Insolvency and the hidden brand benefit

Though this has been a year of soaring corporate profits for some, the number of companies which have entered insolvency proceedings was up 6% from this time last year. These businesses ran the gamut from celebrity-endorsed clothing brand Gio-Goi, to once-dominant movie rental provider Blockbuster, to music retail giant HMV. Headlines blamed the recession, or simply proclaimed that customers had lost faith in these brands which had been usurped by bigger, better brands. But what these headlines have conveniently overlooked is that many other big brands have also nearly collapsed – behemoth brands such as Marks & Spencer, Laura Ashley and Harley Davidson, for example. But in each case, it wasn’t the brand that was the major problem; rather, it was operational and management inefficiencies which caused these businesses to suffer, and once these were corrected, it was in fact the brand itself which brought about each company’s return to prosperity.

The fact of the matter is that there is often a significant disconnect between company value and brand value. While the companies themselves may have suffered, the value of the brands often remains proportionally unaffected during the time in which the business was reorganised or on hiatus. Strikingly, brand value may bear no resemblance to a company’s share price, turnover or overall profitability, and a company’s revenue may not be the most suitable to reference the brand against, particularly if the company is insolvent or operating inefficiently. Blockbuster, as an example, is operating under a now obsolete business model – but if it was operationally overhauled, would its long history and brand embeddedness be able to create the type of brand value that a company like Netflix currently possesses?

The amount of goodwill associated with a trademark can either prove to be the foundation for a commercial comeback – rumours of HMV’s rebirth as a pure-play, online-retail platform prior to its restructuring are a testament to this – or, conversely, it may be just what a competitor is after. The common factor companies in this position share is that they all have the benefit of accrued goodwill in the brand, something which may be difficult for a new company or start-up to amass on their own. This is particularly true of a trademark owned by a distressed company which may be inactive, and which is therefore not generating any value for that company – however, it may be exactly what a competitor is after. Though HMV is back up and running, competitors such as Sony Music Entertainment and Warner Music Group, or even companies like Amazon or iTunes, might have benefited from the notoriety and goodwill associated with the dog and gramophone symbol if HMV had decided to sell it after all.

We’ve seen this type of scenario before, both in and outwith the work Metis Partners has carried out. In a post about the importance of valuing intangibles in a downturn, Stuart Whitwell of Intangible Business mentions the historic case of the Plymouth Gin brand, which was sold for a “pittance” to investors in 1996 – only to become one of the UK’s best-selling premium gin brands, ultimately being sold in 2005 for millions of pounds. Had the original owners realised the inherent value that resided in the brand, they might have been able to significantly maximise the value in the IP sale. Conversely, in January 2009, Woolworths Group plc, a company which owned the British high-street retail chain Woolworths as well as other brands such as children’s clothing label LadyBird, went into administration, resulting in the closure of all 807 Woolworths stores. But by February 2009 the Woolworths and Ladybird trademarks and domain names were purchased by Shop Direct Group, where the brands are now sold on both shopdirect.com as well as on the previous Woolworths Group retail website, Woolworths.co.uk.

Metis Partners also has first-hand experience with the lasting reputational benefits a well-known – and well-protected – brand can have, having marketed the MFI furniture brand following MFI Group Limited’s administration in 2008. Walker Capital, the private equity owners of online bathroom retailer Victoria Plumb, purchased the brand and relaunched MFI as an online-only retailer, selling furniture, beds and bathroom suites. Likewise, we have just recently sold the iconic British fashion brand Horrockses following a significant amount of interest in the brand and its associated trademarks and goodwill. Though the garments they had been famous for were only manufactured up until the mid-20th century, the notoriety it had accrued during its 50 year run remains palpable today, through avid vintage clothing collectors, blogging about their latest Horrockses fashion find, and fashion exhibits in noted museums. Horrockses dresses can still be found on eBay, where they are sold for over £250 per dress, such is the lasting impression they have made.

As these cases illustrate, companies which invest significant time and resources into building the goodwill & reputation of a brand – be it online or off line via marketing, advertising, networking or other means – may not see that value recorded on the balance sheet, but it is precisely this accrued goodwill which can prove to be a business’s most valuable asset, both in an economic upturn and an economic downturn.

SHARE THIS PAGE VIA: Share on LinkedInTweet about this on TwitterShare on FacebookShare on Google+Pin on PinterestEmail this to someoneDigg thisBuffer this pageShare on RedditShare on Tumblr

Leave a Comment

Comment (required)

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Name (required)
Email (required)