing? While much of this giving does go directly into the communities in which McDonald's restaurants are located, the question remains whether McDonald's is giving enough.

Nike, Inc.

Nike is the largest seller of athletic footwear and related apparel in the world. Phil Knight founded the company in 964 by selling running shoes out of the trunk of his car at track meets. Since that time, the company has grown to over $9.5 billion in revenue while operating in 110 countries. Nike products are sold exclusively through the Nike brand name to over 19,000 retail accounts in the US alone. Approximately 50% of Nike's product line is manufactured by independent contractors in foreign markets, including Indonesia, China, Malaysia, Mexico and Singapore.

Excluding a minor blip 1998, Nike has enjoyed tremendous success recently with sizable revenue and net income increases. The company has achieved this financial success in large part due to effective advertising campaigns including its "Just Do It" and "There is No Finish Line" campaigns. The company also sponsors many famous athletes including Michael Jordan, Renaldo and Charles Barkley. In addition to its associations with famous athletes, Nike was founded on the principle and still prides itself on manufacturing the highest quality footwear in the world.

Nike's success has come with significant opposition from groups attacking the company's position on third-world labor policies and the treatment of inner-city youth. Over the last four years, protesters have become increasingly vocal about Nike's labor practices, particularly in third-world countries such as Vietnam, Indonesia and China. These protesters have taken actions against the company including organizing boycotts of Nike products, arranging media attention on the subject and creating web-sites to disparage Nike's labor practices. In fact, there are over 240 web-sites that are characterized as "Anti-Nike."

The labor protesters' primary claim against Nike is that the company operates virtual slave factories in its plants in Indonesia, China and Vietnam. Through sub-contractors, Nike operates 150 plants and employs approximately 500,000 people. These workers, the protesters claim, are subjected to inhumane working conditions including long hours, physical and mental abuse, unsafe working conditions and extremely low wages.

The stories about Nike working conditions are well documented. At many plants, employees are forced to work 65 hours per week, well over the legal maximum. Many times, the employees are not paid overtime for this work. In addition, many plant workers are paid less than the local laws dictate concerning minimum wage. For example, in Vietnam workers were paid $1.60 per day, even though the cost of eating was approximately $2.10 per day.

In addition to the insufficient wage levels for Nike factory workers, protesters also cite the poor physical working condition of Nike plants. Many Nike plants have been found to have poor air quality and dangerous job functions. One plant in China operated with I 77x the legal limit of carcinogens in the factory air. Over 75% of the workers at this plant suffered from respiratory disease. In addition, many workers have complained of dangerous job functions that have resulted in severed fingers and maimed limbs.

Many Nike workers also complain of both physical and mental abuse on the job. There have been many reports of sexual harassment of female workers by male supervisors. In addition, physical punishment for tardiness or product defects is common. One group of women was forced to run laps around the factory for four hours for being late to work. One of these women later collapsed on the factory floor and did not receive any medical attention. She died later that day. The male workers are also physically abused at the workplace. One report indicated that workers were whipped with shoe soles for painting shoes the wrong color.

The situation for many Nike factory workers does not improve when they leave work. In most countries, a large percentage of Nike workers live in housing at or near the factory. The housing situation at many sites is horrific. Reports of extreme over-crowding and poor sanitation are common.

Protesters contend that workers have little recourse against management to complain about conditions. Any attempt by workers to organize unions or walk-outs is dealt with strictly (by both management and the government) and usually results in the loss of jobs. Nike has endured significant criticism about its policies on foreign manufacturing. However, the company's critics do not limit their claims to overseas operations.

Nike protesters have recently begun to focus attention on the exploitation of inner-city youths. Nike's advertising campaign utilizes many famous basketball players including Michael Jordan, Charles Barkley and Kevin Garnett. One of the company's primary targets for this advertising is inner-city, black kids. Many of these children are underprivileged and see basketball as a way out of a life of poverty. Nike critics contend that the company is exploiting these children by charging over $100 (often $150) for a pair of shoes. The critics point out that Nike pays a worker in Indonesia only $1.60 per day but charges over $100 for a single pair of shoes. In addition, Nike is often criticized for not re-investing back in the communities that are the company's primary customers. Nike has undertaken a campaign to counter their critics' charges with a combination of new programs and policies.

