Theoretical framework: crisis and the types of crisis
A crisis is defined as an unexpected situation that disrupts corporate operations and causes a financial and a reputational threat (Coombs, 2007). Regardless of the type, crises cause damage to various stakeholders, including community members, employees, customers, suppliers, and shareholders (Coombs, 2007). In crisis management research, previous researchers have identified that there are various types of crises depending on the source of the crisis. Specifically, Lee (1998) has provided a theoretical framework that categorizes the different types of social crises. The important criteria to define social crises is that this type is primarily caused by external, environmental circumstances that surround the corporations (Lee, 1998). Lee (1998) posited that social crises can further be divided into four different types: political crises, economic and technological crises, socio-cultural crises, and disaster crises (see Table 1). First, political crises refer to those caused for political reasons, such as wars, armed protests, terrorism, and plane hijacking. For example, in 2015, the terrorist attacks in Paris had significantly negative impacts on France’s luxury retailers’ sales due to a decline in tourists (Gibbs, 2015). In other words, since European luxury brands in Paris relied on tourists’ expenditures, the safety risk from terrorism severely affected their business as well as tourism. As another example, in 2001, the 9/11 terrorist attacks happened during New York Fashion Week. After the lives of many people who gathered for the fashion shows were lost, the remaining shows were canceled (Furlan, 2011). Economic and technological crises include those caused by economic activities and technological problems, such as spills of hazardous materials, marine pollution, water and air pollution, ozone depletion, radioactive effluents, acid rain, nuclear waste reclamation, building collapses, and explosions, to name a few. For instance, when the media reported that toxic chemicals are used during the dyeing process of garments and microplastics, several fashion brands suffered from decreased sales and increased consumer criticism (Scott, 2020). The cancer issue in India caused by the pesticides used in cotton production (Suhrawardi, 2019) and the Rana Plaza factory building collapse in 2013 (BBC News, 2013) are other examples of economic and technological crises. As for socio-cultural crises, these include those related to socio-cultural issues, including violent conflicts of race and region, pandemic outbreaks, violent strikes, and riots. The COVID-19 pandemic is a typical example of a pandemic outbreak, one of these socio-cultural crises. During this pandemic, fashion retailers have suffered heavily because lockdown measures restricted store operations, and this has forced a large number of retailers into bankruptcy (Arnett, 2020). Another recent example of a socio-cultural crisis occurred during the Black Lives Matter protest movement, which imposed a consumer boycott of the fashion brands that were criticized due to racism issues (Alleyne, 2020). Lastly, disaster crises include those caused by natural disasters, such as floods, typhoons, earthquakes, droughts, heat waves, cold-weather damage, hail, and tsunamis. Disaster crises are uncontrollable, and floods and typhoons have often caused shipping delays and halted production at factories in the fashion industry and this affect fashion retailers and consumers.
However, researchers have found that such categories of social crises do not always explain those that are caused by companies’ internal issues, such as underperforming products and issues related to companies’ ethical management. Particularly, there are external social issues that often influence the environmental circumstances of companies, thus consequently causing internal crises that they have to manage internally. Dutta and Pullig (2011) proposed that these types of crises are defined as brand crises, which specifically include two types: performance-related brand crises and value-related brand crises (see Table 2). Performance-related brand crises include, for example, defective products that do not offer the functional benefits that are promised, or products that possibly harm customers, thus also harming the brand’s reputation (Dawar & Pillutla, 2000; Dutta & Pullig, 2011; Pullig et al., 2006; Roehm & Brady, 2007). There have been many examples of performance-related brand crises in the fashion and retail industry.
