Retail scores high in share price drops following crises

Retail scores high in share price drops following crises
Retail scores high in share price drops following crises

Listed businesses in the retail industry have witnessed the second-greatest average share price drop following a crises incident at 18.5 per cent.

This statistic comes from a new report titled The Crisis Value Erosion Index, launched by communications consulting firm SenateSHJ, which analyzed the financial impacts of crises on 70 listed Australian and international companies over the last 40 years.

Eighty per cent of companies evaluated saw a drop in share price, with the most significant drop experienced by BP (50%) following the Deepwater Horizon explosion and oil spill. BP’s share price took more than three years to recover.

The average time for share price recovery of all companies analyzed was 60 days.

Modeling used metrics such as share price and earnings per share drop, days to share price recovery, as well as trend-adjusted recovery to quantify how these crises impacted the companies involved and over what time.

Retail’s average share price drop amid crises was just behind mining and materials (21.9 per cent), with the retail sector also coming in second with median share price drops at 19.8 per cent, behind entertainment.

Lesser affected industries include fashion, with an average share price drop of 11.4 per cent, with fast moving consumer goods (FMCG) hitting the lowest average share price drop of 5.5 per cent.

The research also categorized the nature of each crisis, the response to it and relevant background information such as the sector.

Crises involving casualties saw an average share price drop of 24.4 per cent, and an average earnings-per-share (EPS) drop of 191 per cent. This is followed by environmental damage, with a 23.4 per cent average share price drop and a 222 per cent average EPS drop, and then defects and recalls – 16.6 per cent average share price drop and a 124 per cent average EPS drop.

“The Crisis Value Erosion Index places a hard number on reputation when things go wrong,” SenateSHJ partner Craig Badings said.

“The numbers show how devastating a crisis can be for a company and its shareholders and this doesn’t even touch on the brand and personal reputational impacts felt by the company or the executives involved.

“Placing a dollar value on a crisis is a stark reminder to companies how important it is to spend the right amount of time, money and effort on risk management.

“We have seen time and again that companies with the right crisis preparation, management systems, tools and support teams in place are in the best position to minimize the long-term damage from a crisis. They also tend to recover quicker.”

Some of the key fashion businesses included in the research were Balenciaga, Adidas, and H&M.

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