NEW YORK — It’s the X factor.

Scandals and bad publicity of any sort have evolved into one of lifestyle marketing’s biggest mysteries. Depending on a number of variables, they can yield a positive impact or one that’s devastating — and in some cases, they’re simply neutral.

This story first appeared in the November 20, 2002 issue of WWD. Subscribe Today.

The scandal stakes are highest, of course, when events involving people’s health, wealth or safety are in play, making the likely effects, and appropriate responses, easier to anticipate. The examples are many in recent decades, including the problems and related publicity experienced by products from Tylenol to Perrier and, more recently, Ford S.U.V.s, Firestone tires, Enron, WorldCom and Martha Stewart. But, in the realm of marketing fashion, among other lifestyle products, the impact of scandals and bad pr and the way they’re managed are almost impossible to predict, sources said. Indeed, one observer compared a company’s response to such situations with a game of Russian roulette. “A brand could shoot itself through the head, or pull the trigger on an empty chamber,” said Edie Weiner, long-term trend analyst at Manhattan-based Weiner, Edrich, Brown Inc.

One thing is clear, marketing experts and business analysts agreed: There is, in fact, such a thing as bad publicity, contrary to traditional thinking, even though it’s a crap shoot as to how hard negative or controversial events will hit a fashion-lifestyle brand’s image, business, or stock price. In part, that’s because of complex forces at play, in the wake of numerous business scandals, last year’s terrorist attacks and the impeachment of President Clinton. Those developments have combined to make many more blasé about most varieties of bad publicity, observers noted. Plus, the proliferation of violence and sexual imagery in the media has raised people’s tolerance for over-the-top marketing ploys so high that it takes much more to offend them, let alone alter their tastes and consumption behavior.

Thus, in today’s environment, few will bat an eye at the provocative sexual imagery in Abercrombie & Fitch catalogs, which, just last year, stirred outrage among part of America’s populace (if not the store’s youthful customers). At the same time, they are quick to pass judgment on Martha Stewart for alleged insider trading, before the lifestyle icon has her day in court to answer charges of securities fraud.

“There are so many issues of global gravitas, most scandals and bad pr pale by comparison,” asserted Walter Levy, a managing director specializing in retail trends and positioning at Kurt Salmon Associates. “Even Enron and WorldCom are almost off the radar, because there are no indictments yet. When a company’s individual icon gets singled out, it affects their business. Insider trading charges against Martha Stewart didn’t affect the business for a while. Then it became apparent she hadn’t handled it well and it took a toll.”

Also figuring in the bad publicity cause-and-effect dynamic, sources said, are:

A brand’s personality. Reebok had more leeway with its NBA bad-boy Allen Iverson shoes this summer when he faced charges of brandishing a gun against his wife and uncle, than did down-home Wal-Mart when a sweatshop scandal hit its Kathie Lee apparel in 1996 and again in 1998.

The nature of a scandal or infraction. Monica Lewinsky boosted sales of M.A.C. cosmetics, following her TV interview with Barbara Walters about Lewinsky’s tryst with President Clinton, while Rosie O’Donnell’s media star sank after she came out as a lesbian.

How closely tied a compromised person’s name is to a brand’s image. The Martha Stewart and Kathie Lee labels have had more at stake than, say, Nike or Gap, when they were found to have sourced in sweatshops.

Timing. Although now regarded as a ground breaker, in the Nineties, Calvin Klein pulled fashion ads that portrayed teen models in poses some saw as too overtly sexual.

Despite such concrete considerations, Weiner said of the potential damage: “It’s not all rational. A lot depends on how personally people take it; how a company handles it, and how involved the government gets.”

For example, people remember to this day the false charges of racism made in the late Nineties against Tommy Hilfiger. Hilfiger was alleged to have said he didn’t want African Americans wearing his clothes, a statement that it was said he made on “Oprah” — even though he had never appeared on “Oprah” when those charges were leveled. Hilfiger’s business was unaffected, though, and, in a similar scenario, Calvin Klein’s sales were also unscathed by baseless charges of gay bashing against one of its past celebrity models. When the artist formerly known as Marky Mark was endorsing Calvin Klein products, he was stung by charges of being a gay basher, merely because he was seated next to a gay basher on the couch of a London talk show. “We got hundreds of letters and calls protesting,” said Neil Kraft, president of ad agency Kraftworks, recalling the incident that occurred when he was at Calvin Klein. (Kraftworks currently handles Calvin Klein Eternity’s advertising.) By the time the flap reached U.S. shores, the protest dwindled to about a dozen people picketing in Times Square.

The consensus among marketers and analysts is that if what’s attacked is at the core of what a brand does, it has more potential to affect the business than does the personal problem of a prominent employee, made public.

A case in point: current allegations of securities fraud against Martha Stewart, who has traded on a home-and-hearth persona. Besides sullying that image, her initial choice to side step the issue, rather than to address it forthrightly, undermined the stylish perfectionism she has portrayed, observers noted. In analyzing these dynamics, Don Ziccardi, chief executive officer at ad agency Ziccardi Partners, Frierson, Mee Inc., said a virulent strain of schadenfreude, or glee in another’s misfortune, has infected contemporary culture and it is reflected in the way some scandals and bad pr play out. “We put heroes on a pedestal and then we take pleasure in knocking them down,” Ziccardi stated. “With Martha Stewart, she is the brand, so it’s going to be particularly detrimental.”

And still more so, because, in the 21st century, all products in all categories have become more alike, so marketers have to work harder to differentiate brand images, sources said. “By linking with Martha Stewart, Kmart was able to say to shoppers, ‘We don’t just have crap,’” contended Robert Passikoff, president of Brand Keys, a brand loyalty consultant. “The scandal has ended that differentiation.”

Moreover, the consumer’s perception of the Stewart brand has gone south: Shares of Martha Stewart Omnimedia have slumped sharply, and none of the major TV networks will be airing a Martha Stewart holiday special this season.

For instance, each month between June and October, Brand Keys has asked consumers whether Martha Stewart is a “brand I trust,” and has found their loyalty to it has eroded by about 6 percent. When asked about the “integrity” of the Martha Stewart brand, consumers posted a 37 percent decline in that measure.

More broadly, Brand Keys has found that the trustworthiness of any brand, the integrity it represents and its ethical standards are more than twice as important in establishing loyalty than they were just five years ago. The marketing consultant has determined consumers’ trust in a brand creates about 11 percent of their loyalty to that label, up from 5 percent in 1997; the integrity reflected in a brand accounts for roughly 6 percent, up from 2 percent in 1997, and the maintenance of ethical business standards contributes around 20 percent, up from 8 percent five years ago.

That could spell trouble for Wal-Mart, twice burned in the Nineties for sweatshop sourcing of its Kathie Lee apparel. The retail behemoth is under fire from the United Food & Commercial Workers Union, which is trying to unionize the chain — which trades on a down-home, America-first image but has fought hard to keep unions from all of its stores. The average employee at Wal-Mart stores earns less than $9 an hour. “The question facing Wal-Mart is how consumers will view its effort to fight unionization of their company, which employs one million people,” projected Diane Hamilton, a partner in Boston-based Retail Value Consultants. “The question is also whether the union is strong enough to do it. But if the union makes its mind up, it could get really nasty, stir some bad PR, and put a hiccup in the juggernaut.”

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