Special Report

America's Nine Most Damaged Brands

Some brands have stellar reputations as a result of innovation, well thought-out marketing strategies and good public relations from the companies behind them. On the other hand, weak or defective products, scandals and public company gaffes can damage a brand’s reputation — in some cases for years. Based on 24/7 Wall St.’s assessment of the nation’s largest companies and most high-profile brands, these are America’s nine most damaged brands.

The greatest damage often comes when companies fail to protect consumers. This is the case with General Motors Co. (NYSE: GM), which may have knowingly sold cars with defective parts. Target Corp. (NYSE: TGT), too, failed to properly secure consumer data and a recent breach compromised the personal information of tens of millions of customers. The incident led CEO Gregg Steinhafel to resign from his job.

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Other companies’ reputations suffered after they lost the faith of their customers. Frontier Airlines used to have a strong reputation among fliers for its low fares. Recently, however, it angered consumers after it announced plans to charge fliers for their overhead carry-on luggage and other amenities. Similarly, Nintendo disappointed gamers with the most recent Wii U launch. This led to poor sales and difficulty in attracting leading game developers.

In some instances, weak management oversight caused companies’ reputational damage. Sotheby’s (NYSE: BID) poor financial performance and excessive spending led activist investors to pursue seats on the board in order to turn around the company. In the case of Bank of America Corp. (NYSE: BAC), stockholders sold off shares after the bank announced its reporting error. Similarly, Twitter Inc. (NASDAQ: TWTR) insiders sold shares after the IPO lock-up period ended, significantly lowering Twitter’s stock price as investors fretted about the company’s growth prospects.

To identify the most damaged brands, 24/7 Wall St. reviewed large, publicly traded companies, as well as major brands, active in the United States. These businesses and their brands had to be among the largest brands in the world or command a large amount of media attention in their industry. Brands made the list if they heavily promoted a product or service without success and lost considerable market share, or if they became entangled in a corporate or personal scandal and suffered from significant negative attention from customers, investors and the media.

These are the nine most damaged brands.

1. General Motors

General Motors has been under fire over a faulty ignition switch that has been connected to 31 accidents and 13 deaths. Executives, it appears, may have been aware of the defective parts. The iconic automaker recalled 2.6 million cars in February, most of them older Chevrolet Cobalt and Saturn Ion models. As a result, CEO Mary Barra and other top GM executives were called to appear before Congress in early April to address accusations that GM knew about the faulty parts when it sold those cars. While Barra claimed the recall “did not have a meaningful impact on sales” during a first quarter conference call, the company’s operating loss totaled $535 million in the quarter, compared to a nearly $1 billion operating profit the year before. The company also incurred a $1.3 billion charge, largely attributable to the ignition switch problem. The recall is the latest blow to the reputation of the embattled car maker, which emerged from a government-led bankruptcy shortly after the financial crisis.

2. Bank of America

Bank of America’s reputation took a beating during the financial crisis and in the following years, as many of its actions — as well as those of the companies it acquired — became known and led to numerous fines and lawsuits. Recently, the firm’s reputation took another hit after the bank disclosed that an accounting error led it to incorrectly report that it had an extra $4 billion on its books. Even though the Federal Reserve stated that Bank of America likely has sufficient capital to withstand another financial crisis, the admission has raised the ire of investors. The bank has suspended its share buyback program, as well as a pending increase of its dividend to five cents per share. Bank of America has been dogged by numerous legal actions since its acquisitions of Merrill Lynch and Countrywide Financial, with the recent error reigniting concerns the bank is too big to be effectively managed.

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3. Nintendo

Nintendo has sold slightly more than 6 million Wii U consoles since its release in 2012, less than the number of PlayStation 4 units sold in the first five months it was available. Sales of the portable 3DS console have also been disappointing. Following the poor performance of the Wii U and 3DS, Nintendo lowered its sales forecast for the recently ended fiscal year from 920 billion yen to just 572 billion yen. According to several analysts, Nintendo’s hesitation to enter the mobile market, which has drawn a growing share of casual gamers, has damaged the company. Nintendo’s brand value dropped 13% between 2012 and 2013, according to Interbrand, one of the largest declines of any top 100 brand. In a recent presentation outlining the company’s long-term plans, Nintendo indicated it would not enter either the mobile or the “wearable” markets. Instead, it will seek to reorient its entertainment business around products that promote good health.