Nike vigorously defends its policies on both its labor practices and sales and marketing techniques. On the labor front, Nike points to its strict policy on manufacturers that communicates the requirement Nike places on contracted manufacturers. The company contends that its requirements for sub-contracted manufacturing sites are much more stringent than local laws or customs dictate. In addition, Nike recently announced an enhanced labor program with six primary initiatives:

1) Expand Independent Monitoring - Working with independent groups, Nike plans to establish a global system to monitor working conditions at its plants. This initiative will target Indonesia, China and Vietnam first.

2) Raise Minimum Age Requirements - Independent of local laws, Nike increased the minimum age of footwear factory workers to 18 and light manufacturing workers to 16.

3) Launch of Environment, Health and Safety Standards ("EHSMS") - Launched in mid-1998 in conjunction with two independent consultant groups, the EHSMS is designed to ensure continuous improvement of conditions at Nike factories. The initiative will focus on air-quality within factories, safety standards and environmental concerns.

4) Jobs + Education Program - Nike launched the Jobs + Education program to give shoe factory workers access to education opportunities such as high school equivalency courses. Starting in 2002, Nike will order only from factories that participate in this program.

5) Micro-Enterprise Loan Program - The loan program is designed to provide loans to women in Vietnam, Indonesia, Thailand and Pakistan for the purposes of creating small businesses.

6) Rising Tides Program - Nike initiated and funds the Rising Tides Program that provides research grants to universities to expand research on corporate responsibility and manufacturing issues in less developed countries.

Nike's primary response to criticism about labor practices is that the company admits to having many improvements to make, but insist the company's working conditions are much better than other businesses in the region.

Nike also defends it contribution to the community. The company boasts of the $34 million in contributions Nike made to non-profit organizations in 1998. In addition, the company has started numerous organizations to benefit the local community. A sampling of the major initiatives are listed below:

1) Participate in the Lives of Amerca’s Youth ("PLAY") - PLAY's intent is to provide under-privileged, inner-city youths access to coaches and playgrounds to support sporting activities. Nike supports clinics, summer camps and other nonprofit programs to facilitate sports participation. In 1996, Nike made a $5 million grant to the Boys and Girls Club of America to train volunteer coaches.

2) 100 Black Men of America - Nike funded a $3 million partnership with the 100 Black Men of America club to support mentor programs with black youths.

3) Tiger PLAY Golf - In partnership with Tiger Woods, Nike is investing $2.3 million over five years to inspire inner-city kids to play golf.

4) HEAD START- Nike and the Head Start Association partnered to create Start Line, a program intended to provide computer software and hardware to Head Start programs in California. Nike is investing $2.6 million over three years.

The question remains: who is right? Is Nike getting a bad rap? Or are Nike's opponents that criticize the company for exploiting workers and inner-city kids right? The short answer is that they both are right.

Nike's record on labor practices has historically been unacceptable. However, the company has recently made strides to improve the working and living conditions at its factories. While the conditions are still below US standards, the environment at most factories seem to be above local standards. Specifically, safety standards have improved and economic wages have increased. Whether Nike would have made these changes without significant public pressure is debatable. However, while the company has significant progress still to make, it has improved its labor policies.

While Nike has initiated successful changes in its labor policies, the company has failed dramatically in its effort (or lack thereof) to re-invest in the domestic community. Nike publicizes its $34 million contribution in 1998 to non-profit organizations and its launching of groups such as PLAY and ~ 00 Black Men of America. However, these efforts are insignificant compared to the benefits Nike receives from its customers. First of all, the $34 million includes $14 million of in-kind gifts (at retail value no less). Accordingly, the company contributed only $20 million in cash, a paltry sum for company that generates over $9~5 billion in revenue. Nike's initiatives with PLAY and 100 Black Men of America are steps in the right direction but are insignificant relative to the size of Nike and the contribution of inner-city kids to Nike's profit.

