LEGAL AND ETHICAL ISSUES IN RETAILING

Presented by: Tushar Sawhney & Arunoday Singh

ETHICS

In simple words, ethics can be defined as moral values and principles. It is a decision of choosing right among wrong and right. Business ethics are that functions which lead to choosing right decision at right time leading for the welfare of not only business owners but also society, consumers, stakeholders and its employees. Business ethics now days have become so important that no business can survive in market without following them.

This is a set of rules for human moral behavior. For retailers they can have explicit code of ethics or implicit code of ethics. Explicit code of ethics: Written policy that specifies what is ethical and unethical behavior. Implicit: Unwritten but well understood set of rules or standards of moral responsibilities.

Why Ethics is Important

Ethics is a far-reaching concept and goes beyond the idea of making money legally. Ethical values are way ahead of earning money For a business to achieve long-term profits, customer relationship is of utmost importance. To gain a long-term relationship with customers and achieve customer return for the business, the business needs to be based on ethics Ethics is more about earning long-lasting relationships in business.

Ethics In Retail

RETAIL DECISION MAKER

Ethical Behavior
Buying merchandise Selling merchandise Retailer Employee relationship

Ethical Behavior in Buying Merchandise

Product quality Retailers develop laboratory testing programs to verify that the quality of privatelabel products and manufacturers own brands, adhere to stricter ethical and environmental standards that go beyond existing government regulations.
Sourcing

Retailers can use private investigators to check out vendors to make sure they are not buying from unsavory characters.
Fees paid by a vendor for space or a slot on a retailers shelves Bribery It occurs when a retail buyer is offered an inducement for purchasing a vendors products.

Ethical Behavior in Selling Merchandise

Products Sold Should a retailer be allowed to sell any product, as long as it is not illegal? Selling Practices

Should a salesperson, while not saying anything wrong, be allowed not tell the customer all the facts?

Retailer Employee relationship

Misuse of Company Assets

Using office equipments for personal use and benefit

Confidential codes

Leaking out company future moves and strategies to competitors

Employee Theft

Stealing companys resources

Unethical practices
Some examples are CREDIT CARD fraud The credit card companies often change the rules, manipulate APRs, try to confuse consumers through various tactics in order to raise APRs, charge late fees, overdraft fees, and the likes Personal information of customers sold to third parties.

Ethical issues
The situations are:

Customer related Charge full price for a sale item without the customers knowledge. Dont tell the complete truth to a customer about the characteristics of a product. Make excuses when merchandise is not ready for a customer to pick up. Sell a more expensive product when a less expensive product would be better for the customer. Dont offer information to the customer about an upcoming sales (which will include merchandise the customer is planning to buy). Make excuses to customers about unavailable merchandise when merchandise is not yet in stock or is sold out. Give preferential treatment to certain customers.

Peer related
i. Pressure from fellow employees not to report employee theft. ii. Offer to give a friend and employee discount.

Work related
i. Salesperson receives an unfair workload. ii. Sell merchandise that is not of good quality. iii. Sell the product as if it were an exclusive when in fact it is available in other stores. iv. Perform your job with inadequate job information or training. v. Use of sales contest for salespeople in order to generate sales from customers.

The ethically free situations

There are a number of important scenarios that retailers salespeople believe are not ethically troublesome. i) Persuading a customer to make purchase was considered acceptable. Convincing potential consumer and making a sale is considered as an objective of communication strategy. ii) Making use of a sales contest for salespeople in order to generate sales to customers is also considered to be acceptable. Sales contests are often used as an incentive to help salespeople and managers to persuade potential customers to make a purchase.

iii) A retailer socialising with management and company employees is considered an acceptable scenario. Socialising is part of corporate culture of the company and helps teamwork. Ethical beliefs of the retail organisations staff at different levels are important and therefore have to be understood for the emerging practices in retailing today. There is an increasing trend towards greater empowerment of employees and towards flatter organisational structures.

Association for Retail Environments (A.R.E.)

Established in 1956, the Association for Retail Environments is a non-profit trade association advancing the retail environments industry and our member companies. These international leaders in the retail built environment include store fixture suppliers, retail design firms, suppliers of visual merchandising products, suppliers of materials and equipment for the industry, and service providers such as 3PLs and installers. Through on-site, online, and on-target venues, they connect retailers and brand marketers with the professionals who bring their brands to life.

A.R.E. Code of Ethics

To inspire retail-industry confidence in the Association, to help raise the standards of industry in business relations, to encourage the membership in the pursuit of excellence, and generally to promote the Associations reputation, the Association for Retail Environments does hereby adopt and proclaim its Code of Ethics. Adherence to this code is required of all A.R.E. members.

I. The Golden Rule shall be the general guideline of conduct in our business affairs. Honesty shall be adopted as the best policy serving our business interests. II. A member of A.R.E. shall refrain from knowingly injuring or maligning the good name or business reputation of another member. III. Members shall uphold and obey all local, state, and federal laws pertaining to business practice.

IV. Members shall refrain from falsely advertising or in any way misrepresenting their products to the public.

V. It shall be incumbent upon all members to adhere to specifications in the manufacture of their products and to avoid the substitution of inferior quality products VI. Members of A.R.E. shall refrain from inducing a breach of contract between a competitor and his customer by any false or deceptive means. VII. No member shall hire an employee of another firm with the intent of: (1) inducing the employee to breach his or her contract with the former employer; (2) obtaining protected confidential business information regarding the former employer; or (3) illegally inducing the customers of the former employer to breach their contracts with said employer. Members shall not engage in commercial bribery, make payoffs, or engage in other illegal acts to obtain confidential business information, trade secrets, blueprints, or other nonpublic information from a competitor.

