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Why bad PR is often good crisis management

By Chris Gilmour

Customers with House of Fraser gift cards – bought before Sports Direct saved the department store from administration – are demanding their cash back. This is being painted, in some quarters, as a PR crisis.

But in terms of crisis management strategy, the harsh reality is that often other stakeholders will be prioritised over the little man – for the overall good of the business.

This is a hugely challenging situation for HoF’s new owner, which is putting survival and protecting jobs first, ahead of its immediate reputation with customers.

The standard PR line would be: “We’ll buy back the gift cards and keep the legions happy.” That would be sticking to the idea that the customer is always right – even when they’re blithering idiots most of the time.

Emotions are high because people have lost money and there’s nothing the media loves more than a good human interest case study, with accompanying sad-face, chin-in-hands posed pics.

Giving voice to idiocy

But it’s entirely unhelpful when reputable news outlets quote people saying, “They’ve stolen money from me,” and threatening to walk into a store and march out with £150 of goods. By giving a voice to this sort of idiocy, it becomes really challenging from a crisis management strategy perspective.

People don’t like to be told they’re wrong – particularly when there’s real money involved – but I’m afraid that’s what the “victims” here are. And someone needs to spell that out.

Cases like this highlight the difference between what you’d call standard PR (the immediate gratification of positive sentiment) and a well thought out crisis management strategy. People who are detached from situations love to talk about “PR disasters” and “PR crisis”.

Is it good PR in the traditional sense? Of course not.

But crisis management is all about the bigger picture and impact of one decision on the rest of the business. Bad PR, you can recover from with sensible reputation rehabilitation strategies. Manage a real crisis poorly as a business and it won’t be a business much longer.

Not the new owner's problem

The bottom line is HoF (or rather its new owner, Sports Direct) CAN’T simply give thousands of gift card holders their money back. It’s not the new owner’s problem – the contract was with the previous company, which failed.

If HoF decided to give everyone affected their money back, that would have huge implications on how they would have to deal with other creditors. And there are lots of creditors – there is £884 million worth of debt. It’s why the business failed in the first place.

Sports Direct is not legally obliged to pay HoF suppliers money owed before its £90 million buyout as those debts were part of the administration. There are tiers of creditors to be dealt with, and unsecured creditors such as gift card holders are bottom of the pile.

So, sad as it is for the people involved, their money is gone.

In the coming weeks, you can expect people to bombard HoF stores demanding money, online petitions, boycotts of Sport Direct, and the usual vitriol directed at Mike Ashley. Lots of noise, but don’t expect anyone to buy their silence.

Saved an institution

Love him or loathe him, Ashley put his own cash on the line and saved a 150-year-old institution from joining the likes of Woolworths, BHS and Toys R Us in the retail graveyard.

Lots of people and businesses, such as clothing brands and landlords, have lost money. But thousands of jobs have been saved and HoF is still a going concern, so things are not quite as bad as they could have been had Ashley and Sports Direct not stepped in.

That greater good line won’t wash with those who have lost money, but the HoF brand can recover in time by putting in place a reputation rehabilitation strategy and gradually earning back the trust of customers and suppliers.

It doesn’t have any equity in the accountancy sense, but it still has some residual brand equity that it can tap into and remain a fixture on the High Street for another 150 years.

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