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Consumer retail: 2021 outlook

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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By Hellen MbuguaESG Senior Research Analyst, Calvert Research and Management

This is the second of a two-part series examining consumer retail in a Responsible Investing context. For a look back at what we saw in 2020, click here.

Washington - As noted in Part I of this blog series, the COVID-19 pandemic saw elevated investor interest in social, or "S," factors when considering ESG factors in investing. We expect this interest to continue in 2021.

Looking forward through 2021, key "S" pillar themes to watch closely include:

  • Employee - minimum wage: Proposed increase of the minimum wage to $15 by the Biden administration is likely to affect retail occupations which account for approximately 6% or 10 million jobs in the US and where retail workers account for nearly 23% of minimum wage earners. A 2019 Congressional Budget Office study calculated that raising minimum wage would cause 17 million people to get a raise and lift 1.3 million people out of poverty. Cities such as San Francisco, Seattle, Los Angeles, New York, and Washington have already instituted a minimum wage at or above $15. Some retailers have already raised the minimum wages for their employees to this level. If the law were to be passed, it would be a four-year phase in, reaching $15 in 2025.
  • Supply chain: At the beginning of a product's lifecycle, labor issues in the supply chain remain. The year started off with the U.S. banning the importation of cotton products from China's Uighur region, which is marred by the issue of forced labor. Complexity of global supply chains further muddies this issue. At the end of a product's lifecycle, increased consumerism means that product lifecycles are shortening. The volume of end-of-life products is proliferating, pushing companies to extend their traditional supply chain to include end-of-life management through recycling, proper disposal, or reduced production in the case of the fast fashion industry. On the other end, it is leading the rise of a new genre of businesses looking to capitalize on this problem, the resale and rental companies.
  • Customer - brick and mortar: The physical store is likely not going away soon even with the surge in e-commerce. This mode of shopping is likely to favor the big box retailers who have the advantage of attracting shoppers who prefer to consolidate trips, fill up bigger baskets and use curbside pickup. Another beneficiary is the off-price retailer, favored by cost-conscious consumer— affluent or not— this started to gain favor after the financial crisis of 2008-09. Given that most discount retailers do not have an online presence, to compete economically, "buy online pick up in-store" (BOPIS) could be the solution.
  • Customer - digitalization: Accelerated growth in online sales is expected to continue in 2021. Issues related to e-commerce, such as carbon emissions, privacy & data security, personalization through artificial intelligence (AI) or algorithms or data science, raise of social commerce, health & safety, and waste from packaging, will continue to be scrutinized.
  • Community - inclusion: Board diversity will likely take on a broader view beyond gender, into other minority groups. The new NASDAQ rule on board diversity unveiled at the end of last year could be the start of this trend. Similarly, workforce demographics and pipelines will continue to be dissected. At Calvert, we believe that more diverse companies, are better able to attract and retain top talent and improve their customer orientation, employee satisfaction, and decision making, all of which lead to a virtuous cycle of cumulative returns.

Bottom line: In the consumer retail sector, the social pillar is typically the most important and carries the highest weight in our models. So far, we have observed that retail companies with a robust social profile generally have been able to better manage challenges in this environment.