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Fashion companies’ reputations helped or hurt by reaction to crisis

By Herve Dewintre

6 Apr 2020

Business

All businesses are being hit hard by the pandemic, but not all businesses are responding to its consequences in the same way. Faced with collapsing sales and massive closures of outlets, large recipient companies are taking two courses of action. Those that decide to participate actively in the collective effort by not taking advantage of the massive aid proposed by governments, and those that, on the contrary, while having unquestionable financial and economic solidity, suspend their payments.

At the end of March, H&M and Adidas, both whose financial health is solid, announced their intention to stop paying rent for stores that had to close due to the pandemic. This announcement is part of a provision of the rescue plan proposed by the German government. This provision is intended to protect tenants against the risk of eviction.

Swedish giant H&M said it would not pay rent for its 460 or so closed shops in Germany, telling the news agency DPA that it had informed the owners and hoped to find "a mutually acceptable solution" soon. German sports equipment manufacturer Adidas, which made a net profit of nearly two billion euros (2.2 billion US dollars) in 2019, for its part, told DPA laconically that it was "temporarily suspending rent payments, like many other companies".

These statements angered Justice Minister Christine Lambrecht: "It is indecent and unacceptable that financially sound companies should stop paying their rents," she said at the weekend. Several German media reported that Puma also plans to stop paying rent. While sports facilities and fast-fashion brands are proving by these decisions that ethics is not a key pillar of their industrial policy, the major French and Italian luxury groups are taking the diametrically opposite path by putting in place measures that exalt their responsible commitment.

Thus, for several days now, the companies of the LVMH and Kering groups have been issuing press releases proving their active contribution to the "war effort" requested by the President of the French Republic, Emmanuel Macron. For example, LVMH has found a Chinese industrial supplier capable of delivering ten million masks to France in the next few days (seven million surgical masks and three million FFP2 masks): the group has fully financed the first week of delivery, i.e. approximately five million euros. Also worth mentioning are the measures taken by Kering, which has promised to hand over 3 million surgical masks to the French health services. Its subsidiary Gucci has undertaken to manufacture 1.1 million surgical masks and 55 000 gowns for healthcare staff in Italy.

Hermès maintained all salaries, donated 20 million to the Paris Hospitals and cut its dividend. The latest significant statement is that of Maison Hermès, which, two days after Chanel, announced that it, too, will maintain all of its employees' salaries, not only in France but also around the world. In a press release, the saddler from rue Saint-Honoré states: "The financial and economic solidity of its craftsmanship model enables the Hermès Group to weather the unprecedented health crisis. With sufficient cash flow, in keeping with its humanist culture and its commitments as a responsible employer, the Hermès Group will maintain the basic salary of its 15,5000 employees in France and around the world without having to resort to exceptional public aid from various States, particularly in France by waiving the partial business support scheme. "The Group will also make a 20 million Euro donation to AP-HP (Assistance Publique-Hôpitaux de Paris) and is also active in the delivery of hydro-alcoholic solutions produced by its Parfum du Vaudreuil site and masks.

The Minister of Labour Muriel Pénicaud congratulated herself on Tuesday on BFM Business on the decisions taken by these giants of luxury and industry. "There are small companies which cannot afford it, which have no cash flow, no activity, no turnover which returns. But when a large group has no major difficulties, anticipating that it will have a fairly strong rebound after the crisis, I believe that this is a responsible attitude and I salute it".

Dividend to shareholders: what will luxury companies decide?

There remains the question of dividends. French Economy Minister Bruno Lemaire would like shareholders to make an effort this year. Speaking on BFMTV, the minister reiterated his desire to refuse all public financial aid to companies paying dividends to their shareholders. "Be exemplary: if you use short-time working, don't pay dividends," he hammered. The pressure is mounting as the general meeting season opens. The Association of Large Companies is asking its members to reduce dividends by 20 per cent this year. The luxury groups have not yet made up their minds. LVMH in particular is maintaining the suspense.

In the end, it is Hermès that will have taken the first step in this matter. In its press release, the Paris-based company states: "Based on the Management Board's proposal, the Supervisory Board has decided to amend the dividend distribution proposal to be submitted to the General Meeting of Shareholders on 24 April 2020 to reduce the amount from 5.00 euros to 4.55 euros per share, i.e. the same amount as that paid in 2019. The Executive Chairmen wished to waive the increase in their fixed remuneration paid in 2020 and in their variable remuneration allocated in 2020 in respect of 2019, and will therefore receive in 2020 a total amount of remuneration identical to that received in 2019. ”

To find out more about the impacts of Covid-19 linked to the fashion sector, visit our dedicated page.

This article was originally published on FashionUnited.FR, translated and edited.

Photo credit: Hermès Silk Booklet SS20 © Oliver Hadlee Pearch

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