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Why Hobby Lobby Loses Even If It Wins at the Supreme Court

I want to talk about the fallout when senior management chooses to politicize their brands. The current legal thinking, by those in the know, is that Hobby Lobby will win 5-4 and Anthony Kennedy will cast the deciding vote.
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Now that a couple of weeks have passed since both sides made their oral arguments before the Supreme Court in Sebelius v. Hobby Lobby, we'll leave the tea leaf reading to those who cover the Supreme Court as their beat.

I want to talk about the fallout when senior management chooses to politicize their brands. The current legal thinking, by those in the know, is that Hobby Lobby will win 5-4 and Anthony Kennedy will cast the deciding vote.

Regardless of their arguments carry the day before the Supremes, I believe Hobby Lobby is the loser in this whole affair.

Here are the facts. Hobby Lobby is a very successful family-owned retail chain with over 560 locations. They generate $3.3 billion in revenue and employ over 23,000 people. As a brand, they are on a growth spurt and have increased revenues by roughly 50 percent since 2011. Like Chick-fil-A, they are closed on Sunday in accordance with their religious values.

Hobby Lobby is upset with the provisions of Obamacare that address female contraception. They will cover male contraception, in the form of a vasectomy. Here, Hobby Lobby founder David Green has taken a very public position in this legal fight. He wants the court to expand the Religious Freedom Restoration Act of 1993 to include businesses that choose to opt out of certain provisions of Obamacare on religious grounds. Lower courts have split evenly on this.

The Religious Freedom Restoration Act of 1993 was originally designed to protect the rituals and practices of religious groups that might run afoul of the law. For example, Native American tribes that use peyote as part of their religious practice are protected from prosecution. Expanding the rules from a religion to cover a private business should trouble everybody.

Of course, here is the irony. Until the lawsuit, Hobby Lobby covered a number of female contraceptive options, including Plan B and others that they object to in the current legal action. Somewhere along the line, Hobby Lobby got "religion" on the issue. The owners of Hobby Lobby were for contraception before they were against it.

The Big Picture. As I walked through a Hobby Lobby in Southern California while I prepared this article, I noticed the store was nearly staffed entirely by women. As I walked through the aisles, the active shoppers were nearly all women. The men who were there usually walked several paces behind their wives or girlfriends and wandered down aisles they would never venture on their own accord. For them, it was the antithesis of a Home Depot.

According to Gallup, 89 percent of all Americans believe that birth control is morally okay. In a PPP poll, 56 percent of all voters and 65 percent of all millennials support the no-pay provision of female contraception in Obamacare. This should not be controversial but here we are.

Women have fought long and hard for equality in the workplace and we are still a long way from reaching parity. Female employees at Hobby Lobby must wonder why male contraception is covered while theirs is not. I couldn't help but wonder how many other Hobby Lobby shoppers in that Southern California location felt the same way. For them, it amounts to a wage and benefit cut.

American shoppers are fairly smart cookies and react strongly when their brands are politicized. Just ask the senior management team over at Chick-fil-A and Susan Komen what happens when the backlash begins. Both suffered PR nightmares, irrespective of their balance sheets.

Another good example of this is Papa John's CEO John Schnatter, who threatened to cut all employee work hours to no more than 25 hours per week in order to elude Obamacare for his line employees. He also raised the prices of his pizza to pay for the costs of the program. The next day, CNN took a look at his argument and reduced it to tomato paste. They pointed out that most of the Papa John's franchisee owners would fall below the "50 employee threshold" and would be therefore exempt. Also it was hard to believe that a person who was going to give away 2 million pizzas as part of NFL marketing campaign was somehow unable to extend healthcare for those who made the pies. Then Schnatter slinked away to the op-ed pages of the Wall Street Journal to claim victimhood. The poor dear.

Even though his financials remained strong, according to YouGov's Brand indexing, Papa John's brand perceptions among casual diners fell 90 percent. Those are the people who make the dining choices. Not only did Schnatter harm his own brand, but he also put his franchisee owners in a delicate position because they were now in the crosshairs of public outrage.

So how does this impact Hobby Lobby? Right now Hobby Lobby is expanding into new markets and this Supreme Court lawsuit is the first experience many have with the brand. That cannot be a good thing.

It gets worse. Last Christmas when Ken Berwitz asked why Hobby Lobby did not carry any Hanukkah items, an employee told him that because of the founder's beliefs, "We don't cater to you people." Accusations and apologies flew around. This position of Hobby Lobby appears to be evolving in certain markets with larger Jewish populations.

None of this can be good for Hobby Lobby, especially with Michaels and others responding to the competitive marketplace. The court of public opinion can be ruthless.

Hobby Lobby may prevail at The Supreme Court, but in what Adam Smith once called "The Hidden Hand of Capitalism," shoppers may render a verdict of their own and it won't be a nice one.

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