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RISK AND REPUTATION MANAGEMENT IN THE FASHION AND LUXURY SECTORS

By RL Expert Leesa Soulodre

#myindustry Environmental, social and governance (ESG) issues are increasingly impacting the bottom line and the future sustainability of companies in the fashion and luxury industries. A company’s decisions have important implications for how effective it is at reputation risk management as they impact on supply chain strategy, business continuity, competitive strengths, and
stakeholder relations.
Luxury and fashion brands have a great deal at stake. Their reputation, loyal following, and
consumer awareness is tantamount to their success. While these aspects may attract top
talent, which in turn brings innovation in product design and development, and loyal clientele, they also need to appreciate the fragility of their brand in this technological day and age.
Their intangible assets such as brand equity, intellectual capital and goodwill are susceptible
to reputation risk in numerous ways. Thus, they need to be in a position to monitor and control
exposure, and make business decisions in real time. Negative news coverage from media, and
public scrutiny of ESG issues has seen reputation risk rise to the top of agendas. 
Reputation risks in the digital economy can come from every direction and are often inspired by
environmental and social issues.
These can include extremely low wages, excessive overtime, the use of high volumes of water, and dangerous chemicals that threaten the health of workers and the environment. Fallout from such issues can potentially disrupt the sector and affect retail sales. The growing influence of NGOs, together with increased regulatory scrutiny and associated actions by governments, can also impact on companies’ business practices. Simmering issues can quickly become crises through viral and word-of-mouth amplification thanks to ubiquitous social media platforms, and web and mobile communications.
Embracing the opportunity for transparency offered to companies through such mediums can
influence the strategic management, policies and processes for the use of, and response to, social media. Addressing such issues and engaging with stakeholders via such channels is critical in today’s fast-paced environment for reputation risk management and retaining license to operate. As with most multinationals that provide goods to the market, fashion and luxury firms are underpinned by their supply chain, which can encompass all processes from raw material procurement through to the sale of the finished product.
Over the last three decades there has been a movement away from vertical integration, where the final seller owns and manages all stages of production, to an outsourced model. In the latter, production stages are managed by external supplier companies. This has opened corporations up to greater reputation risks at each step of the supply chain.
As with most multinationals that provide goods to the market, fashion and luxury firms are underpinned by their supply chain, which can encompass all processes from raw material procurement through to the sale of the finished product. Over the last three decades there has been a movement away from vertical integration, where the final seller owns and manages all stages of production, to an outsourced model. In the latter, production stages are managed by external supplier companies. This has opened corporations up to greater reputation
risks at each step of the supply chain. 
The objective of a company’s supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved. In this way, a company can protect the long-term viability of its business by building trust through engagement with stakeholders. Recent research by FTSE highlighted that companies are under increasing pressure to deal with underlying risks in supply chain labor conditions. Institutional investors have identified supply chain labor risks as one of the greatest social concerns. Analysis against the extended FTSE4Good Supply Chain Labor Standards criteria indicates that over a third of companies are demonstrating no action to manage these risks.
In today’s complex global supply chain, fashion and luxury executives now require multi–tier visibility to reduce risk to business continuity, and to improve delivery and relationships between buyers and suppliers. Supplier relationships and trust are key factors in securing the right contractual terms and conditions and have a direct impact on the company’s reputation and brand. Leading industry executives are now integrating the best available environmental, social and governance business intelligence so as to be aware of and proactively address risks and opportunities both down and upstream.
CHILD LABOR IN GARMENT FACTORY - RL EXPERT GROUP: REPUTATION RISKS MANAGED
This article was written by RL EXPERT Leesa Soulodre and published in the March 2013 Retail and Supply Chain issue of RepRisk Insight, an ESG Risk publication co-founded by RL Expert and its partner RepRisk AG for the financial markets and their investee multinational corporations.
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