For instance, Target, a U.S.-based retailer, faced a performance-related brand crisis involving the snaps on its infant and toddler clothes posing a possible choking risk or lacerations. For this reason, the U.S. Consumer Product Safety Commission publicly announced the products as hazardous (Williams, 2020). The commission also informed yoga retailer Lululemon that it had a safety risk owing to dangerous drawstrings on women’s tops, and some customers were injured by the drawstrings (Peterson, 2015). Furthermore, in 2015, Nike Sports faced a performance-related brand crisis because some of the brand’s slippers had dye leakage issues that bled colors onto customers’ socks (The Korea Herald, 2015). Other examples of performance-related brand crisis are often found among cosmetic retailers; for example, Sephora Canada had issues with its false eyelash products due to glue’s safety risk because they contained a prohibited substance in Canada and because a customer complained about the strong adhesion of the glue (Efstathiou, 2015). After confronting a performance-related brand crisis, companies recall or provide refunds for the faulty products to mitigate the negative impacts on the brand’s reputation from customers and the press. On the other hand, a value-related brand crisis encompasses all internally occurring crises that are not directly related to the products, such as social and ethical issues related to the brand’s decisions, management, activities, and practices (Dutta & Pullig, 2011). Hegner et al. (2014) also called this type of crisis a moral-harm crisis. In the fashion industry, exploitation of child labor issues among clothing manufacturers in developing countries is an example of this type of crisis (Kent, 2019). The issues of underpaid garment factory workers (BBC News, 2020) and the irresponsible layoffs of American Apparel’s staffs after bankruptcy (Jones, 2017) are also examples of moral-harm brand crises. In addition, recent racism issues occurred at fashion retailers, such as the Dolce and Gabbana’s video campaign picturing a Chinese model as a stereotype and Stefano Gabbana’s discriminating comment that caused Chinese consumers to boycott the brand (Suhrawardi, 2019) are also examples of a value-related brand crisis. These brand crises arise directly from fashion retailers as their internal issues and negatively affect their brands’ reputation among the public.
Previous researchers posited that, although the sources of social crises and brand crises are dissimilar, the two are not completely separate; instead, they are interrelated. For example, both social crises and brand crises can result from the same status quo, or one can cause the other. Snyder et al. (2006) posited that from the company’s perspective, organizational crises include both an external crisis and an internal crisis and either event affects the company. Therefore, dividing external and internal crises is just based on the distance between the company and the source of the crisis. When a crisis incident occurs, oftentimes threats to businesses not only stem from external factors in the surrounding environment but are also derived from internal factors, such as organizational structure and practices (Ravazzani, 2016; Kersten, 2005). For this reason, the source of a crisis is often interactively created by external and internal factors. Although an accident originates from an external crisis, an internal crisis is caused, depending on the company’s ability to respond suitably to the crisis (Natarajarathinam et al., 2009). Therefore, although external and internal crises are conceptually differentiated in research, the two are not entirely separate but rooted in the same ground from the company’s perspective. This indicates that the current study needs to investigate fashion retailers’ responses to both external (COVID-19 pandemic) and internal (labor and supplier issues during the pandemic) crises to understand the holistic background of these two types of crises that are interrelated.
COVID-19 pandemic and the social and the brand crises for fashion retailers
Undoubtedly, the COVID-19 pandemic has brought a severe crisis to fashion retailers as a social crisis. During the pandemic crisis, a number of U.S. retailers, for instance, Neiman Marcus, J.C. Penney, and J. Crew, filed for bankruptcy because significantly fewer customers shopped in stores due to social distancing and lockdowns during the COVID-19 pandemic (Wahba, 2020). According to Tyko (2020), a number of retail stores (e.g., Macy’s, Nordstrom, H&M, and Ralph Lauren) have closed temporarily due to quarantines and governmental orders since the pandemic situation became serious (Isidore & Meyersohn, 2020). The quarantine measures also hit the European market. Due to travel restrictions during the pandemic, the sales and tourist numbers for the European luxury market dropped significantly (Thompson, 2020). Since the supply chain in the fashion industry is globally connected, the impacts of the global pandemic crisis have also taken a toll on fashion manufacturers in developing countries. The garment supply chain has been paralyzed for several months owing to factory lockdowns and shipping restrictions in China after the COVID-19 pandemic outbreak. Because the garment factories in other countries, such as Vietnam, rely largely on importing raw materials from China, such lockdowns in China concurrently forced Vietnamese and other garment factories to cease production and suspend exports to their retailer partners (Kang, 2020).
The COVID-19 pandemic has clearly been a crisis for the fashion industry as a whole as well as for individual fashion retailers. According to the theoretical framework of the types of crises described above, the COVID-19 pandemic is apparently one of the social crises that are caused by the external circumstances of retailers and impacts not only the retailers but also the society (Lee, 1998). In Lee’s (1998) categorization of social crises, the “pandemic outbreak” is included in the socio-cultural crisis category among several types of social crises. Following this categorizing, the current study also defines the COVID-19 pandemic as a social crisis for fashion retailers, which was caused at the external level but has severely affected fashion retailers at the internal level.