VIII. Members shall not copy the trademarks, names, slogans, trade secrets, blueprints, etc. of a competitor without their specific permission IX. Members shall not sell below cost with the intent to discriminate between competing buyers, injure competition, or engage in price predation in violation of federal or state antitrust or trade regulation laws. Members shall not bribe employees of customers or prospective customers, make undisclosed gifts, pay kickbacks, or provide undisclosed entertainment to employees of customers or prospective customers.

X. When acting as a prime contractor, members shall treat their subcontractors as they would expect to be treated by their customers, particularly in the matter of payments. XI. Members shall endeavor to maintain good relations with their employees, applying the principles of good human relations in their daily work. XII. Within the bounds permitted by law, members shall share with other members information of a non-confidential nature that would tend to strengthen the industry and be in the interests of the Association for Retail Environments.

Deteriorating Retail Ethics

In consumer marketing more and more corporations are using unethical tactics to get my money. Many businesses use misleading ads, deceptive promotions, and other trickery to make sales. Often the product is not as expected nor the bargain indicated.
Optical Illusions I'm looking at a display ad in a retail electronics flyer. It shows a Flat Screen TV. It is not a flat panel LCD or plasma TV, it just looks like one. The graphic is a three dimensional type but is drawn in such a way that it looks like it has no depth. Are Pure Flat, Real Flat, Perfectly Flat flatter than flat? If they have the old picture tube they are still thick and heavy.

Magnifying glass may be required And read carefully! A large newspaper ad for a term deposit looks like 5.25% 3 Year Rate* but at a closer look 5.25% 3rd Year Rate* From the newspaper ads New Townhouses - Minutes From the Beach By jet maybe. Fresh Green Beans . . imported ???? Fresh Peaches . . product of Chile ???? Real estate oxymoron: Affordable luxury. 30% OFF an item that is grossly overpriced, is overpriced. Some stores even inflate the price before the sale.

One reason is probably the saturation of markets and therefore stronger competition. If deceptive, dishonest methods are used by others to increase profit, what is a corporation supposed to do? To keep dealing straight with consumers may cause the company to lose market share, resulting in less profit. It may feel pressured to join the con games or get left behind.

The changing scene

LOreal, the owner of Body Shop, has announced it will stop animal testing and start a natural range of products. Nike has announced that it will strengthen its efforts to combat potential abuses of the 800,000 workers in its global supply chain with a push to promote labour rights. Marks & Spencer unveiled a 200m "eco-plan" to make it carbon neutral in five years. M&S said "Plan A" was its contribution to the battle against climate change. There is no Plan B. By 2012 it expects to be carbon neutral, send no waste to landfill and "set new standards in ethical trading".

Primark is a clothing retailer, operating over 220 stores in Ireland (where it is branded as Penneys), United Kingdom, Netherlands, Germany, Spain, Portugal and Belgium. The company's main headquarters are in Ireland, and is a subsidiary of Associated British Foods(ABF).

Number of Stores Trading at 15th September 2011 Ireland - 38 Spain - 20 UK - 154 The Netherlands - 2 Portugal - 4 Germany - 4 Belgium - 1 Total - 223

In 2006, Primark joined the Ethical Trading Initiative (ETI), a collaborative organization bringing together businesses, trades unions and NGOs to work on labour rights issues in their supply chains. ETI members commit to working towards the implementation of a code of conduct based on the International Labour Organisations core conventions.

Web site of PRIMARK

Some of the work PRIMARK does to build strong communities and sustainable businesses in the countries they source from.

Financial inclusion for workers In India, they have partnered with Geosansar on a ground-breaking initiative to open bank accounts for factory workers.
Education for workersThere are currently 77 worker education groups in operation and during 2009 /10 over 430 training sessions were held. Reducing energy in storesAt Primark, they are committed to reducing carbon dioxide (CO2) emissions from stores.

PRIMARK V/S BBC

In 2008, Primark was featured on the BBC TV Panorama programme: Primark on the Rack, which claimed to show three young boys being used to manufacture clothes sold in Primark. Immediately Primark sacked three of its suppliers after an investigation for the BBC's Panorama and The Observer uncovered children labouring in Indian refugee camps to produce some of its cheapest garments. After three years, a lengthy investigation by Primark and a comprehensive review by the BBC Trust, the BBC Trust has confirmed that the footage was fabricated and should never have been broadcast.

An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain i.e. Suppliers Contractors Distributors Sales agents

Retailers: The retailers management do not have clear policies. They have not developed ethical
code of practice. They have developed certain norms, which they communicate in the induction and through supervisory coaching. Two retailers reported to have monthly meetings. This does not guarantee ethical behaviour..

Sales force Perceptions: Though they are known with ethical behaviour, achieving the targets
becomes more important for them. Since ethical conduct is largely an individual process, training and individual related factors are important.

Retail salespeople need guidelines on ethical issues. This poses considerable challenges to retail managers. The policies should be formulated and clearly communicated to help salespeople deal effectively with the situations. Because a retail salespersons inability to handle such situations and to resolve the conflicts inherent in the situations is likely to result in lower job performance, satisfaction and unhappy customers. The advantages of ethical behavior include:

Higher revenues demand from positive consumer support Improved brand and business awareness and recognition Better employee motivation and recruitment New sources of finance e.g. from ethical investors