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Fashion PR’s New Reality

As clients cut budgets, the public relations firms that serve them are considering everything from reduced fees, salary cuts and layoffs to pivoting services and joining forces in order to stay afloat.

NEW YORK, United States — The growing coronavirus pandemic — which has already resulted in thousands of deaths, put 30 percent of the world’s population under lockdown and thrown the global economy into crisis — is forcing fashion brands large and small to slash budgets, with significant knock-on effects for the ecosystem of public relations agencies that serve them.

The issue was made worse, on Friday, with the cancellation of key events like fashion weeks in Paris, Milan and London, which typically account for significant revenue for PR firms.

Some agencies are resorting to reduced fees, salary cuts and layoffs to stay afloat, while others are finding ways to pivot and, in some cases, join forces with other agencies.

DLX PR, which has offices in Paris and New York and counts brands such as Moschino and Carolina Herrera as clients, has begun collaborating with Daisy Hoppen’s London-based DH-PR.

“We’ve been friends for many years and have always offered [each other] ad-hoc support, but now we speak daily, sharing on all matters of topics from local market intelligence, servicing media through to changes in consumer behaviour as it relates to our clients,” said DLX PR Founder Guillaume Delacroix and President Justin Padgett in a statement to BoF.

French fashion PR guru Lucien Pagès, who last year expanded his office in Paris and opened a new office in New York, has not teamed up with another agency, but has been consulting Chloé Reuter, who operates Reuter Communications in Shanghai, where the contagion struck before making its way to Europe, the US and the rest of the world. “It was good to talk to her because she was ahead of the problem,” Pagès said. “The answer for all of us will be collective.”

Boutique firms like DLX, DH-PR and Lucien Pagès may be vulnerable. But it’s not just smaller agencies that have been challenged by the crisis. Powerhouse firms, too, have spent the last month not only recalibrating their clients’ strategies but re-examining their own.

“We are, of course, viewing individual costs related to our offices as well as non-essential external suppliers,” said Alexander Werz, co-chief executive of Karla Otto. “As with all crises, be it the SARS epidemic, 9/11, or the global financial meltdown, one can retrench and do more with less and [plan] effectively for the future.”

“With so much uncertainty right now, the only thing that seems clear in the fashion industry is that going back to ‘business as usual’ is not an option,” said Carrie Phillips, partner at BPCM, which has offices in New York, London and Los Angeles. The agency has laid off employees in its fashion division, which Phillips said was “suffering the greatest” while clients in sectors like cannabis, beauty and drinks were experiencing “little interruption.”

PR Consulting, which operates offices in Paris and New York and counts Altuzarra, Loewe and Dries Van Noten as clients, laid off more than 30 employees in its New York office last week and is shifting its focus to corporate communications services that are less dependent on events, said Founders Pierre Rougier and Sylvie Picquet Damesme.

In London, The Communications Store CEO Julietta Dexter said that none of its employees have been laid off, but that the company’s entire team had taken a voluntary pay cut, as they continue to work with clients and assess the future “on a week-by-week basis.” The agency is also trying to “data-proof” campaigns by better reporting key success metrics to clients. Fashion brands have long been asking for greater accountability from their PR agencies, as digital media enables the kind of tracking that placements in glossy magazines never did.

While many agencies are still uncertain about how to manage the cancellation of events like men’s and couture fashion weeks, some are examining digital initiatives that may offer a solution.

KCD, which operates offices in New York, Paris, London and Los Angeles has a robust events business and produces some of fashion’s biggest shows, has begun speaking to some of its clients about how to stage digital fashion shows, complete with virtual fittings. The firm is building on experimental technology it put in place back in 2013, with the launch of digitalfashionshows.com.

“You obviously don't have the audience there, but you're filming a show in motion of your collection and you give all of the assets that someone of the media would normally get out of a show in terms of runway images, moving video, a designer interview, beauty looks backstage, and all of the key elements of what you would get out of a live show,” explained Rachna Shah, KCD’s managing director.

The firm is also planning to hold digital press days via a private Instagram account, an approach that, along with larger digital event concepts, is also being explored at Karla Otto.

Even smaller firms are pivoting to digital. B.Good PR, a boutique Los Angeles communications firm launched in January, has replaced its plans to travel to New York to meet with editors with “virtual breakfasts” that adhere to social distancing guidelines.

Among young firms who are trying to cut already-low overhead costs as much as possible, the first to go are often costs associated with sample trafficking, a fixture service that has rapidly dried up due to quarantine measures and cancelled shoots.

Gia Kuan’s two-person team behind Gia Kuan Consulting, which was founded in 2019 and counts Area and Telfar as clients, is pivoting away from sample trafficking and events-related services to communications strategy in what Kuan calls a “mandatory self-reflection.”

