Trust matters. And, with Dolce & Gabbana (D&G), the Italian luxury fashion house, having its products withdrawn from Chinese e-commerce sites as a backlash grows against a controversial advertising campaign showing videos a Chinese model struggling to eat pasta and pizza with chopsticks, one wonders what Milan-based D&G was actually thinking.
China represents one of the biggest luxury markets globally. Indeed, according to a recent report by the consultancy Bain & Company, the luxury goods market in mainland China has been forecast to grow by 20%-22% this year, with the country accounting for the bulk of the global growth this year that has been put at 6%-8% and reach €276-€281 billion (c.$313-$319 billion).
And, by 2025 that number could swell to $390 billion (c.$442 billion), the Bain & Company study has posited. Hardly small fry.
Now this all rather resonated with me as this past week I was in Milan, the fashion capital of Italy, and one of the so-called “Big 4” along with New York, Paris and London, attending an event focussed on corporate communications and branding.
It is not the first time D&G has courted controversy. D&G sparked controversy in 2016 when it described an item of footwear in its spring/summer collection a “slave sandal.”
And, last April the brand posted a campaign on Weibo, which depicted impoverished people in run-down areas of Beijing pictured with D&G models ahead of a catwalk show in the city. The images were slammed for stereotyping Chinese history by showing old parts of the city, as opposed to more modern depictions of Beijing.
Local celebrities had called for the brand to be boycotted amid brand crisis deepening when messages allegedly written by D&G co-founder Stefano Gabbana, which included dubious and offensive comments about Chinese people, went viral.
Add to that, the Italian firm cancelled a fashion show in Shanghai earlier in the week whilst in the Italian fashion capital where I had met the President of the Association of Italian Financial Analysts, Alberto Borgia, and heads of communications at top listed Italian companies including Eni, Hera Group and Snam.
Still as the backlash continued as D&G co-founder Domenico Dolce apologised in a video published through The South China Morning Post appealing for their “misunderstanding of Chinese culture” and to be forgiven.
Building & Communicating Trust
At the industry awards bash in Milan on Tuesday this past week at the Società del Giardino, founded in 1783 and one of the world’s ten oldest gentleman’s clubs, gongs were handed out by digital communication consultancy Lundquist srl to the biggest and best performing Italian listed companies for their corporate websites in terms of quantitative aspects, as well as now unlisted Italian companies.
The latter study - dubbed lundquist.trust - is a new edition this year to the firm’s research portfolio and looks at the Substance (i.e. information) and the Distinctiveness (i.e. engagement and user experience) of businesses. Its other research lines include .future, which assesses communications for sustainability and Blurring Boundaries, a project to guide companies in sustainability reporting).
What is striking from the rankings of non-quoted Italian companies is that many state-owned entities top the list. They included Ferrovie Dello Stato Italiane (ranked No.1 overall), a state-owned holding company that manages infrastructure and services on the Italian rail network (ranked No.1 overall), Sisal (2nd), a major Italian gaming and payment services operator that reported a turnover of €17.9 billion in 2015, Sace (3rd), a joint-stock company wholly owned by Cassa depositi e prestiti that operates in 198 countries and offers insurance and financial products.
This was while a clutch of Italian fashion houses - from Max Mara (50th) to D&G (70th) and Versace (80th) - rank in the lower reaches. With regard to the latter, on September 25 2018 that Michael Kors announced their intention to acquire all outstanding shares in Gianni Versace S.p.A for $2.12 billion.
Coincidence? Well, the bottom line from these findings is that those in the bottom half and scoring below 24 out of 100 points have what is described as an “insufficient digital culture.”
Based on a communications model developed by Lundquist that positions companies in relation to their peers and competitors, companies can fall into one of four categories, namely: (1) The Glitterati, (2) The Explainers, (3) The Traditionalists, and (4) The Narrators. The final category is one that companies should strive to achieve).
Yet even if one believes the findings, should investors, other stakeholders and consumers really care? Some though will only be concerned in the bottom line, returns and stock price performance at the end of the day.
In D&G’s case, their financial year 2016/17 (April 1 to March 31) showed the company’s revenue increased by 9% versus the 2015/16 result, with net profit coming in at €80 million for 2016/17.
Armani, which ranked 79th out of 81 companies in this study, posted net profit before taxes in 2017 of $376.7 million (€325 million), which was 5.4% lower than the result the previous year. Net profit before taxes in 2016 stood at $405.5 million (€349.9 million).
Net profit after taxes for the company in 2017 came in at $280.9 million (€242.4 million), which was some 10% lower than $314 million (€270.9 million) posted in 2016. Revenues were lower in 2017 at $2.7 billion (c.€2.3 billion) versus the figure in 2016.