4. Twitter

Twitter went public in November, at a price of $26 per share, and immediately shares soared. In its first day on the New York Stock Exchange, shares rose nearly 73%. However, recent news from the micro-blogging service company has been far worse. Growth in monthly active users — a commonly used metric for social media companies — disappointed Wall Street in both the fourth quarter of last year and the first quarter of 2014. Although Twitter’s first-quarter revenue more than doubled, from $114 million last year to $250 million this year, investors were not terribly impressed. As soon as the company’s lock-up period ended on May 6 and private investors and company employees were allowed to sell shares, the company’s stock dropped more than 18%.

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5. Target

Target suffered a massive data breach at the end of last year that compromised approximately 40 million credit and debit card accounts, as well as the personal information of as many as 70 million people. The store chain’s CEO, Gregg Steinhafel, resigned at the beginning of this month due to the public fallout from the breach. The retailer reported $61 million in expenses to deal with the breach, including investigation costs, increased call-center staff and legal fees. After the breach was announced, the company reported negative sales growth compared with the period before, although the decline was moderate and could have been the result of a number of factors. Despite the bad press, Target was still Interbrand’s second most valuable North American retail brand for 2014, after Walmart, with brand value actually growing 8% from a year ago.

6. Sotheby’s

In fiscal 2013, famed auction house Sotheby’s reported nearly $854 million in revenue and $130 million in net income, both up from the year before. However, these results were not good enough for renowned investor Dan Loeb, who waged a vicious battle against Sotheby’s board of directors. An October letter from Loeb to chairman and CEO William Ruprecht accused Sotheby’s of wasteful spending and failing to stay competitive in the global art market. In one incident, senior management was accused of running up a multi-hundred thousand dollar tab at a restaurant in New York City. Although the company eventually agreed to name Loeb and two associates to its board, this was only after emails between board members emerged that exposed similar sentiments from directors, such as the board being “too chummy”; that Sotheby’s was at risk of “getting killed in the market” by rival Christie’s; and that spending levels were out of control.

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7. McDonald’s

Like the entire fast-food industry, McDonald’s Corp. (NYSE: MCD) has had to adjust to an increasingly health-conscious consumer base in the wake of record obesity rates. McDonald’s also has been at the center of the ongoing minimum wage debate in the United States, with fast-food workers striking across the country this past year, demanding livable wages. While supporters argue that a higher minimum wage is necessary to help workers afford a decent living without public subsidies, opponents contend a higher wage could limit job growth and even lead to job losses. McDonald’s own contributions to the debate were highly criticized. It provided employees with what many called unrealistic budget advice, and recommended employees sign up for food stamp benefits. McDonald’s brand value dropped 5% between 2012 and 2013, according to Interbrand. It remains, however, the world’s most valuable brand among fast-food restaurants, valued at more than $90 billion.

8. Frontier Airlines

Discount air travel company Frontier Airlines was the best-rated airline in Airfarewatchdog.com’s 2013 ranking. Its reputation, however, took a hit after the airline began charging $20 to $50 fees for overhead carry-on luggage that were once free for travelers who purchased tickets on the airline’s website. It also began charging for nonalcoholic beverages. Despite the public backlash, the company’s strategy is to further reduce fares and make up the lost revenue by charging fees for services that are typically complimentary for customers. Frontier has launched a marketing campaign to explain the new fee structure. So far, however, customer reviews of the new strategy have not been kind. Spirit Airlines, another low-cost carrier that charges for basic amenities, is often cited as being exceptionally disliked by consumers.

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9. Paula Deen

Despite receiving $75 million to $100 million in private equity funding for her company, Paula Deen Ventures, in February, celebrity chef Paula Deen’s brand may be so damaged that a complete comeback is out of reach. Few celebrities faced more controversy than Deen, who admitted she had used racial slurs in the past. This is according to court documents from last year when a former manager at one of her restaurants sued Deen for race discrimination. Shortly after the admission, the Food Network cancelled Deen’s popular show, “Paula Deen’s Home Cooking.” Her statements cost her millions of dollars in endorsements and salary from the Food Network. Although the lawsuit was dismissed, she lost endorsement deals with Sears, Smithfield Foods and home shopping channel QVC. One of her restaurants, Uncle Bubba’s Seafood & Oyster House, which she co-owed with her brother, was also the subject of the race-discrimination lawsuit and was abruptly closed last month.

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