FASHION FOCUS
BURBERRY SHARES TAKE A HIT ON PLANS TO ELEVATE BRAND TO A ‘ FIRMLY LUXURY’ FASHION BUSINESS.
‘We are both the boss,” quipped Burberry’s golden boy Christopher Bailey last year when discussing the arrival of Marco Gobbetti as chief executive and his own awkward sideways move into the role of “president.” Rather than soothe concerns about who was in control, the statement raised red flags about how much longer the creative designer would remain at Burberry.
Last week, Burberry shares were dealt their biggest beating in five years after investors balked at a new strategy to elevate the brand to become a “firmly luxury fashion” business.
Gobbetti, who officially became chief executive in July, told investors that Burberry would “sharpen” its brand and boost profit margins to be in line with Gucci and Hermes by selling more expensive leather goods, such as its £1,295 (US$1,700) Bridle handbags.
However, the City has been unnerved by the multimillion- pound spending Gobbetti’s brand overhaul will require. Burberry said that it expected to spend between pounds £150 and 160 million (US$197 million and US$210 million) next year, and as much as £210 million a year over the “medium term.”
The company said it was still plowing ahead with its cost-cutting plan to save £120 million over the next five years, but those savings will go towards its hefty investment program that will take at least two years to generate “sustainable” returns.
“A lot of time and patience is required from investors,” said Rogerio Fujimori, RBC analyst.
For fashionistas, the news of Bailey’s departure after 17 years was the end of an era. He had transformed a faded, trench coat maker — whose checked pattern had become the staple diet of football fans and EastEnders actresses — into a global luxury powerhouse known for its glossy, celebrity-studded campaigns. When the Duchess of Cambridge appeared on the cover of Vogue last year, she did so in a Burberry coat.
Bailey, the son of a carpenter and Marks & Spencer department store window dresser who comes from the part of the U.K. where the brand’s mackintoshes are made, was always been at pains to disdain “snootiness.” He proudly told fashion reporters that he bought his first Burberry coat from a jumble sale in his Yorkshire hometown, as a teenager.
But despite Bailey’s humble beginnings, his excessive pay-packages have provoked furor. In 2014 the majority of Burberry’s shareholders rebelled against an attempt to hand him £ 20 million. This month Burberry made much of Bailey’s decision to surrender £16 million worth of shares.
However, the designer, who received a £ 3.5 million pay package last year, will still walk off with around £12 million in awards next year on top of his £1.1 million salary.
Burberry’s chairman Sir John Peace has always defended Bailey’s high pay, describing him as “a rare talent” who could command a much higher package outside of the U.K. However, investors have argued that Peace’s admiration of Bailey had blinded him to the dangers of overpromotion.
Bailey joined Burberry in 2001 after stints at designers at Gucci and Donna Karan. At the time the business was part of mini- conglomerate GUS, which also owned Argos, and was run by Rose Marie Bravo who had damningly declared the business was “a check design that was heading towards oblivion.”
A year after Bailey joined, Burberry listed and Bravo started work on wrestling back control of licences that had allowed the brand to be watered down onto baseball caps and polo shirts. She made moves to elevate the brand, launching high- end label Burberry Prorsum.
Bailey was seen as so instrumental to the brand’s revival that he played a hand in picking Angela Ahrendts as Burberry’s new boss. They proved to be a power couple. A glamorous and cool-headed number cruncher, Ahrendts won over the City while Bailey acted as “brand czar.”
Together they delivered an updated version of “Cool Britannia” to the staid, heritage brand. In 2009, Bailey brought Burberry back to London Fashion Week. Snipey fashion mavens suggested it should be rebranded “Burberry Fashion Week” due to the amount of media attention it garnered. That year Bailey was named British designer of the year and awarded an MBE.
Arguably, it was his and Burberry’s zenith.
When A hr end ts announced her departure for Apple in 2014, Burberry commissioned a toe-curling video of Peace and Ahrendts taking it in turns to fawningly interview Bailey. Ahrendts declared him “one of this generation’s greatest visionaries.”
A creative talent maybe, but the City was not over-enamoured about the decision to award chief creative officer Bailey, with zero experience of balance sheets, the position of chief executive too. It later became apparent that handing Bailey the dual-role was a naked effort to stop him from leaving. “If we had lost Christopher at the same time as we were losing Angela, shareholders would have never forgiven the board,” said Peace.
To many analysts, it was a promotion that should have never been made. Bailey took the reins of the FTSE 100 company just as Burberry’s growth was coming off the boil. His arrival as chief executive coincided with an industry-wide slump in luxury spending.
Then in July, Burberry announced Gobbetti would be joining from Celine as chief executive while Bailey would keep the same salary and perks, remain chief creative officer, and gain a new, unusual “president” title on his business cards. Shareholders were less than ecstatic about Burberry effectively paying two chief executive salaries.
Bailey’s departure will bring an end to the “wonderfully collaborative partnership” he had hoped to have with Gobbetti. “I think no one was expecting Bailey to last for much longer,” says one fashion insider.