In summary, Nike needs to JUST DO IT and further improve its labor conditions and make increased investment in the inner-city neighborhoods that are such valuable customers.

The Body Shop, PLC

The Body Shop has long been regarded as an example of social and environmental responsibility. Despite not having to endorse any of such activity, The Body Shop actively supports environmental groups, engages in socially responsible activities to turn around money in disadvantaged communities and campaigns against human rights abuses. In a recent survey by the Financial Times, the Body shop was regarded as the 27th most respected company in the world as viewed by CEOs.

Entrepreneur Anita Roddick founded The Body Shop in 1976, when she identified a niche in the market for nature-based beauty products with minimal packaging. The enterprise quickly grew from one small shop in Brighton on the South Coast of England with only around 25 hand-mixed products on sale to a worldwide network of over 1,500 shops. Franchising allowed for rapid growth and international expansion as hundreds of entrepreneurs worldwide bought into Roddick's vision.

Roddick's vision encompasses various aspects of the world community. It states that The Body Shop's success is dependent upon its relationships with all its stakeholders: employees, franchisees, customers, communities, suppliers, shareholders and NGOs. As such the company has led crusades in several causes, examples include a ban against cosmetic testing on animals, campaigns for human rights in Eastern Europe and Africa and the establishment of The Body Shop Foundation. All this was done while increasing sales and profits and providing additional returns to shareholders.

The Body Shop has 1,663 stores in 47 countries throughout the globe. Sales rose from ?87 million in 1997 to ?06 million in 1998, while net profits fell slightly, from ?8 million to ?5 million due to certain non-operational restructuring charges. The bulk of the growth came from sales in Europe and the Middle East, which increased 9%. In 1998, approximately 150 new shops were added, providing for most of the sales growth. Additionally, the company is currently undergoing a restructuring process in order to focus its efforts on the retailing business, which it considers to be the most attractive one for the near future.

Much of the drive of The Body Shop comes from its values system, and is summarized in the Values Report. The company believes it "has a moral responsibility to be open and honest about what it does, and face up things which need to be improved." In this report the company reviews all actions it takes in the social, political and environmental arenas, and proposes possible actions for the future. The company issues a value report every two to three years, the last one being published in 1997. This report was hailed as trailblazing by UNEP (the United Nations Environmental Programme), received the institution's top award for social and environmental reporting. The Values Report is divided into three sections, which outline the basic was the company views its responsibilities: the environmental audit, the animal protection audit and the social audit.

The Body Shop has substantial efforts to improve worldwide environmental conditions. Being in the beauty products industry has not stopped the company from spreading its efforts to several environmental concerns. As early as 1986, the company already participated in the "Save the Whales" campaign with Greenpeace. Other similar efforts have taken place since. Additionally, The Body Shop fully endorses and follows guidelines provided by the European Union Eco-Management and Audit Scheme, the ecological arm of the EU. Locally, the company has focused much of its environmental policies in using green energy sources as well as limiting water use and reusing wastewater.

The Body Shop has also taken a firm stance with respect to animal protection. Since its inception, the company has never tested its ingredients or products on animals or accepted that others did so. As a result, the company has set up a network of suppliers that share the same point of view. Outside the company's operations, The Body Shop has engaged in substantial lobbying and promotional activities to ban animal testing. One main Initiative was the launching of the Corporate Standard of Compassion to Animals, to which The Body Shop was the first international cosmetics company to sign up and comply. Partially as a result of The Body Shop's efforts, the UK banned cosmetic testing on animals effective November 1998.

