Take Aim at Bad Publicity
Targeted communication is key
No retail jeweler wants to be anonymous, but there are worse places to be. Consider the case of LVMH Möet Hennessy Louis Vuitton, the luxury products conglomerate that owns a variety of watch and jewelry brands.
LVMH executives woke one Sunday in April to find their company profiled unfavorably on the front page of the business section of The New York Times. The article described a company that seemed a few steps from collapse.
Acquisitions, reported The Times, had pushed LVMH into several low-margin, low-return industries. The article pointed to Fendi, the Italian leather goods manufacturer in which LVMH has a controlling interest. Earnings flattened after sales of Fendis Baguette bag soured. Meanwhile, operating margins at TAG Heuer, Zenith and Chaumet watch and jewelry brands were about 7%. The Times noted this was below the 10% of rivals like Bulgari and Tiffany.
Analysts recommended investors in the publicly held LVMH reduce (read: sell) their holdings in the company in favor of more promising investments.
Ouch. But what to do?
LVMHs public response included a full-page ad in the following Sundays paper touting the companys record profits in 2000. The newspaper also corrected several errors concerning LVMHs financial performance and published a letter from Myron E. Ullman, group managing director. On the heels of a record year for sales and earnings, wrote Ullman, we are forecasting double-digit growth in 2001. Only three of 30 analysts who follow LVMH issued negative recommendations regarding its stock, he wrote.
Was the response enough? Too much? It depends, says independent public relations consultant Louis J. Grossman, Yardley, PA. The most effective way to respond to negative publicity is to focus on the individual article and its impact, he says. Are you losing sales? Investors? Is it hurting the morale of employees? Each is a separate issue and requires a targeted response.
Because the original Times piece was published in the business section, the impact would be most powerful among LVMHs business audience investors and stock analysts, says Grossman. LVMH was wise in asking The Times to correct its factual errors and publish its rebuttal.
Grossman is less enthusiastic about LVMHs full-page ad. Generally, that extends the damage, he says. Appearing defensive is never wise, he says. Thats likely why LVMHs ad didnt refer to the original story. Instead, it included positive facts about the companys performance.
More important than these public activities, however, is how LVMH responded behind the scenes. The company wouldnt comment, but Grossman says the best response speaks directly to those concerned. What they should have done is call, write or e-mail the people most likely to respond to bad publicity, he says. If those people are investors and analysts, the companys investor relations staff should have been on the phone to reassure them of LVMHs strengths and the storys errors. If the story caused employees to worry about job security, managers should have met with them to offer reassurance and respond to questions.
by Mark E. Dixon