Earlier this week British luxury fashion brand Burberry announced that its chief executive of two years Christopher Bailey would be replaced after months of dissension from investors, who were unconvinced of his ability to successfully hold the dual chief executive/creative role.
Since taking the helm (a move that saw shares tank by 8 per cent overnight at the time), Bailey has failed to steer Burberry out of a challenging environment, as demand in China continues to slow and the company grapples with an overall decrease in luxury spend across the globe. The company today (13 July) reported a 3 per cent fall in like-for-like sales and flat retail revenues of £423m in the first quarter. Likewise, it expects its wholesale revenue to fall 10 per cent in the first half, more than it had originally anticipated.
Asia too is hurting revenues. Burberry suffered from declining demand in the region, where the brand continued to see a double-digit percentage decline in comparable sales in Hong Kong.
So where now for the luxury brand?
Burberry’s new chief executive Marco Gobbetti, who joins from French luxury brand Céline where he held the same role, starts next year, bringing with him experience of profitably navigating a luxury brand through challenging headwinds. However, Gobbetti comes from a business with little digital activity, compared to Burberry’s digital-first attitude. The brand is currently also in the midst of evolving its strategies to turn around its fortunes, including unifying its collections under one label, aligning its retail and runway cycles to take advantage of consumer shopping demands, and concentrating on product in its marketing activities. Activity that soon-to-depart chief financial officer Carol Fairweather told investors earlier today would be supported by Gobbetti, calling him a “luxury retail person through and through”.
The timing of the announcement of Burberry’s leadership shakeup– two days before it revealed its financial performance – further shone the spotlight on the brands woes.
"Not an unexpected move announced by Bailey, Burberry did brilliantly under the joint leadership of Bailey and Ahrendts, but has suffered recently with demand slowing in China and the pressure of the surprising joint role of creative director and chief executive given to Bailey,” said Paul Thomas, senior consultant, Retail Remedy.
“The surprise is the timing, with the Brexit causing a weakened pound, Burberry would have been a company that would have benefited. That said though it is only short term. By moving Bailey back to what he does best and focusing on the creative direction, alongside a seasoned chief executive, Burberry should get back to their recent great successes. Judging by the reaction in the city with the share price, Gobbetti is well liked. Celine has done extremely well of late and is one the best performing luxury brands. Combining strong leadership with seasoned creativity, could and should be exactly what Burberry needs."
Despite the relative doom and gloom in Burberry’s performance, there was one bright spot: the knock-on effect that Brexit had on sterling. The company said that if exchange rates remain at current levels, full-year profits will benefit by about £90m, compared to the £50m expected in April.
However, Fairweather dismissed the idea that any changes to pricing at the brand were in the pipeline. “We won’t be changing prices in the immediate short term but we will keep that under review,” she told investors this morning.
Elsewhere, digital continued to outperform and grew strongly in all regions. Mobile delivered the majority of the growth, approaching 60 per cent of traffic to the site now via a mobile device.
Bailey, who was surprisingly absent from the investor call, said in a statement: “In what remained a challenging external environment, underlying retail sales were flat in the first quarter. In this context, we continue to focus on managing our business with agility whilst implementing the ambitious evolution of our strategies and ways of working we outlined in May, to position Burberry for long-term growth. These plans are now well underway and on track to deliver our financial goals.”
Bailey will now focus on the creative direction of the brand and design. He will ‘partner’ with Gobbetti on company strategy and culture, while the incoming chief executive will take on responsibility for all commercial, operational and financial elements of the business.