The Body Shop's most impressive efforts, however, are on the social arena. The company is engaged in a multitude of programs that range from pure monetary aid to establishing production facilities in impoverished areas. The aid programs take place close and far from the company's southern England headquarters. Close to home, the company donated over ?.5 million to charities and took action ranging from conservation work to providing massages and counseling for people with AIDS. In the international arena, The Body Shop's activities vary in scope. It has conducted strong campaign in virtually every topic, including support of women's rights, banning of nuclear tests and the pollution of large oil companies. In a smaller scope, the company has taken the lead of various education and health programs in communities worldwide. An example is the Brazilian Healthcare Project, in which The Body Shop funding and organizing immunization procedures, medical checks, hospital renovation, construction and health education for over 4,000 Indians in 18 Amazon villages.

The most successful social program The Body Shop has, however, is the Community Trade Program. This program creates sustainable trading partnership with communities in need around the world. The goal is to help create livelihoods and to explore trade-based approaches to supporting sustainable development by producing ingredients and accessories in socially and economically underdeveloped communities. The program provides ingredients from disadvantaged communities throughout the globe, going from the U.S. to India and Nepal. Currently, there are over 30 Community Trade suppliers in 19 countries and Community Trade now accounts for almost 10% of its total ingredient and accessories purchasing. More importantly, however, the program provides a livelihood for hundreds of families across the globe and brings educational and health benefits to the communities involved. There are five criteria for Community Trade:

· Community Organization. Work preferably with organizations that already exist to represent the interests of the social group concerned. These might be an association of women, a farming co-operative, a tribal council, a group of homeless people in an urban setting or even a more conventional businesses. In this way, purchasing power serves to strengthen organizations that represent collective interests.

· Community in Need. Work with groups that have limited opportunities, limited resources, limited access to education, limited health care and limited outlets for their goods. By targeting disadvantaged groups, The Body Shop hopes to improve their opportunities.

· Benefits. The program must benefit the people who actually produce the goods traded not just on an economic level. Organizations must also encourage worker participation, leadership, and training - primarily for women. Suppliers must have a work force that is socially, as well as economically, benefiting.

· Commercial Viability. The business must be commercially viable price, quality, capacity and availability must all be carefully considered.

· Environmental Sustainability. The commercial activity has to meet The Body Shop standards for environmental and animal protection.

The Community Trade program has achieved substantial goals, providing livelihoods in disadvantaged communities and education and hope where it otherwise would not be found. It has also provided additional benefits to all stakeholders. For The Body Shop, the program is a practical expression of its broader social goals. For the communities involved, the program gives them a realistic chance to develop their community in the ways they have chosen. The Body Shop customers also get an opportunity to express their social views and beliefs through their purchasing power.

The Body shop is committed to effect change in the world and to change the way business is traditionally done. Through the environmental and social campaigning, the company has already changed laws and affected business practices. Through the Community Trade program, the company has given realistic hope to people around the world by providing them with work and self-respect. The Body Shop is teaching lessons that must be learnt by other companies.

One Potential Solution

Although The Body Shop has a strong tradition of social responsibility and has made a conscious effort to franchise stores in the inner city, we believe that it could take additional steps to support the urban economy. We believe there is an opportunity to develop a second retail concept tailored exclusively for the inner city market which would increase overall profits and wealth retention in urban centers.

Specifically, our plan would be to develop a chain of inner-city specific Body Shop locations under a new banner. All these locations would be franchised, with the franchise rights being awarded to local minority businesspersons. The separate name would be utilized to reduce cannibalization between new and existing stores, as well as to mitigate brand confusion for the consumer. The inner-city locations would sell similar (but repackaged) product lines as the original Body Shop locations, at similar (or possibly slightly discounted) price points, depending upon the product demand.

This plan should generate a number of positive outcomes for all parties involved. First, inner-city consumers benefit from having a neighborhood retailer of quality bath and body products. Second, The Body Shop wins by gaining franchise fees and product sales revenue from a new chain of 100+ urban retail locations. Third, the franchisee benefits by operating a profitable retail business backed by an established and successful international product retailer. Last, the inner-city community benefits both through additional jobs and by having franchisee profits kept within the community, rather than being exported to corporate headquarters and distributed to international shareholders.

