Press Releases

NEW YORK — How durable is a brand if its eponymous founder becomes mired in a much-publicized scandal — and can the consumer separate the product from the person? 

It’s a question that industry observers are asking after Martha Stewart’s sale of stock from Imclone Systems Inc. came under scrutiny in an insider trading investigation. The answer isn’t simple. 

Stewart’s image and her multimedia company’s stock have taken a beating from the tabloids and Wall Street, respectively, despite her repeated assertions of innocence. But so far there’s no sign that the unsavory publicity is turning off fans of the doyenne of domesticity, who still are reading her magazine and buying her bed linens. 

History has plenty of examples of brands that collapsed in such situations — and also of others that continued to thrive during such a crisis. 

The upscale Helmsley hotel chain never regained the luster that it once enjoyed, after the hotel baroness Leona Helmsley was convicted of tax evasion, and dubbed the “Queen of Mean” by the tabloids, according to Gerald Celente, director of The Trends Research Institute. 

TV personality Kathy Lee Gifford was stung by reports in the mid-1990s that her namesake clothing was made in Honduran factories that used child labor, and this helped to stunt sales of her merchandise, some industry experts believe. 

On the other hand, while Steve Madden is heading for prison in August to serve a 41-month sentence for stock fraud and money laundering, Steve Madden Ltd. is doing fine. Under a new management and design team, the $240 million empire he built on designing chunky shoes for teens delivered a robust first-quarter earnings and sales report in May. 

And the offstage antics and legal woes of rap star Sean “Puffy” Combs, lately known as P. Diddy, have only increased the appeal of his white-hot line of clothing called Sean John, experts say. 

“Strong brands are held together by a number of threads, and they have incredible amount of buoyancy, even if one thread gets in trouble,” said Scott Talgo, chief strategy officer for Landor Associates, Inc., a brand consulting company. 

Talgo said that, to have an impact, the scandal must suggest that the brand betrayed the consumer in some way, such as offering them inferior services or poor quality of merchandise. 

How deftly the founder responds to the allegations can also determine whether the company can recover. Talgo said a “measured, calm response” is better than a “knee-jerk reaction.” 

Charles Riotto, president of the International Licensing Industry Merchandisers’ Association, said a brand’s fate also depends on “what kind of trouble that person gets into, and how that plays against the image.” 

P. Diddy, for example, has a bad-boy image. So perhaps his worst legal problem — he was arrested on weapon charges in a 1999 nightclub shooting but was later acquitted — only helped bolster that reputation with his fans, according to Michael Wood, vice president of Teenage Research Unlimited, a market research firm in Northbrook, Ill. 

“Urban lifestyle kind of crosses the line of getting into trouble,” Wood said. 

Celante believes that “Martha Stewart’s image can recover if it ends at this level. If this snowballs, then it could really begin to hurt her.” 

Potential retailers and advertisers may be afraid of using her name if Stewart’s situation gets more complicated, some say. 

Congressional investigators are looking into whether Stewart had inside information when she sold nearly 4,000 shares of Imclone stock on Dec. 27, the day before the Food and Drug Administration made public its refusal to review the biotech company’s application for a promising cancer drug. ImClone’s stock price then plummeted. 

Stewart is a friend of Sam Waksal, ImClone’s former chief executive, who was recently arrested on charges of insider trading for allegedly trying to sell his stock and tipping off family members after learning of the FDA’s decision. 

Stewart said her trading was “entirely proper and lawful.” 

For now, industry observers are closely watching to see how such negative publicity could affect the decorating maven’s empire, Martha Stewart Living Omnimedia Inc., which encompasses merchandise, from sheets to paints, a TV show and a magazine all bearing her name. 

Stewart’s line of home accessories and kitchenware is the top sales generator at Kmart Corp., which has filed for Chapter 11 reorganization. It depends on her name to continue to drive customers to the store. 

Earlier this week, Martha Stewart executives delivered an improved second-quarter earnings outlook. But clearly, investors are getting concerned, pushing the stock down about 20 percent since June 6, when news broke that Stewart was being investigated. The company’s shares slipped 21 cents, closing at $15.97 on Friday on the New York Stock Exchange. 

Many marketing experts believe the Martha Stewart brand is durable enough to deflect the bad publicity. They also say the news that’s unfolding right now isn’t egregious or compelling enough to turn off her average fan. 

Most of her consumers, they say, have heard some negative story about her and don’t consider her perfect anyway, though they believe her style is. 

“She makes them believe that she can do wonderful things,” said Candace Corlett of WSL Strategic Retail, a marketing consultancy. “She empowers people to be creative, to bake, to decorate.”