America’s Nine Most Damaged Brands

April 10, 2013 by Douglas A. McIntyre

Brand reputations are among the most prized assets major corporations have. A look at relevant surveys shows that brand valuations are often so high that they compare to the market values of the public companies that own them. But brands can fall as fast and as hard as they have climbed.

While a reputation can take years to build, it can be battered or ruined in a very short time. This certainly happened to J.P. Morgan after it reported a $6.2 billion trading loss in its London office. It happened to Hyundai after it overstated the gas mileage for many of its cars. In each case, customers began to worry. Many even became suspicious not only about the company’s ability to manage its business, but also about its candor with the public.

Click here to see America’s most damaged brands

Reputations do not exist in a vacuum. The value of BlackBerry was undercut not only by its own mistakes and product missteps, but also by the comparative success of Apple’s iPhone and an army of Google Android-based devices led by the popular Samsung Galaxy line. Similarly, Apple’s own reputation has been eroded by, among other things, the wild success of the Galaxy SIII and anticipation of the upcoming Galaxy S4. They are the only two smartphones considered iPhone rivals, based on both features and unit sales.

Ethical lapses can also be a major cause of a brand’s collapse. The damage to Hyundai’s brand was the result of a breach of trust between the company and the public — which was drawn to its products in the first place because of high quality and fuel efficiency. The moment it was revealed that MPG data given out by Hyundai was inflated, the automaker could do little more than damage control. The same can be said for J.P. Morgan. One trader violated rules and regulations, as a result of which the bank lost billions of dollars. The government then blamed the loss on weak risk management.

Occasionally, a brand will be battered by the flawed design of its products. Over the years, that has certainly been an issue for car companies. Recalls have undermined the value of more than one auto nameplate. Boeing has been undone by a similar problem. Not only was its Dreamliner years late, it also had a faulty battery that caused all the planes to be pulled out of service worldwide.

Among the most common causes for brand value erosion and drop in public respect is the absolute failure of a company’s core strategy. BlackBerry is an example. Time after time it created products that led the global smartphone industry. But it never managed to move its reputation from being a successful manufacturer of smartphones for business to one for consumers.

To identify the most damaged brands, 24/7 Wall St. reviewed large, publicly traded companies that offer products or services in the United States. These companies had to be among the largest brands in the world, as measured by Corebrand, or command an especially large amount of media attention in their industry. Companies that made our list severely damaged their brand in one of two ways: by aggressively promoting a product or a business strategy and failing badly, or being involved in a corporate or personal scandal.

These are America’s nine most damaged brands.

1. Martha Stewart

Leave aside Stewart’s five months in prison for lying about her sale of ImClone stock. Disregard her unbelievably high compensation as nonexecutive chairman of Martha Stewart Living Omnimedia Inc. (NYSE: MSO) — even as the company’s revenue has consistently dropped, and its shares have plummeted more than 60% during the past five years, while the S&P 500 has jumped 20%.

The domestic diva and her namesake company have landed on the front pages again, this time in a legal battle between Macy’s Inc. (NYSE: M) and J.C. Penney Co. Inc. (NYSE: JCP) about which retailer has the rights to sell Stewart-labeled products. Omnimedia cut a deal with J.C. Penney in late 2011, giving the retailer the right to sell Stewart-branded goods in its store. At the same time, J.C. Penney also bought 16.6% of Stewart’s company for $38.5 million. Macy’s promptly sued, claiming that its exclusive rights to the Stewart product line, set in 2006, had been violated. The latest public blunder has further damaged a brand that began a downward trend years ago.

2. Apple

Steve Jobs built Apple Inc. (NASDAQ: AAPL) into a seemingly unassailable juggernaut — and the world’s most valuable public company. The reputation was carefully crafted for more than a decade by Jobs, who created entirely new product categories, and then dominated them with devices such as the iPod, iPhone and iPad.