The impact of the COVID-19 pandemic on global fashion retailers did not end at the external level. Global fashion retailers faced a serious internal challenge in the form of plunging sales and the suspension of the supply chain due to city blockades and quarantines on behalf of their buyers and customers all over the world. Being affected by this social crisis (pandemic), some retailers did not even survive and filed for bankruptcy during the pandemic (Bhattarai, 2020). This then caused a direct impact on the suppliers and employees at the internal level. In order to alleviate the sales declines, fashion retailers canceled many orders from vendors and suppliers and retrenched their corporate structures (Roberts-Islam, 2020). As a result, millions of designers, sales associates, garment workers, and other employees who previously served the fashion industry lost their jobs (ELLE, 2020). The impact was even more serious in supplier countries, where the majority of the populations rely heavily on garment manufacturing for their livelihood and the health of their national economies. According to a Forbes article, 4.1 million suppliers in Bangladesh are in danger of losing their jobs because western fashion brands have cancelled over $2.8 billion orders due to store closures and plummeting sales during the pandemic (Roberts-Islam, 2020). Factories are now being forced to accept unanticipated delays of payment on production orders and cancellations or discounts on orders, possibly breaching the contracts (Oi & Hoskins, 2020). Oi and Hoskins (2020) also stated that “if workers don’t die from coronavirus, they would die of starvation.” Although one may argue that the pandemic was an external crisis that no company is responsible for, the impact was severely transmitted to their suppliers and employees internally, and media and active consumers criticized global fashion retailers about their irresponsible dismissals and order cancellations (Hossain, 2020; Shoulberg, 2020). Some retailers also faced severe resistance among their internal employees and suppliers about their improper decisions (Choudhury, 2020; Schiffer, 2020).
According to the theoretical framework of the types of crises described earlier, these internal issues that fashion retailers have experienced are a brand crisis in which the problem lies at the internal level of companies, and the retailer/brand is blamed as the responsible entity for the issue (Dutta & Pullig, 2011). Although the COVID-19 pandemic as an external crisis has an indirect influence, the layoffs, unpaid labor, and order cancellation issues raised by employees and suppliers toward global fashion retailers are an example of this value-related brand crisis, which is one of the specific categories of brand crises that retailers are accused of unethical issues in their management decisions (Dutta & Pullig, 2011). Following this, this study also defines the labor and supplier issues that global fashion retailers faced during the pandemic as a brand crisis.
After the global crisis of the COVID-19 pandemic outbreak, some researchers have promptly discussed the impact of the pandemic in each field. Nicola et al. (2020) holistically reviewed the socio-economic impacts of COVID-19, such as the implications of each industry, the responses of each country, and social influence on individual aspects. Other researchers investigated the impact of the pandemic on household consumption patterns (Baker et al., 2020), and small businesses (Bartik et al., 2020). However, research addressing how fashion retailers responded the above social and the brand crises during the COVID-19 pandemic have not yet been actively conducted, even though global fashion retailers are being forced to overcome this crisis through appropriate responses. Specifically, this social crisis (the pandemic) and the brand crisis (labor and supplier issues) are different but not separate. McMaster et al. (2020) posited that the larger crisis of COVID-19 pandemic resulted in those ethical issues for retailers, which implies that the two crises and retailers’ responses to them might be understood together to see the holistic picture of the circumstances, as well as to discuss if the retailers’ responses were truly responsible at both the external and the internal levels. Thus, this study attempts to comprehensively investigate global fashion retailers’ crisis response strategies toward both the social and the brand crises occurring during the COVID-19 pandemic.
Crisis response strategies to external crisis: monetary vs. in-kind contributions
Today, corporate social responsibility (CSR) has become essential for building favorable corporate reputations by fulfilling a public expectation (Coombs & Holladay, 2015). In order to make preparations in advance of a potential crisis, which can be a threat to corporate reputation, firms keep serving CSR to build a preferred pre-crisis reputation (Coombs & Holladay, 2015). CSR also plays an important role during a social crisis as part of a crisis response strategy by demonstrating the company’s awareness and empathy to the issue, as well as those affected in society (Coombs & Holladay, 2015). Among the various ways of fulfilling CSR during a social crisis, Hildebrand et al. (2017) proposed that monetary and in-kind contributions are two of the most common CSR contribution types that have been observed in companies.
Monetary contribution refers to a company’s provision of financial resources during a social crisis (Hildebrand et al., 2017). Monetary donations and financial aids are examples of this type of contribution, and the amounts of monetary support sometimes indicate the level of the company’s effort (Jin & Huang, 2014). For example, PVH Corporation’s donation of $100,000 to the COVID-19 Solidarity Response Fund (Penrose & Weaver, 2020) corresponds to this monetary contribution during the COVID-19 pandemic.
