Flip-Flopping during a crisis – how Damac’s handling of the Trump backlash has proved costly

First you don't see it, then you do. Damac initially removed Trump's name after his comments on Muslims, only to restore it a couple of days after (top photo by Reuters/bottom photo by  Rahul Gajjar of Khaleej Times)

First you don’t see it, then you do. Damac initially removed Trump’s name after his comments on Muslims, only to restore it a couple of days after (top photo by Reuters/bottom photo by Rahul Gajjar of Khaleej Times)

Imagine for a moment, if you will, one of your key business partners/influencers saying something controversial. Imagine that they’ve just racially attacked your most important group of customers. And then imagine that, rather than dumping this partner, you instead flip-flop around the issue and end up not only looking rather foolish, but do yourself and your reputation a fair amount of harm in the process.

If you work at Damac, you don’t need to imagine any of the above. The Dubai-headquartered real estate developer, which counts Donald Trump as one of its business partners, has been flip-flopping since Trump came out with a comment on the 7th of December that there should be a “total and complete shutdown of Muslims” entering the United States. This statement, which was made following the deadly shootings in California’s San Bernardino, weren’t the first Trump had made about Muslims. He had previously that he was in favour of shutting down American mosques and establishing a database for all Muslims living in the US or giving them a form of special identification that noted their religion.

Damac’s relationship with Trump International includes branding for two Trump-branded gold courses and a collection luxury villas at the developer’s Akoya project in Dubai. I don’t know the full extent of the relationship, but local newspaper 7DAYS claimed that, in addition to the licensing fees that Damac would have to pay to Trump for the use of his name and image, Trump himself had invested in the project.

Following the controversy around Trump’s latest Muslim statements, Damac put out a statement that could be called, at best, avoiding the issue.

Damac Properties senior vice president Niall McLoughlin told 7DAYS in a statement: “We would like to stress that our agreement is with the Trump Organisation as one of the premium golf course operators in the world and as such we would not comment further on Mr Trump’s personal or political agenda, nor comment on the internal American political debate scene.”

Instead of publicly taking Trump to task and distancing the company from his statements, Damac took a different approach. A couple of days after the outcry, on the 10th of December Damac took Donald Trump down – his image and name that is, from their developments. To quote from 7DAYS.

Hoardings that previously carried photos of the billionaire businessman advertising Damac’s Trump-branded golf course and luxury villas stood bare on Umm Suquiem Road on Thursday, right at the entrance to the development.

All well and good you may think – Damac quietly rebranded their development and distanced themselves from Trump. However, in a further twist, Trump’s name was back on billboards two days later, on the 12th of December. Here’s how the English-daily Khaleej Times put it:

On Friday, a prominent advertising billboard showing Trump golfing that had stood at the Akoya development, where the housing and one of the golf courses is being built, was gone. All that remained of it was the board’s brown wooden background. Another billboard declaring the development “The Beverly Hills of Dubai” still stood nearby.

Trump’s name also appeared to have been pulled off one sign greeting visitors to the complex. The sign, outside a sales office at the site, originally had Trump’s name in lettering on a stone wall. But on Friday the letters were littering the ground in front of it.

A second, similar sign facing a major road was intact with Trump’s name on it. Earlier in the week, that sign had been taken down but by Friday, it was back in place.

“The exterior signage at Trump International Golf Club, Dubai was temporarily removed on Tuesday for a short period of time, however as of last night, the signage is back up and fully intact,” the Trump Organization said in a statement to The Associated Press on Friday.

Also, the Damac webpage dedicated to the Trump PRVT gated community, which is part of the development, appeared to have been removed, leading only to a “not found” page.

Since the development is still under construction, the removal of the branding with Trump’s name and image seemed to be largely symbolic. It was not known if it signaled Damac will outright break the licensing contract.

Damac Properties has declined to comment on the removal of Trump’s name and billboard from the property. It earlier said it “would not comment further on Mr. Trump’s personal or political agenda, nor comment on the internal American political debate scene.”

To change the issue, Damac has switched tactic. Instead of talking politics, the developer announced that it would guarantee rental returns for those buying in its Akoya (Trump-branded) project. The National broke the story last week.

Damac Properties, the developer caught in a storm over its partnership with the controversial US presidential hopeful Donald Trump, is offering lucrative rental returns on some of its properties to lure investors.

Damac, which said it would stick with Trump International despite his anti-Muslim tirade, is providing a 24 per cent rental guarantee on selected units in Dubai, including the Akoya project associated with the billionaire, the developer said in a statement.

Owners of selected properties will be able to secure an eight per cent annual return in the first three years after handover.

The company was offering these returns because it believes the Dubai property market is “set for stable growth in the medium term”, Damac said. “We have seen quite a bit of scaremongering in the market in recent months, which can have a detrimental effect on sentiment in the market,” said Niall McLoughlin, the senior vice president at Damac. “By providing such a high, tax-free offering on our units, we are putting our head above the rest and underwriting any fluctuations that may occur down the line.”

Reputational issues become even more important for companies which are listed, as Damac is. Damac’s shares initially fell 15 percent following the muted response. Investors may also not have appreciated the rental guarantee initiative, as you can see from the share price chart below.

Damac's share price fell after the initial outcry. The share price has also fallen following Damac's attempts to repair the reputational damage through the rental incentive promise.

Damac’s share price fell after the initial outcry. The share price has also fallen following Damac’s attempts to repair the reputational damage through the rental incentive promise.

While I don’t know the relationship between the two, would Damac have been wiser to have taken an initial hit and exited the contract with Trump rather than flip-flopping on the issue, drawing it out and drawing more attention to the brand association? Add in the costs with guaranteeing rental returns in addition to the share drop, and this crisis will prove costly both in the short as well as the long-term. To me, the media and the company’s shareholders the answer about whether or not to dump Trump – and take a short term hit through contractual obligations but save the company’s reputation and keep shareholders and customers happy – seems fairly obvious.

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