As for the store economics of the proposal, our estimates can be seen in the table below. All estimates are based on our experience with similar specialty retailers, and expectations of performance in the urban locations. We have made adjustments to the traditional mall store economics to derive an estimate of the economic structure of an average inner city location, which generates an attractive operating return (before corporate overhead) of $2 64k or 22% of sales. First, we estimate that sales may be slightly lower (20%) at the inner city location since it may have less mall traffic than the typical Body Shop mall (assuming similar pricing). However, the primary economic benefit of the inner city location is the significantly lower rent expense, which we estimate to be roughly 40% lower than that of the premier location for similar square footage. Noting only minor changes in the other line items, this results in a very attractive operating profit and thus a feasible business opportunity for The Body Shop.

Comparison of Store Economics ($000s)

Body Shop Mall Store


Inner City Location*



Sales Volume










Gross Profit











Variable Expenses










Rent & Occupancy





Other Fixed





Total Expenses






Store Contribution



*Numbers may not tie due to rounding.





FUBU Inner City Marketing Plan

We have discussed some examples of companies that use their products and services to profit from the buying power of individuals in the inner city. Each of these companies have some programs in place to "give back" to the community. However, we maintain that many of these programs fail to give back in any measure equal to what they take. Companies such as Nike and McDonald's tend to use their inner city programs to generate positive public relations in the inner city which ultimately engenders greater sales. In fairness, these corporations are interested in the bottom line to their shareholders and to this end, stakeholders such as an individual set of customers, will fail to carry the day.

A company like the Body Shop may provide an ideal example of how a company can contribute to ameliorating global issues. Yet, is there a company that is well positioned to deliver this type of contribution to the inner city? In a rhetorical flourish, we posit that indeed there is a company that fits this description exactly. That company is FUBU. In order to fully explore the opportunity for FUBU to positively affect the inner city communities, we will first describe the company background and market opportunity. Then we will identify ways in which the company can capitalize upon its unique brand image to both sell more products and to keep the economic benefits of these sales within the community.

Background Information

FUBU was formed by a few African American young men in New York who believed that there was a need for a true ‘inner city’ company to market fashion within their community. What began as a few guys selling hats and t-shirts out of their basement has evolved into a fashion company that is part Gap, part Tommy Hilfiger, and part MTV music video (headquarters are now located on a top floor of the Empire State Building; my how things change.) FUBU is an acronym that represents "for you by you" This name attempts to immediately link the company to the community in which it sells its products. It engenders the sense that "you" and "yoo" are one in the same, as opposed to the "them" that usually try to sell their products. This inner city authenticity will be the company's greatest long term test to determine whether or not the brand can grow quickly without sacrificing its grassroots appeal.

The founders recognized an opportunity for a brand that could leverage the fame and image of top rap and hip-hop artists. Their first coup was convincing rapper LL Cool J to wear FUBU clothing while on tour. The company also benefited from the Gap's decision to allow LL Cool J to wear a FUBU hat in its $50 million ad campaign which featured the rapper. This free publicity enabled the fledgling brand to capture massive brand awareness and to convince other artists to serve as brand sponsors. This marriage of music and fashion has proven very effective for FUBU as sales have exploded in recent years.

At first, the major retailers were reluctant to support the brand due to a self-professed lack of shelf space for an unproven brand. However, in interviews, the founders of FUBU have maintained that the reasons had more to do with discrimination and a basic antipathy for the "inner city" roots of the company. Nevertheless, the company succeeded in securing an early distribution deal with Samsung that subsequently led to deals with major retailers such as Macy's and JC Penney's. FUBU also recently signed a licensing deal with the NBA to market co-branded merchandise.