On the contrary, In-kind contribution refers to any non-monetary contribution that companies make during a social crisis, such as gift donations, time donations (e.g. volunteering work), and blood donations. For example, during COVID-19 pandemic, Burberry has produced non-surgical gowns and masks, instead of trench coats, and have donated more than 100,000 surgical masks to the staff at the U.K. National Health Service (NHS) (Penrose & Weaver, 2020). Tommy Hilfiger also donated more than 10,000 white t-shirts to healthcare workers in both Europe and the United States (Penrose & Weaver, 2020). These are examples of fashion retailers’ in-kind contributions during the pandemic, in which they provided non-monetary supplies in order to resolve the social crisis outside of the company.
Crisis response strategies to internal crisis: deny, diminish, or deal responses
Unlike CSR contributions that indirectly support society during a social crisis, internal crises, such as brand crises, often require that companies take a more direct and responsive style of crisis management. This crisis response strategy is crucial in terms of having a considerable influence on the companies’ post-crisis reputation (Barton, 2001; Benoit, 1995; Coombs, 1999, 2006). Situational Crisis Communication Theory (SCCT) offers a clear framework through which to understand the three common types of crisis response strategies that companies employ in order to protect corporate reputation during a brand crisis (Coombs, 2006). These are: (1) the Deny response option, (2) the Diminish response option, and (3) the Deal response option (Coombs, 2006; see Table 3).
Deny response option indicates companies’ attempts to deny the fact that the incident has occurred or that they are responsible for the incident (Coombs, 2006). It is also sometimes employed to disallow accidents by attacking an accuser, ignoring a crisis phenomenon, and blaming others outside of the corporation (Coombs, 2006). For example, when Forever 21 announced bankruptcy in 2019, an ABC News article reported that the employees had suffered from sudden store closures and no severance pay (Chen, 2019). Toward this report, the company tried not to admit that they have caused the incident by ignoring the media’s request for interviews (Chen, 2019), which shows an example of Deny response.
Diminish response option refers to a strategy to minimize attacks on companies by making excuses that events happened unintentionally or could not be controlled and justifying that the damage caused by the crisis was minimal (Coombs, 2006). For instance, when a CNBC article raised an issue that Amazon’s prime delivery was delayed last year, the company responded to the media that the delay was inevitable due to holiday season and snow storm (Feuer, 2019). This is an example of an Excuse strategy that the company tried to reduce the criticism going to the company by saying that the incident was out of control.
Deal response option encompasses the idea of gaining favor by reminding the public of past good works from a particular corporation, expressing concern for the victims, additional compensation through money or products, publicly regretting crisis accidents, and apologizing to stakeholders about crisis accidents in order to ask for forgiveness. For example, when the Rana Plaza building collapsed in Bangladesh in 2013, Primark offered compensation to the victims as their Deal response to the incident (Primark, 2018). This response shows an example of a compassion strategy, included in the Deal response, as the company provided compensation for the damage to the victims.
Comparison of global fashion retailers’ crisis response strategy
Firms counteract to crises by altering their behavior, and they often show different crisis managing styles on many grounds. Previous literature has discovered that numerous factors can impact each company’s strategic responses against the crisis. Sands and Ferraro (2010) suggested that retailers make different strategic responses against economic recession by their size and geographical difference; for instance, large-scale retailers strive to support their society by practicing corporate social responsibility (CSR). The extent of how much each retailer accepts the responsibility toward the crisis also affects each retailer’s different crisis response strategies (An et al., 2011). In addition, Human Resource (HR) team’s role and ability in a firm were suggested as another determining factor of each firm’s strategic crisis management (Lockwood & SPHR, 2005). Organizational culture and leadership style were also found to have a decisive effect on each company’s distinct crisis response actions (Bowers et al., 2017). Moreover, Coombs and Holladay (1996) proposed that effective crisis response strategies depend on crisis types, while An et al. (2010) and Barkley (2020) contended that cultural aspects should be considered in terms of how the firm handles the crisis by comparing individualistic and collectivistic cultures.
Based on these literature, global fashion retailers’ crisis response strategies during the COVID-19 pandemic may show different approaches across the retailers. And these different crisis response strategies could be explained by a variety of different factors, such as their cultural differences and firm environments, given that global fashion retailers possess different origins/head-quarter locations. Thus, in exploring how global fashion retailers have responded to the COVID-19 pandemic (a social crisis) and the internal issues related to employees and suppliers (a brand crisis) during the COVID-19 pandemic, respectively, this study compared if their response strategies were similar or different.