Building Stand Out Partnerships During a Recession A historical look at how profit-purpose partnerships are impacted by recession…and how 2020 is different 2020 Profit-Purpose Partnerships Recession Report 1 ECONOMIC AND PHILANTHROPIC CORRELATION Historically, the state of the economy and the state of philanthropy are directly correlated. Both typically witness a decline in times of recession and reap a surge in fundraising in times of economic recovery. However, with the extreme rise of corporate citizenship over the past decade and the unprecedented circumstances of our recent recession, we wanted to answer two questions: 1. What’s the relationship between corporate giving and a recession? 2. What might be different about this recession from previous ones that would ignite different outcomes for profit-purpose partnerships? 2020 Profit-Purpose Partnerships Recession Report 2 STATE OF THE UNION 2020 Profit-Purpose Partnerships Recession Report 3 STATE OF THE UNION: THE ECONOMY ECONOMIC U.S. GDP growth will contract by INTEREST RATES OIL & GAS Worldwide crude oil prices will GROWTH average $41 a barrel for the second 6.5% in 2020 (declined by 5% in 1st half of 2020 and $50/b in 2021. quarter alone). It will rebound to a Source: U.S. Energy Information Administration (EIA) 5% growth rate in 2021 and 3.5% It lowered in 2022. the current fed CLIMATE CHANGE Source: Federal Open Market Committee, 06.10.20 funds rate to a range between Extreme weather caused by climate UNEMPLOYMENT INFLATION 0.0% and change is forcing farms, utilities, and 0.25%. Federal other companies to declare Reserve has Inflation will average 0.8% in restarted its bankruptcy. As those loans go under, Furloughed workers 7. sent the number of 2020. It will rise to 1.6% in quantitative it will damage banks' balance sheets unemployed to 23 2021 and 1.7% in 2022. The easing million in April. As of just like subprime mortgages did June, the number of core rate well below the Fed's program. unemployed has 2% target inflation rate. during the financial crisis. declined to 17.8 Source: Federal Open million. Market Committee Source: Federal Reserve, March 2019 Source: U.S. Department of Labor & Statistics Source: The Federal Reserve 2020 Profit-Purpose Partnerships Recession Report 4 STATE OF THE UNION: THE ECONOMY 11% Total consumer spending in the U.S. 80% # of airline fliers 45% Hotel Occupancy 20% Gasoline Consumption 100% Box Office Movie Sales 55% Public Transit 2020 Profit-Purpose Partnerships Recession Report 5 STATE OF THE UNION: THE ECONOMY While overall spending is still down (10% compared to last year*), some categories have seen an extreme increase in spending due to the nature of stay-at-home orders and other pandemic effects. *Source: Tracktherecovery.org As published in The New York Times, 4.11.20 2020 Profit-Purpose Partnerships Recession Report 6 STATE OF THE UNION: THE ECONOMY General Merchandise Industry Level Patterns Stores, Counter Service Restaurants and Supermarkets are faring best during the Pandemic. Since the re- opening of many states in mid-May, Hotels are witnessing a surge in activity. Source: Safegraph, COVID-19 Data Consortium 2020 Profit-Purpose Partnerships Recession Report 7 STATE OF THE UNION: THE ECONOMY Throughout the U.S., various state economies are more effected than others. Wyoming, South Dakota and Montana are closest to normal traffic (when compared to the same time last year), whereas California, New York and Hawaii are the least normal – with tourism and more stringent state lockdowns as contributing factors. Source: Safegraph, COVID-19 Data Consortium 2020 Profit-Purpose Partnerships Recession Report 8 STATE OF THE UNION: THE ECONOMY On a brand level, while activity is still lower than the previous year, it is following normal seasonal and spending patterns. Activity for most brands and industries correlate with stay-at-home orders from March 17 – May 17, with the exception of home renovation brands – who have seen an increase in activity during the pandemic. BRAND PATTERN: Home Depot BRAND PATTERN: Target BRAND PATTERN: Starbucks Source: Safegraph, COVID-19 Data Consortium 2020 Profit-Purpose Partnerships Recession Report 9 LEARNING FROM HISTORY 2020 Profit-Purpose Partnerships Recession Report 10 LEARNING FROM HISTORY: RECESSION SHAPES In order to the answers we’re seeking, it’s important to understand basic recession trends and how they perform. Z-shaped recovery in which economic activity was merely delayed during the pandemic, and the economy sees a temporary boom above pre-crisis levels V-shaped recovery that means a quick bounce back to pre- crisis levels 2020 Prediction U-shaped recovery where the economic dip lingers before heading back to baseline 2008 Recession W-shaped recovery where a brief recovery