These relationships and the brand's finely targeted approach to its inner city customers have combined to drive FUBU's remarkable early success. However, the company has resisted the allure of going public in adherence to the notion that slower growth would be advisable in order to not dilute the company's "inner city authenticity." So far this strategy has led to great success. Yet, it should be noted that the company has not been challenged by any other truly authentic inner city" brand until now. This nascent

challenge is being led by Puff Daddy as he has hired a top Ralph Lauren executive to start a brand in his own image. Suffice it to say that the company occupies a unique position in today's world of fashion, one that could allow it to set in motion real change in the inner city.

Opportunity Identification

There are four ways in which FUBU could affect change in the inner city. First, as a closely held private company, it could distribute a certain percentage of its profits to programs that directly benefit the inner city. We believe that if 10% of profits were channeled into youth programs to increase computer literacy and college scholarships, the brand could make a significant contribution in these areas.

Second, the company could launch a higher priced line that would compete with brands such as Tommy Hilfiger. This line would be sold to existing retailers at the same wholesale price as FUBU's other products. However, an agreement would be structured with the retailers to ensure that the incremental profits from this brand be split evenly between the retailers and community programs.

This high priced line should sell extremely well given the existing sales data with respect to similar pricing efforts by Nike and Tommy Hilfiger in the inner city. The high price should, in fact, reinforce the high quality, ‘hot' status image of the brand. The key to this proposal will be FUBU's ability to ensure that the retailers remain faithful to their side of the agreement. There exists the danger that retailers will be tempted to mark down these items quickly since they only receive a percentage of the incremental profits above a certain level. There is also the potential problem in convincing retailers of the viability of this concept. They may view this as a program that could lower overall FUBU store volume and thus may be averse to signing on. Regardless, we believe that this type of partnership would allow FUBU to directly share within the community a percentage of the economic good earned by its brand.

Similarly, the third option would be to sell existing FUBU product lines into Kmart and other retailers who have a significant number of stores on the outskirts of the inner city. The caveat to this deal would be that Kmart would need to reserve a percentage of its profits for its inner city employees as stock options. The store would have the incentive to do this as a means to secure a high margin, 'image' product for its primarily dilapidated stores. Kmart could also leverage the positive public relations that would emanate from this noteworthy program. Store traffic would increase as the FUBU merchandise would bring into Kmart a younger, more fashion conscious consumer who spends a high percentage of his disposable income on his wardrobe.

These 'bonuses' would enable profits to remain in the community instead of lining the pockets of the retailer's shareholders. This would serve as a tacit 'enabler' of these inner city employees. They would not need to rely on the largesse of others to ‘gift' them an opportunity. Instead, they would be entitled to a residual claim on the brand's success (a success that the community had largely enabled and completely supported).

Lastly, the company could open its own stores in the inner city and pursue a similar strategy of sharing profits with its employees. A tangible issue remains that the capital intensive nature of this option may mandate that the company go public in order to raise enough money to pursue this strategy. However, this would make the strategy less tenable in the long run since a truly equitable profit sharing approach is more tenable in a closely held private company. The public shareholders will assuredly demand greater accountability for how their money is spent. In order to avoid this predicament, FUBU might choose to set up an Internet storefront to sell its clothing lines and institute a similar program of profit sharing among its community employees. This initiative would make a great deal of sense in that costs could be contained while control of the initiative could remain entirely in FUBU's domain.

As mentioned at the outset, one possible caveat to this idea will be the reception that Puff Daddy's new clothing line receives in the community. The pricing of any new competitor will be important as FUBU must be cognizant that they not lose touch with their core consumer. Although a high price may be seen as a validator of quality and status, in the presence of lower priced, image conscious competition, a high priced line may lose market share. FUBU must not lose its firm grip on the inner city hiphop/fashion market by trying to do too much, too fast to ensure that the community benefits from the commercial ventures it supports. The company is positioned to deliver a unique value proposition to its inner city consumer. Will it be able to deliver upon this weighty challenge? Or will it fall victim to the inevitable strain of its own remarkable growth and the fickle tastes of the fashion consumer? These are real concerns that may taint any long term attempt to integrate an ambitious initiative such as this into the modus operandi of even the most successful young company.


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