Italian 'Non-Quoted' Rankings & Scores – 2018
Company Name
- Ferrovie Dello Stato Italiane 83.6
- Sisal 74.3
- Sace (Grupo CDP) 72.9
- Gestore dei Servizi Energetici 70.2
- Granarolo 68.7
- Anas 68.6
- Cassa Depositi e Prestiti 66.2
- YOOX Net-A-Porter Group 55.2
- Ferrero 55.0
- SEA 54.8
Bottom Half
22. Benetton 46.9
45. Ermenegildo Zegna 37.5
50. Max Mara 22.5
59. OTB-Diesel 20.3
63. Calzedonia 18.8
66. Valentino 17.5
70. Dolce & Gabbana 16.0
75. Furla 12.3
79. Armani 10.0
80. Versace 8.5
Source: Lundquist srl, Milan, Italy. Scores are out of 100 points. The threshold to pass is 24 points.
Valentino, which came 66th in these rankings with score of 17.5, topped €1 billion revenue mark in 2016 and said at the time it expected more growth in 2017.
For the 2016 fiscal year, the luxury label reported sales worth €1.11 billion, up 12.4% compared to 2015, when its growth had been a staggering 47%. Valentino’s EBIT was €206 million, up 14.4% on a yearly basis, and yielding a margin of approximately 18% of total sales.
Diesel, the flagship brand of the OTB Group that ranks 59th (20.3 points), suffered a setback in 2016 and the downward trend continued in 2017. Diesel’s revenue in 2016 was €960 million, a figure which represented around 60% of the group’s revenue, but a loss was reported in 2016 for Diesel brand. OTB Group’s EBIT in 2017 came at €21.5 million, with revenue declining 2.4% in 2017 to €1.5 billion (in constant currency terms).
With over 15 years of experience in digital corporate communications, Milan-headquartered Lundquist decided to drill down into an analysis of the qualitative aspects in how companies are communicating in terms of their narrative to investors and other stakeholders.
Specifically, the .trust research, which officially will be released this coming week, evaluates the ability of companies to “effectively narrate their brand and business” according to the consultancy, and to communicate their leadership and establish trust with their stakeholders. The focus is to capture the ability of corporate communications to support competitiveness and to inspire trust - today’s business “currency.”
D&G’s Ad Debacle
Joakim Lundquist, CEO and founder of Lundquist srl in Milan, commenting in the wake of the latest rankings for Italian unquoted companies said: “The Dolce Gabbana crisis should be seen as a wake-up call for companies in the fashion industry. Scandals like this confirm our research findings that fashion and luxury companies can no longer afford to ignore stakeholder expectations for transparency, openness, accountability and dialogue.”
So, what do the “Made In Italy” brands in the shape of the fashion houses - who are largely family-owned companies and appear to be- need to do to improve - given their low standings in the lundquist.trust inaugural rankings?
The Swede added: “These brands need structured processes behind their communications to build and maintain trust rather than relying solely on the intuition of charismatic leaders: the curse of the genius doing more harm than good is frequent in our hyper-connected digital age.”
And, as he remarked it is only “a question of time until the market or consumers pick another victim to drag into a reputational crisis”, one which could have been easily been avoided through “better engagement with society.”
However, not all is lost. As Lundquist pointed out: “A positive example of a luxury fashion brand that has learned from a consumer reputation crisis is Italian company Moncler, which as a result invested in transparency, sustainability and improving stakeholder relationships not only to regain its reputation but also to strengthen it.”
Moncler, a luxury Italian apparel manufacturer of winter clothes, whilst not included in the .trust research as they are listed on the Borsa Italiana (part of the London Stock Exchange Group), illustrates how companies can change for the better and improve their transparency following an issue.
Back in November 2014, Report, a well-known investigative journalism programme in Italy, uncovered that Moncler suppliers were mistreating geese in Hungary (geese feathers make up the interior of their famous “piumini” - padded jackets).
This caused significant outrage and reputational damage at the time. But it also changed the way Moncler sought to communicate and does business, especially in terms of transparency in corporate communications and in their supply chain, to ensure that there was no repeat of a similar situation.
Other findings in the latest .trust report show that the fashion sector in the sample includes 13 companies, yet only 3 pass the threshold of 24 points.
Furthermore, no companies in the sector present information on their business strategy, while nearly half of the fashion companies (six companies out of 13) do not present any information about sustainability and most of them limit themselves to presenting the code of conduct. And, in terms of financial figures, only one company makes their annual report available for download on their website.
Frank Marr, a reputation management expert at AM+A Marketing + Media in London commenting in the wake of the D&G situation said: “As part of all corporate socially responsible (CSR) strategies, organizations should aim to be making the world a better place. Organizations have an obligation to their customers to think about how they can encourage positive social behaviour change.”
He added: “A low rank within a table of corporate trust, clearly shows a lack of consideration to the future and a reputational strategy which needs to be improved within their marketing plans.”
Strategy of perception is often based on who organizations believe their customers are and what they want to hear. Whether it is based on core marketing objectives for a certain demographics and how they are perceived and placed within their sector.”
According to Marr, who has also worked in South Korea: “It is an important time for organizations to change and improve their brand image, particularly when purchasing trends of Millennials and Generation X are starting to indicate ethical brand choices within their decision making on purchases.”
Following on from these Italian unquoted company results, Lundquist.trust's findings for the Austrian and Swiss markets are scheduled to be released before the end of this year.