“Maybe it is a silver lining because it's kind of like, [sample trafficking and events] are using the most resources and perhaps they’re the most wasteful,” said Kuan. “It's made me rethink my strategy in a way that I've started to sort of navigate away a little bit, or broadened my scope so that I work with clients on brand strategy, so more internal rather than external-facing.”

Native Agent’s Cynthia Leung, who works for Aesop and Mykita from her base in New York’s Chinatown, is also questioning the value of traditional services like sample trafficking. Even before the pandemic, Leung said she and her team only provided client samples to the “best” shoots (“It's a huge outlay of time and energy. You can spend two hours in the morning trying to fine-tune a very simple return from One World Trade Center”) and so the disruption to fashion shoots hasn’t completely derailed her still-fledgling business.

Now, she’s focusing even more of her energy on digital strategies. Earlier in March, Native Agents announced a partnership with local designer Peter Do, an LVMH Prize finalist. In light of the pandemic, Leung is thinking about how the label might prepare for the comp

Other communications firms are trying to provide value in more unconventional ways. Rebecca Astora, an account supervisor at MSSmedia, a Miami-based agency whose clients include fashion label Lafayette 148 New York, has taken to educating clients about the government support that is now available to its small-scale clients.

"Our sole goal has been to support clients by helping them to identify the resources that are now available through disaster assistance by the US Small Business Administration,” Astora said. “Many of our clients, located in areas eligible for loan assistance, such as New York and Florida, are unaware that low-interest federal disaster loans exist. And, if they are aware, they are unsure of how to go about applying for them.”

For its part, Jennifer Bett Communications is highlighting its value by reviewing the messaging in everything from a client’s marketing emails to its Medium posts. (JBC recently started offering pro bono “office hours,” 30-minute conversations with small business owners offering PR and communications guidance which, in effect, doubles as good PR for their own services.)

Grayscale PR, which represents luxury accessories clients like Gentle Monster and Loquet, is reconsidering its fee structure. “There are sometimes additional fees for specific social strategies, seeding, and things of that nature that we will no longer charge for,” founder Fallon Nachmani said. Meanwhile, Moxie Group founder Taryn Langer said the agency is “entertaining partnerships” at reduced rates to attract business.

But ultimately, the most important thing any one firm can focus on right now is maintaining existing clients, said Rick Gould, managing partner at Gould Partners, a strategic consulting and mergers and acquisitions firm that specializes in the public relations business. “My experience is that a lot of times when a client says, ‘We want to pause for a few months or six months,’ there’s a good chance they're not coming back. Once they pause and you never hear from them again.”

Or as Native Agent’s Leung put it: “Life in the time of COVID-19 is about making magic out of beans.”

And yet, agencies with a presence in Asia may have some reason for optimism as China slowly reopens for business. “We see that the Chinese market is recovering and have opened all our Asian offices again,” said Karlo Otto’s Werz. “We see very positive signals.”

DE Shaw, Baupost and TCI are reopening flagship funds to fresh investments amid the coronavirus market turmoil

DE Shaw is raising $2bn in the first fundraising for its flagship vehicle in seven years, joining rivals Baupost Group and TCI Fund Management in a bid to capitalise on opportunities thrown up by market turmoil. 

When markets sold off this month the New York-based quantitative group started approaching investors about raising $1bn for its $13bn Composite fund, which has been closed to new investments since 2013.

A person familiar with the situation said the fundraising cap when it reopens on April 1 has been increased to $2bn, because of investor demand and the number of opportunities thrown up by moves in the market. DE Shaw declined to comment.

Blue-chip managers such as DE Shaw, Seth Klarman’s Baupost and Sir Christopher Hohn’s TCI can be closed to new money for many years, making them very difficult for investors to access. The selective reopening illustrates how the large drop in asset prices driven by the coronavirus pandemic has left fund managers preparing to replenish their firepower and capitalise on what many see as a historic buying opportunity not seen since the aftermath of the 2008 financial crisis. 

“We're hearing from a lot of managers that they’re setting up new vehicles to take advantage of the dislocation,” said Patrick Ghali, co-founder of Sussex Partners, which advises institutions on investing in hedge funds.

Baupost has started approaching its existing investors about raising more money for the first time since 2011, said people familiar with the matter. Accepting new investors — which it has not done since 2008 — is also under consideration by the $29bn Boston-based manager, the people said.

Its founder Mr Klarman, a value investor who is sometimes compared to Warren Buffett, is known for his willingness to return capital to investors when he thinks opportunities are sparse. In January he warned in an investor letter that stock market prices were stretched and said that “full exposure in this environment seems dangerous, given prevailing lofty valuations”.

