Luxury groups dip into own pockets to aid employees in Covid-19 crisis
The luxury goods sector is rallying against the Covid-19 pandemic, striving to keep jobs and salary levels safe, cancelling dividend distribution, slashing executive remuneration and launching welfare initiatives. Luxury groups like Chanel, Hermès, L’Oréal, Tod’s and OTB are playing the solidarity card, choosing to safeguard their employees by deploying a plethora of initiatives in their favour.
Many luxury groups are involved, especially in France, where some took action even before the country’s Secretary of State with the Minister of the Economy, Agnès Pannier-Runacher, appealed on March 31 to the businesses resorting to temporary lay-off schemes to set an example, by also reducing director pay by 25%.
While many fashion labels have placed at least part of their staff on temporary lay-off, Chanel was the first to forego this policy, putting its employees before its bottom line. The luxury group has pledged to pay its employees in France their full salary for eight weeks, until May 8. Chanel, whose revenue is just shy of €10 billion, would have been entitled to benefit from the temporary lay-off scheme introduced by the French Ministry of the Economy to protect employment, after the group closed down all its French stores and ateliers, with a total staff of 7,500.
Chanel's policy “is a civic-minded act designed to alleviate the burden on public finances, and to allow the State to focus on supporting vulnerable companies and the health care system,” said Bruno Pavlovsky, president of Chanel SAS, in an interview to French media.
L’Oréal has taken the same approach. At the end of March, the French cosmetics giant announced it would not tap government aid measures, and that it had decided to maintain “the totality of jobs” without resorting to “partial lay-offs in France until the end of June, despite the fact that several staff categories in a number of departments (the sales force, retail promoters, and factory and logistics workers hit by the reduction in order numbers) had to stop their activities.”
“Fixed wages” still paid in full by L'Oréal
L’Oréal and its CEO Jean-Paul Agon have also “pledged, since the start of self-isolation measures,” to keep paying 100% of “fixed wages” to “all its employees in France - 13,400 people in total,” of whom over 3,000 are currently inactive. The group also indicated that it would not “defer the payment of any social security contributions or taxes during the same period.”
Brunello Cucinelli too is not envisaging any lay-offs. The eponymous founder of the Italian luxury label told Class CNBC that “we won't cut any jobs. I told our employees ‘you won’t lose your jobs, because we have plenty of work.’ We will try to stay focused and we’ll make a full recovery in 2021.”
Hermès is another luxury group which is proving to be most generous in this emergency situation. It stated that “[Hermès] will keep paying the basic salary of its 15,500 employees in France and worldwide, without taking advantage of the extraordinary aid measures introduced in the countries [where it operates], notably foregoing the partial employment support available in France.”
Hermès has closed down all its stores in France as well as all its factories in the country, with the exception of the Hermès Parfums plant in Vaudreuil, which has switched its output from fragrances to hydro-alcoholic gel.
On the financial side, the group’s directors have waived the fixed wage increase to be paid in 2020, and the variable component of their 2019 remuneration due to be paid this year. The total value of their remuneration in 2020 will be the same as that of 2019, despite the 9% rise in the group's net income, up to €1.528 billion. As for the shareholders’ dividend, its proposed value for the 2019 financial year “will be reduced by €5.00 to €4.55 per share,” the same paid for the 2018 financial year.
No financial remuneration, dividends for Tod's directors
The brothers Diego and Andrea Della Valle, respectively the president and vice-president of Italian luxury group Tod’s, are taking similar steps. At the board meeting convened as a matter of urgency on March 30, they announced they would forego “the remuneration that had already been planned for them for the 2020 financial year.” The two brothers’ families own a 71% stake in Tod’s, and they usually receive an annual remuneration of €1.8 million and €1.3 million respectively.
Also, taking into account the worsening of the global Covid-19 pandemic and the current health emergency, the board of directors of Tod’s decided not to distribute the dividends matured for the 2019 financial year. On March 12, the group had approved the distribution of a dividend of €0.60 per share, equivalent to nearly €20 million in total. In 2019, Tod's generated a revenue of €916 million and a net income of €46.3 million, 1% of which will be donated to charitable initiatives.
Italian fashion group OTB (owner among others of Diesel, Maison Margiela and Marni) has instead set up the ‘Brave OTB’ solidarity fund in favour of its employees. The OTB group’s Italian directors will voluntarily donate the monetary equivalent of a minimum of five days of their paid annual leave in order to create a welfare fund. The initiative was set up in agreement with Confindustria Moda, the association of Italy’s fashion and textile industry companies, and Federmanager, the country’s company directors’ union.
The money raised will be distributed among the group's lowest paid employees, and among those whose jobs have been most affected by the Covid-19 epidemic.
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