Burberry reported today that it has appointed Céline boss Marco Gobbetti as its new chief executive, following a period of financial turmoil.
Current chief executive and chief creative officer Christopher Bailey will stay on as chief creative officer and take on the newly created role of president.
At that time Burberry was still riding the wave of high demand for luxury goods from the Far East and the Middle East, two key growth markets for the British brand.
However, in the time since Bailey has held full leadership responsibility for the business, the luxury economy has taken a turn for the worse.
What’s gone wrong for Burberry?
Over the past two years, the luxury sector has faced mounting pressure in the face of declining demand for designer goods from multiple regions – namely China, Russia and, in recent months, even the Middle East.
A clamp-down on corruption and luxury gift-giving in China, combined with economic sanctions in Russia and declines in oil prices, have significantly lowered global demand.
Throughout this time, Asia Pacific has continued to represent around 40% of Burberry’s retail/wholesale business. Yet these economic pressures have seen double digit growth (+18% in Asia Pacific in the 2013/14 year) shrink to single figures and, in its latest annual report, decline by 2%.
Bailey’s balancing act
While Bailey is still highly respected for his creative talents, these have been difficult challenges to face for someone with little experience leading a business in its totality.
In many ways, Bailey has been the victim of unfortunate timing, taking on a dual role just when the market was beginning to encounter resistance on several fronts – a trial for which he was underprepared.
“Without the support of formidable former chief executive Ahrendts, Bailey has come under considerable scrutiny regarding his capacity take charge of Burberry’s strategy while still managing its creative direction”
Although he has had successes in new areas such as the beauty division, grappling with failures in Burberry’s core segments has left Bailey thinly spread, perhaps distracting him from the creative responsibilities at which he naturally excels.
The issues that have led to declining profits and reduced custom at Burberry are macro-economic trends, and cannot be placed squarely at the feet of a single leader.
However, without the support of formidable former chief executive Ahrendts, Bailey has come under considerable scrutiny regarding his capacity take charge of Burberry’s strategy while still managing its creative direction. This had led to criticism from investors and a dip in confidence.
A critical need for new leadership
These changes in management are therefore likely to come as a welcome reprieve for Bailey.
”These incoming leaders will strengthen both strategy and investor support and will bring to the business a much-needed skillset when it comes to setting the strategic direction and managing its finances”
Last month, we learned of chief operating officer John Smith’s intention to step down in 2017. Now we anticipate not only a new chief executive in the shape of Gobbetti, but also a new chief financial officer Julie Brown.
These incoming leaders will strengthen both strategy and investor support and will bring to the business a much-needed skillset when it comes to setting the strategic direction and managing its finances, especially reviewing the return on investment in Burberry’s declining markets.
Crucially, the additional leadership support will free Bailey to concentrate on doing what he does best: designing and delivering a great fashion offer for an iconic British label.
Key priorities for transforming the business
Going forward, the new leadership team will have several strategic objectives but, in the short term, we can expect it to focus on two priorities; reviewing investment markets by redirecting funds to the regions with the biggest, fastest-growing opportunities and improving profitability by reducing inefficiencies in production, rationalising low-margin wholesale distribution and reining in spend on marketing.
This does not mean that Burberry will disappear off the billboards altogether; part of the brand’s success has been the popular presence it has maintained on social media, the network of ambassadorial support it has built up among celebrities and the creativity it has pursued through digital innovation.
All of these are elements that keep consumers engaged, which is critical to securing custom. Digital innovation in particular underpins Burberry’s retail vision.
However, shareholders will be looking to Burberry’s new board to deliver fast results.
If the combined force of Gobbetti, Bailey and Brown can forge a cohesive working relationship, we should expect to see tangible solutions coming through the business relatively quickly.
- Anusha Couttigane is senior analyst at Kantar Retail