However, Baupost recently told investors it has deployed about $1.5bn in the three weeks from the end of February to mid-March, lowering its cash holding from about 31 per cent of its assets at the start of the year to 27 per cent. Bloomberg first reported Baupost's investments and plans to raise more capital. 

Meanwhile, TCI is also looking to reopen, said a person familiar with its plans. The London-based fund invests in a concentrated portfolio of stocks and gained about 40 per cent last year. This year it has suffered large falls in performance but has still been approached by investors wanting to increase their allocations.

Also opening up to new money is Bob Treue's $640m Barnegat fund, which arbitrages tiny mispricings in the bond market. The 20-year old fund has a long-term annualised return of about 14 per cent, and is down nearly 10 per cent this year. It has been closed to new investors for two years, and is opening up next month.

Meanwhile, Ken Griffin’s Chicago-based Citadel is launching a new “relative value” fixed-income fund to take advantage of the recent bond market volatility. 

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Bad debt surge threatens Chinese banks’ balance sheets

Beijing has called on lenders to boost economy and support companies hit by coronavirus

Capital levels at some Chinese banks risk falling below a crucial threshold meant to buffer them against financial contagion, as lenders face an incoming surge of bad debts due to coronavirus.

Beijing has called on banks to play a key role in supporting companies that are struggling to survive following the Covid-19 outbreak. Regulators have instructed lenders to brace for much higher levels of non-performing loans as the economy slowly recovers following the public health crisis, which temporarily shut down swaths of industry and supply chains.

But many Chinese banks are already struggling with asset quality problems, and lack the capital and profitability for the new lending needed to fuel a recovery.

Analysts are divided on how much bad debt the current economic slowdown will create. But even the more modest forecasts show that bank capital could fall to precarious levels.

Non-performing loan ratios at banks rated by Fitch are expected to rise to about 3.5 per cent, from 1.5 per cent in June last year, the rating agency has said.

Such a scenario would push common equity tier-1 ratios at China Minsheng Bank, Hua Xia Bank and China Guangfa Bank below the minimum regulatory requirement of 7.5 per cent, Fitch said. A number of other midsized banks are also expected to fall close to that threshold.

“Ultimately it’s still the mid- and small-sized banks that will see the biggest hit to their asset quality,” said Grace Wu, head of greater China banks at Fitch.

The CET1 requirement is meant to protect banks against financial crises. Lenders that fall below that level are considered at high risk of liquidity problems in the event of a banking system shock.

Minsheng Bank had Rmb6.2tn ($873bn) in total assets as of September, making it bigger than Standard Chartered but still much smaller than large Chinese banks such as ICBC. 

Moody’s has lowered the outlook for six mid-tier Chinese banks from stable to negative due to concerns over credit quality. The rating agency noted that Bank of Nanjing “has considerable exposure to the manufacturing and wholesale and retail sectors, which are meaningfully affected by the coronavirus outbreak”.

S&P has warned that up to 11.5 per cent of total loans in the commercial banking system, or about $2.1tn, could become “questionable” — either non-performing or late. That could eventually deplete the sector’s regulatory capital buffers, S&P said, leaving some lenders vulnerable to liquidity shocks.

Independent research firm Rhodium Group said recently that it had identified Rmb1.5tn in overdue, unrecognised or undeclared bad debts among the 49 listed Chinese banks in excess of their 2 per cent official non-performing loan rate. That suggests that the true rate of bad debt is much higher than reported.

China’s regulators have been on high alert for weak links in the banking system over the past two years.

In May last year, the government took over troubled Baoshang Bank, the first such direct intervention of its kind in nearly 20 years. In the following months, two more banks with poor quality assets received government-backed bailouts.

An ‘emergency designer network’ is using its skills — and production facilities — to make medical masks

An obvious question to be asked in any crisis: what can we do? Many fashion companies have responded by funnelling much-needed funds towards the global fight against Covid-19. In the heavily affected regions of northern Italy, the heart of the country’s fashion and textile manufacturing industries, brands such as Prada, Gucci and Giorgio Armani have donated millions of euros to support the creation of respirators and hospital wings.

Others are mobilising their sizeable workforces — there are some 600,000 garment manufacturing workers in Italy alone — to produce masks and personal protective equipment for medical professionals. This has happened at both vast corporations and at smaller, independent design companies.

In London, a trio of young designers — Phoebe English, Holly Fulton and Bethany Williams — joined forces to co-ordinate production starting in mid-March. English herself visited the Chinese city of Wuhan, where Covid-19 was first recorded, in October, as part of a lecturing tour on sustainability. The trip gave her first-hand experience of the city’s sheer size — Wuhan’s population is 11 million, two million more than London — and hence how extreme the problem could be. Then she started to feel the impact on her business.

