COVID-19 continues to weave its way across the globe, bringing physical and economic sickness. Cutting off manufacturing and in-person shopping and browsing, the pandemic has brought an unprecedented downturn for retailers.
The retail sector is not a stranger to turmoil, enduring the continuous pivot of online shoppers and decline of foot traffic. Going to the mall is no longer an essential teenage or family activity, with new online entertainment and outlets launching virtually.
Communicating Bankruptcy
Passage of the federal CARES Act in March promised financial protection for many industries and their employees. However, certain industries cannot exist on this supplemental aid for long. Many are looking at filing for bankruptcy.
Companies do not take filing for bankruptcy lightly, since it can have an irreparable impact on a business’s reputation. And not all bankruptcies lead to a business closing, so the proper language and delivery is critical.
We spoke to financial communications pros Jennifer E. Mercer, partner, Paladin Management Group, and Douglas Hesney, EVP, corporate and financial services at Makovsky, to explore bankruptcy best practices. While there are numerous nuances in bankruptcy communication, best practices resemble standard PR principles, including alignment with strategic goals, consistency, clarity, authenticity and transparency. Their edited responses are below.
PRNEWS: Where do you start when exploring a communications strategy for bankruptcy?
Jennifer E. Mercer: You must understand the legal and financial strategies. Is the goal to reduce debt? To facilitate a sale?
It is imperative that the communications plan reflects the goal. As federal law guides bankruptcy, it is critical that the communications strategies parallel the legal and financial proceedings. As such, the communications team becomes an extension of the company’s internal team and works closely with its other advisors.
Douglas Hesney: While each bankruptcy brings unique challenges, there are critical questions to ask when beginning to craft a communications strategy.
These include: Will the bankruptcy lead to a liquidation? If not, what does the new entity look like? Who are the key stakeholders during the bankruptcy? Creditors, consumers, regulators or potential buyers may be on that list, but it’s vital to determine the priority.
And how can we best align with legal to ensure that the communications supports the process smoothly?
PRNEWS: What’s included in a bankruptcy communication?
Mercer: Communication should stand on three pillars: communicate early and often, be open and honest, and express empathy. These are at the center of plans for all constituents, from Main Street to Wall Street, and [address] how to communicate with them, and when.
PRNEWS: What are best practices for announcing a Chapter 11 bankruptcy?
Mercer: Once a Chapter 11 petition is filed, the communications cascade should begin. Try to reach as many constituents simultaneously as possible. However, given that a legal proceeding is driving the process, communicators must be flexible and prepare accordingly.
When a company is operating in Chapter 11, it’s in a fishbowl. Everything is public; so, having a proactive media strategy is important to control the narrative. Size of a company and whether it is public, private or high-profile will determine how proactive to be [with media relations].
PRNEWS: What are the most important distribution channels for bankruptcy communication?
Hesney: It depends entirely on the nature of the bankruptcy. Bankruptcy can put creditors at odds with corporate employees and consumers, and often with each other.
As communications consultants, our role is to align with leadership and counsel to support the bankruptcy’s goals. In today’s fragmented communications environment, it’s likely we will need to use traditional media, direct communications (e.g. letters, emails, etc), and less frequently, social media.
Our role is to ensure that the company is communicating clearly and consistently to stakeholders—and that it is using mediums and outlets that are most impactful to ensure the desired level of visibility.
Ultimately, there is no one right way to communicate through a bankruptcy. An effective communications strategy must be nimble, stakeholder-focused and be clear and consistent in its message.
Mercer: If constituents can access information [from a platform], use it. Use social media to impart information, not engage in questions or comments that are not tied to communications goals. [This includes] conference calls, and in our current crisis, Zoom and other video conferencing platforms. Eventually it will be good to see a wider use of the town hall, since nothing really beats a face-to-face meeting.
PRNEWS: After the initial release, what steps come next to protect brand reputation?
Mercer: Companies are filing during the stay-at-home mandates, and are not open to operate, making the open for business message impossible. But, if you are a business that is partially open or will open soon, plan marketing around those messages and continue to remain part of the discussion.
Hesney: Communication should not cease with the initial release. As proceedings continue, brands should continue to communicate with stakeholders, including sharing relevant updates. If the company plans to emerge from Chapter 11, communicate positive news using forward-thinking messages to position it for growth.
PRNEWS: Are there other best practices practitioners should consider?
Mercer: There’s a need for PR specialists not generalists for bankruptcy communications. Expertise is needed in part to understand and communicate the legal process in layman’s terms.
If communication must be redone, it can be costly. The ideal is to invest in communications on the front end to control the narrative to avoid panic and speculation.
Hesney: The most important thing is communicating to your core audiences—keeping those channels open and active is critical to establish transparency and a sense of continuity, both critical elements of bankruptcy communications.
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Plus and Minus: J. Crew’s Bankruptcy Filings
While the retail industry has been declining for months, a lack of foot traffic into brick-and-mortar establishments in the wake of the pandemic gave many companies a gut punch.
On May 4, J.Crew became the first national retail brand to file for Chapter 11 protection during the pandemic’s economic downturn.
(Though J. Crew was first, J.C. Penney and Neiman Marcus quickly followed with bankruptcy filings. Car rental company Hertz and restaurant chain Le Pain Quotidien are among other companies joining the ranks. More are expected to follow.)
We asked our bankruptcy communications experts what J.Crew did right in announcing the filing and what could have gone better.
The Plus Side
“J.Crew communicated well and has historically addressed challenging financial news with transparency. Because it is part of the severely depressed retail market and was the first major retailer to file during the pandemic, it continues to be caught up in numerous media cycles,” said Jennifer E. Mercer, partner, Paladin Management Group.
And the Negative
“J.Crew failed to directly communicate with consumers, letting the story be told primarily through the media and third-party social activity,” said Douglas Hesney, EVP, corporate and financial services, Makovsky. “Numerous viral and speculative social media posts implied that J.Crew was going away for good; the significant nuance that J.Crew was going through Chapter 11 (which allows for restructuring and breathing room) rather than Chapter 7 (completely out of business) was not acknowledged, allowing for further damaging speculation.”