Apple’s single most public disaster was its decision to dump rival Google Inc.’s (NASDAQ: GOOG) Maps system and replace it with its own product. Following a huge wave of negative press, Apple CEO Tim Cook wrote a public letter apologizing for the mess and, at one point, even suggested users rely on Google Maps instead.

At the heart of Apple’s brand decline is the simple fact that it has lost reputation as the prime innovator in the industries it once led. A year ago, no one could have imagined that a product like the Samsung Galaxy SIII would compete with the iPhone 5, or that the Galaxy S4 would be viewed as better than the iPhone. Apple lost its position as one of the world’s top brands in a remarkably short time. It has not launched a revolutionary product in more than two years. For most companies, the launch of such a device once a decade would be sufficient. For Apple, it is nothing short of a failure.

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3. Hyundai

The South Korean vehicle maker and its stablemate Kia have been among the fastest growing car and light truck brands in America over the past decade. Hyundai’s share of the U.S. market grew from about 2% in 2001 to more than 4% in 2011. During that period, Hyundai and Kia offered what Japanese companies had for decades — high-quality vehicles at affordable prices. They burnished their images with a 100,000-mile warranty package dubbed “Hyundai Assurance.” However, in November 2012, the EPA charged the companies with inflated MPG claims, and they lowered the stated MPG ratings on many of their vehicles.

USA Today described Hyundai’s reaction as “shocking.” It said, “Hyundai, in a burst of hubris, deals with the issue by portraying itself as a consumer champion on its home page — even though the reduction resulted from an Environmental Protection Agency investigation.” More recently, Hyundai and Kia said they would recall approximately 1.9 million cars in the United States to “fix a potentially faulty brake light switch,” Yahoo! News reported.

4. Boeing

The huge aerospace company has turned years of delays in the launch of its 787 Dreamliner into a nightmare for carriers. And passengers have become concerned whether the plane will be safe once it returns to service.

Major production delays began in 2007. The first passengers did not step aboard a 787 until an October 26, 2011, flight from Tokyo to Hong Kong — three and a half years later than initially planned. However, the events after that flight make the delays seem insignificant by comparison. Incidents of burning lithium-ion batteries caused the entire 787 fleet to be grounded. Despite further battery tests by Boeing Co. (NYSE: BA) and regulators, the FAA has yet to allow the plane to go back into service. Ultimately, the 787 will be recertified, but the brand will be badly damaged for a very long time, at least in the eyes of the flying public. As the Los Angeles Times recently reported, “Boeing Co. is now battling on two fronts: fixing the source of the problem and regaining the trust of the flying public.”

5. J.C. Penney

The deterioration of one of America’s oldest retailers has been going on for some time. In the five years before Ron Johnson’s appointment in late 2011, the J.C. Penney share price dropped 60% under CEO Myron “Mike” Ullman. Johnson embarked on an expensive turnaround plan, which included a new logo, advertising and the end of deep discounts, coupons and sales events once popular with customers. None of this appears to have worked. Total sales fell 24.8% last year to $13 billion, while same-store sales fell 25.2%. Internet sales, absolutely critical to retailers as e-commerce emerges as a primary source of revenue, dropped 33% during the year. The day after Johnson’s dismissal, share prices hit a 12-year low.

Firing Johnson this week was the clearest repudiation of his turnaround strategy and the only sane decision by the board. According to recent reports, same-store sales dropped 10% in the quarter that just ended, likely contributing to his dismissal. Reinstating the former CEO responsible for the company’s previous woes defies explanation.

6. Best Buy

If the stock market is any indication of the success of electronics retailer Best Buy Co. Inc. (NYSE: BBY), it is worth remembering that its shares traded just below $49 nearly three years ago. Even after rallying since the start of the year, shares currently trade under $26. Best Buy has been its own worst enemy.