“Things were slowing down, projects were being cancelled, our sales were slowing. And we just had these machines sitting in the studio, not being used,” English recalls.

A number of cold-call emails to Downing Street, the London mayor’s office and various health bodies offering help went unanswered, so English posted a message on her company’s Instagram account on March 17, asking: “Can we make masks for you?” Beneath, she added: “We have machinery that can be of use to make additional face masks — do you know of any organisations that are running low on stocks?”

English was flooded with responses: “Advice, conflicting ideas, tutorials, people that needed quantities in the millions, and sisters, brothers, husbands, relatives of people in the medical profession who are desperate for this key equipment,” she recalls.

The British Fashion Council followed with a post on its Instagram account calling the industry to arms, sharing the specific government and NHS requirements for mask manufacture and materials with the brands who responded. Other UK bodies also joined the effort to co-ordinate designers, including Make It British, Fashion Roundtable, UK Fashion and Textile Association (UKFT) and the Department for International Trade.

Producing masks is more difficult than printing out a pattern and sitting down in front of a sewing machine. “I haven’t actually been sewing masks yet,” says English. “The task has been to educate ourselves in the processes. Masks need to be certified, they need to be produced in sterile environments. The materials need to be treated. It’s a completely different, new vocabulary.”

English notes that the masks may soon be needed. “All the masks used within the UK are imported,” she says — secretary of state for health and social care Matt Hancock’s recent purchase of a million masks included.

“If this continues, there will be big problems with supply chains. What we’ve been trying to do is talk to as many people as possible, to set up networks here, so if there is a problem with supply chains, we can manufacture these items here. You also reduce the wait times — you don’t have to wait for things to come across Europe.”

What English, Fulton and Williams are now aiming to create is what English terms an “emergency designer network” — “so if a need arises, we have the skills”.

Other smaller designers are also pitching in. The French label Coperni, led by the designers Sébastien Meyer and Arnaud Vaillant, uploaded a paper pattern for a face mask to their website on March 19, which has been downloaded thousands of times. “My father is a surgeon in Toulon,” writes Vaillant, from Paris. “My brother is a surgeon in Marseille, my sister is a physiotherapist in Marseille, my sister-in-law is a radiologist in Marseille, my stepmother is a nursing assistant in Béziers. They don’t have masks any more.”

The Coperni pattern is intended for use by home sewers and the masks produced from it are not medical-grade — the conditions cannot be guaranteed to be sterile, and materials will vary according to availability. Coperni’s intention, however, is to alleviate public demand and to stop consumers buying medical-grade masks that could be better utilised in hospitals.

“Sometimes little details make big impacts,” says Vaillant. “Now big houses such as Balenciaga and Saint Laurent are producing professional masks — we obviously don’t have enough people at Coperni to produce professional masks, but the idea was to shake people and let them know about the emergency.”

A similar situation has evolved in the US, where the New York designer Christian Siriano and his staff of 10 seamstresses are now focused on creating cotton masks. In California, the company Los Angeles Apparel, founded by former American Apparel head Dov Charney, has turned over factory production to medical supplies, hoping to create 300,000 masks and 50,000 gowns each week.

Grassroots efforts from independent designers have been mirrored by larger brands. One of the latest is Prada, which on March 18 turned over production capacity at its own facilities and at its external Italian suppliers so that masks could be made for healthcare personnel. Two hundred workers are producing 10,000 masks and 10,000 medical overalls each day, all made from a non-woven propylene that is hydrophobic and breathable. Prada is managing the supply of materials and delivering the finished goods to hospitals. In all, 80,000 medical overalls and 110,000 masks will be produced by Prada between now and 6 April — the Prada plant is open for this express purpose.

A similar task has been undertaken by Gucci, which will work with its supply chain to produce 1.1m surgical masks and 55,000 overalls in the coming weeks. Part of Kering Group, Gucci’s Paris-based stablemates Balenciaga and Saint Laurent are preparing to turn over their manufacturing capacities to the production of masks, pending approval from authorities. As of Thursday, Giorgio Armani’s Italian manufacturing facilities have switched production to medical overalls, and fast-fashion behemoths H&M and Zara parent company Inditex have converted their factories to mask production — the latter has donated more than 300,000.

English thinks being “agile” is essential at this time, with designers freeing up manufacturing possibilities, and not relying on import of medical supplies from other countries — especially from regions where the need for said supplies is just as dire. And, she adds, “there are a huge number of people who want to help.”