period is followed by another recession and recovery; and the worst-case scenario L-shaped recovery where a dramatic drop is followed by gradual recovery that never reaches pre-crisis levels. This final version is what the Great Recession recovery looked like. 2020 Profit-Purpose Partnerships Recession Report 11 LEARNING FROM HISTORY: IMPACT ON NONPROFITS STOCK MARKET NOT ALL CAUSES ARE CREATED EQUAL DEMAND HIGH. RESOURCES LOW. INFLUENCE Crises increase demand for human services. As the economy dips, nonprofits find themselves short International development and relief charities also on resources. The paradox of recessions and crises are weathered the 2008 recession well enough. that they often increase demand for the support, services and programs that nonprofits provide. Researchers point to the stock CORRELATION market, particularly the Dow Jones HARDEST HIT GIVING WAS DOWN Industrial Average and In the Great after-tax income Recession, by dollars as two factors Charitable giving and lost, the sectors hit that strongly the hardest were In 2008, total giving dropped by correlate to government funding education, religious- 7.2% in 2008 and by an based charities, and additional 8% in 2009. As GDP fundraising closely tracks with the philanthropic constricted, giving as a success, albeit state of the economy foundations. percentage of GDP declined from with a bit of a and crises. 2.2% in 2007 to 2% in 2009. lag. 2020 Profit-Purpose Partnerships Recession Report 12 LEARNING FROM HISTORY: IMPACT ON NONPROFITS Historically, corporate giving counter-correlates with recessions. While philanthropy directly correlates with economic downturns, aside from the effects of September 11th and the brief recession in 2001, corporate giving increases during or directly following recessions. REBOUND OPPORTUNITY 2020 Profit-Purpose Partnerships Recession Report 13 LEARNING FROM HISTORY: IMPACT ON CORPORATE AMERICA STOCK MARKET NOT ALL COMPANIES ARE CREATED EQUAL LOWER DEMAND WINNERS The impacts of economic crisis on businesses, During economic downturn, companies just like on nonprofits, are inconsistent across generally experience a credit squeeze, size and sector. lower demand, and general uncertainty. During the 2008 Recession, the RECESSION-PROOF INDUSTRIES stocks that • Consumer Staples • Staffing Firms performed by SURVIVAL RISK A LITTLE INSULATION • Collection Agencies • Sin Industries (i.e. best by total • Discount Retailers cigarettes, booze, Smaller companies return included • Fast Food chocolate) that lack cash • Healthcare • Static Industries discount stores, reserves and large Larger companies with more • Home Renovation (i.e Tax Prep) capital assets have health care, food, fewer paths to access to capital and government • Retail Consignment • Specialized or survival than big support are better insulated than and other • Service & Repair Services Proprietary companies. inelastic Products smaller companies. • Utilities industries. 2020 Profit-Purpose Partnerships Recession Report 14 LEARNING FROM HISTORY: IMPACT ON PROFIT- PURPOSE PARTNERSHIPS The M-Shaped Profit-Purpose Partnership Trend Big decline once corporate profits and budgets are cut Big upswell of corporate philanthropy directly following -37% recession 26.46% 15% Slight rebound on signs of hope Second contraction with stalled recovery 16% S&P 500 Total Return Extreme growth and commitment to support social issues once recovery takes Source: Candid Foundation Data 2007 – 2017, as reported by the National Committee for Responsive Philanthropy hold S&P 500 Total Return 2008 - 2012 2020 Profit-Purpose Partnerships Recession Report 15 LEARNING FROM HISTORY: OPPORTUNITIES THAT ARISE Some of the most iconic profit-purpose partnerships were founded during and on the heels of the 2008 recession. In times of crisis, opportunities for innovation and iteration are often uncovered. Awarded $20M in graNts to individuals, businesses and non- Raises $122M/year from 60 profits that promote a new idea that different retailers over 30 days has a positive impact on their to end childhood cancer community, state, or the nation For every pound Americans pledged to lose through The Macy’s pledges $1 for each letter to Biggest Loser, the PouNd For Santa into placed into Believe letter PouNd ChalleNge donated Over the last 12 years, through the Share the Love money to Feeding America, Event, Subaru of America and its participating boxes in Macy’s stores, up to $1 up to a maximum donation of retailers have donated more than $176 millioN to million each year, to support the $1,040,000. charity, with customers choosing between four national and over 1,220 hometown charities Make-A-Wish Foundation 2020 Profit-Purpose Partnerships Recession Report 16 LEARNING FROM HISTORY: kEY LEARNINGS