Why’s the boss of Burberry pocketing £8 million a year as sales slump?
SMILING shyly as Naomi Campbell gripped his shoulder with her talon-like nails, Christopher Bailey looked more like a mouse that had fallen into the clutches of a very glamorous feline than a multimillionaire corporate boss.
For despite his boyish appearance, Bailey, 44, is in charge of the £5.75 billion luxury brand Burberry, making him one of the biggest power players in the fashion world.
And Naomi, in a lace-trimmed slip-dress from his latest collection, had good reason to look like the cat who’s got the cream.
Bailey had thrown a spectacular party to launch Naomi’s coffee-table book, on sale at a bracing £1,250 for a signed copy.
Excruciating price tags would not be anything out of the ordinary for the throng at Thomas’s, the posh cafe inside Burberry’s flagship Regent Street store in London, where Naomi’s bash was held last week.
Supermodels Erin O’Connor and Eva Herzigova mingled with rapper Tinie Tempah and Boy George, while other guests included celebrated photographer Mario Testino, shoe designer Manolo Blahnik, Topshop owner Sir Philip Green and Formula One tycoon Bernie Ecclestone.
But even as the gilded soiree took place, uncomfortable questions were being asked in the City about the rise of Bailey.
No one disputes his creative talent. But two years ago he was propelled into the chief executive’s seat with virtually no boardroom experience. Not only that, but he retained his role as design supremo.
It was a highly unorthdox move. As long as Burberry delivered good results, the nay-sayers held their tongues — but now the company’s performance has started to slip and the pressure on Bailey is mounting.
His lack of corporate experience has not stopped him reaping enormous rewards. He was paid nearly £8 million for 2014-15, and is in line for shares worth up to £30 million at their current price.
Until recently, the brand has been one of Britain’s great fashion success stories.
Under two charismatic American female bosses — Rose Marie Bravo and her successor, Angela Ahrendts — it was transformed from a staid raincoat shop into an internationally acclaimed high-fashion label. An unfortunate ‘chav’ interlude — when the brand’s signature red, camel and black check became rather too popular with football hooligans and EastEnders actresses — was soon overcome.
Burberry won plaudits for its catwalk shows. More importantly, from the point of view of investors, it was a financial success.
Its strong suit was exporting its scarves, coats and handbags to thousands of newly rich Chinese buyers, who saw its quintessential British style as the ultimate status symbol.
So far, however, Bailey — who took over from Ahrendts in the spring of 2014 — has failed to match up to his predecessors.
HISSTATUS as a designer is not at issue. Among his many coups, he created a bespoke, floor- sweeping black gown adorned with thousands of multi- coloured sequins for the singer Adele on her world tour.
The same can’t be said for his business credentials. Bailey is said to be treated like a bird in a golden cage, protected from the harsh realities of commercial life such as dealing with suppliers or taking questions from City analysts. These tasks are delegated.
But there was no shielding him from shareholders’ reaction when he confessed earlier this month that sales for the past six months had been lower than expected — that announcement wiped £200 million off the company’s stock market value.
Burberry shares — which had soared under previous bosses — have plummeted by 30 per cent in the past 12 months. They are 20 per cent lower than when Bailey took the top job.
It’s bad news for millions of savers. A member of the elite FTSE 100 share index, countless small investors have holdings in the company through their pension plans. Experts reckon profits will fall to £420 million for the year to March, a decline of 8 per cent, then fall again to about £405 million in 2017.
Unlike fellow British institution BHS, which this week went into administration, Burberry is not about to go under any time soon. But one leading retail analyst says ‘ an awful lot’ of shareholders have been concerned about Bailey for some time.
‘It is just not helpful to have a chief executive who is trying to run the company and carry on with his day job as a designer. That is too much for any one person,’ said another City analyst.
Bailey believes it makes sense to combine the roles because his creative vision will push the business forward. His supporters say he is an effective business operator who has made £ 25 million of savings in the past year.
He is investing £50 million in a new factory in Yorkshire that will create 300 new jobs. But in the Square Mile, some analysts believe he was appointed to CEO only because he threatened to quit unless he got both jobs. ‘Burberry were already losing a big star when his predecessor Angela Ahrendts went to join Apple. They were terrified Bailey would walk as well,’ says one. ‘At first, it seemed OK, because her strategies were in place, but the chickens are coming home to roost for him.’ With his artfully tousled blond locks, Bailey looks younger than a man in his mid-40s. Born in Halifax, West Yorkshire, into a modest background, his father was a carpenter and his mother a window dresser for Marks & Spencer. The young Christopher gained a Masters degree in 1994 from the Royal College of Art, then took a job as womenswear designer at U.S. fashion house Donna Karan. That was followed by a stint at Gucci in Milan from 1996 to 2001, before he joined Burberry as design director. After his promotion two years ago, he was the first openly gay chief executive of a FTSE 100 company and is ranked eighth on the latest annual power list of top lesbian, gay, bisexual and transgender executives.
In 2012, he married Old Etonian Simon Woods, 36, the actor who played Mr Bingley in the 2005 film Pride And Prejudice, and they now have a young daughter, Iris.
Behind this picture of domestic bliss, Bailey is one of the richest executives in the land.
His £8 million-a-year salary puts him in the same league as the bosses of HSBC and Unilever, multi-national companies many times the size of Burberry.
Investors staged a rebellion against Bailey’s pay when he was appointed. Recent disappointing sales figures have set off a fresh round of grumbling.
‘His pay is bonkers,’ says one City critic. ‘Burberry’s profits have gone nowhere for four years, which is disappointing, and his rewards are even more galling.
‘No one minded his predecessors’ pay because they were seasoned business women who delivered great results. With Chris, it’s a different matter.’
Bailey’s strategy includes reeling in big-name celebrities to promote the fashion brand. The latest is actress Lily James — who played Lady Rose in Downton Abbey — as the face of the My Burberry fragrance range.
A rather more serious problem is that the company has been hard hit by the downturn in the Chinese economy. ‘China is a big deal for Burberry,’ says Tom Gadsby, a retail analyst with Liberum Capital, who is advising investors to sell the shares.
There are also question marks over whether Burberry has the cachet to carry on charging skyhigh prices.
CURRENTofferings include a short, black lace ladies’ trenchcoat for just under £4,000. Even a simple monogrammed cashmere scarf costs £ 335, a humble bookmark is £135 and keyrings range from £95 to £300.
At the company’s Regent Street store recently, shoppers were thin on the ground.
Over a two-hour period, around 40 people went in, but only one emerged with a purchase — Brazilian student David Marchiori, 23, had bought a £170 pair of sunglasses for his mum. ‘I really like the store,’ he said.
No doubt that would please Bailey, who oversaw every detail of the shop, which opened in 2012. Decked out in art deco style, it is spread over four storeys, with Corinthian marble floors and vintage lights hanging from the huge glass domed ceiling.
While this ostentatious opulence might impress tourists, it will hold no sway with the money men of the Square Mile. Ultimately, it is they who will decide Bailey’s future as chief executive.
For a boy from Halifax, his success as a designer has been nothing short of a fairy tale — but unless he can restore Burberry’s fortunes, it is a story that may not have a happy ending.
ADDITIONAL reporting: STEPHANIE CONDRON.