CEO Brian Dunn, who was charged with the company’s turnaround, was fired in May 2012 for a relationship with a female employee. Founder and chairman Richard Schulze left under a dark cloud shortly thereafter when it was discovered he knew of the affair and did not tell the rest of the board. Then, last August, Schulze offered to take Best Buy private. Recently, he dropped the deal and rejoined the board. Even Schulze could not make the case that the company was healthy enough to be taken over, which raises the question of whether he believes the company he started has a dim future.

One of Best Buy’s problems is that it has become the showroom for Amazon.com Inc. (NASDAQ: AMZN). This was on display when it announced the financials for the quarter that ended on March 3, 2012. The company said that it had lost $1.7 billion, compared to a profit of $651 million the year before, and would close 50 stores. Best Buy also said that the critical marker of same-store sales had fallen, and that it expected the slide to continue.

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7. Groupon

Shortly after launching in November 2008, Groupon Inc. (NASDAQ: GRPN) began to revolutionize the coupon business. The company sent retail offers online to customers, which it targeted based on where they lived and worked, as well as their stated interests. Merchants and customers adopted the new model at a blazing pace, at least early on. Revenue increased from $3.3 million in the second quarter of 2009 to $644.7 million in the first quarter of 2011, the company reported.

When Groupon went public in November 2011, its trouble with the SEC about overstating revenue already had begun. Another SEC investigation caused the company to restate fourth-quarter 2011 revenue and drove down the share price 10%. In addition to accounting scandals, Groupon is having trouble fending off competition from peers LivingSocial, Amazon and brick-and-mortar retailers who do not want to be flanked by online coupon competition. After three years of hyper-expansion, Groupon forecasts 2013 revenue growth at a tepid 0% to 9%.

Earlier this year, Groupon co-founder and CEO Andrew Mason was fired. Rejecting Google’s $6 billion dollar offer (the company is now worth $4 billion), issues with the SEC and zero growth did not sit well with his board and co-founders after all.

8. BlackBerry

Research In Motion renamed itself after its most famous product — the BlackBerry — earlier this year. New management has said that the BlackBerry Z10 and the redesigned operating system, which was delayed three times, are critical to turning around the business. But the product, which the company is betting on, is of only limited interest to the public. The BlackBerry brand already has been pressed to near extinction by competitors, including the Apple iPhone and Google Android OS smartphones, led by Samsung products. Apple’s iPhone had about half of BlackBerry’s (NASDAQ: BBRY) market share in 2008, and Google Android was in its infancy. By the end of 2011, BlackBerry had less than 9% market share, Apple had almost 24%, and Android OS phones dominated with more than 50%.

In the history of smartphones, the 2013 launch of the BlackBerry Z10 may be only a footnote. The release was late, and most reviews have been mixed, at best. Early sales of the new device have been modest, and certainly not enough to dent the market share of Apple, which sold 47.8 million iPhones in its most recently released quarter. The Z10 was hardly the start of the downfall of the BlackBerry brand, but it may be the final chapter.

9. J.P. Morgan

J.P. Morgan Chase & Co. (NYSE: JPM) was for years considered the best-run bank in America, and its CEO, Jamie Dimon, the top banker. Dimon steered it through the financial crisis of 2008 in a way its competitors could not match. Unfortunately, J.P. Morgan is one more brand that was tarnished almost overnight.

A single trader in J.P. Morgan’s London office lost the bank $6.2 billion, and there are concerns the write-off process is not over. Dimon erred by saying the incident was isolated and based on management stupidity. The federal government did not accept that, and neither did investors.

The Office of the Comptroller of the Currency and the Federal Reserve made harsh assessments of the bank’s risk management in January. Both agencies found “unsafe or unsound practices and violations of law or regulation.” The criticism did not end there. In March, the Office of the Comptroller downgraded J.P. Morgan’s management rating. The reputation of the bank, almost entirely intertwined with Dimon, suffered one last blow. Investors have pushed to strip Dimon of his role as chairman, which has caused speculation that an incident that began in London could eventually cost him his job as CEO.

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