Burberry considers creating new senior management role
Burberry is considering the appointment of a senior manager to support its chief executive, Christopher Bailey, following investor concerns over disappointing trading and a sharp fall in the luxury group’s share price.
Mr Bailey, who turns 45 next week, is due to unveil the results of a business review alongside Burberry’s preliminary results later this month, and people familiar with the group’s plans said news of a senior executive appointment could follow.
It is not yet clear whether the position would be at boardroom level but such a move is likely to be welcomed by investors, some of whom have been pressing for stronger leadership at Burberry after a weaker-than-expected profit forecast this year.
Since Mr Bailey took over as chief executive in May 2014, Burberry’s shares have fallen 21 per cent. Over the past 12 months, they are down 32 per cent and have underperformed the FTSE 100 by 23 per cent.
Some investors have also been critical of Sir John Peace, chairman of the group for the past 14 years, for appointing Mr Bailey to the dual role of chief creative and chief executive officer, after the departure of Angela Ahrendts to run retail and online stores at Apple.
“Bailey needs back-up,” said one shareholder, who has sold down Burberry shares in the past year: “He needs someone to help him on the marketing and retail side, who has a good understanding of the business and knows exactly where they want to take the company.”
Burberry declined to comment.
One top-20 shareholder said the company would benefit from trying to replicate the symbiosis that had existed between Ms Ahrendts and Mr Bailey when she was chief executive and he focused solely on the creative side.
“It worked with Christopher Bailey as head of design and Angela Ahrendts as chief executive, but there have been problems since he took up both roles after she left,” the investor said. “It is time for Sir John to move — it was his decision to give Bailey the twin role, so doubts over Bailey mean there are doubts over Sir John, too.”
Echoing some of these concerns, Mario Ortelli, analyst at Bernstein Research, said: “Burberry should reinforce its top management. Bailey is an experienced creative director with very good people management skills and a busy agenda. Probably, he needs around him someone like a chief commercial officer to work entirely on global marketing and sales.”
Most western luxury groups have struggled to boost sales amid weaker demand from Chinese consumers and a decline in tourism globally. But Burberry has suffered more than most, reigniting concerns among some of its largest shareholders about Mr Bailey’s broad remit.
Last year, Burberry created a new position of chief people and corporate affairs officer, reporting to Mr Bailey. It also appointed a chief information officer, reporting to John Smith, the group’s chief operating officer.
At the time, Mr Bailey said these two new appointees would “play key roles in Burberry’s leadership team.”
Mr Bailey has also instigated a £25m cost-cutting drive and embarked on a bold but controversial move to simplify Burberry’s three main ranges — Prorsum, London and Brit — into a single Burberry brand.
This one-label strategy takes effect this month. Burberry said it had already been “positively received by our wholesale customers” but some analysts questioned whether department stores might order fewer Burberry products as a result of a single label.
Last month, the company — famed for its classic trenchcoat and signature check scarves — said adjusted pre-tax profits this year would be at the bottom end of analysts’ expectations at £405m, even including a £60m foreign exchange uplift.
This followed a 5 per cent fall in like-for-like revenues in its fourth quarter, which was worse than analysts’ consensus expectations of a 1.4 per cent decline.
Gucci-owner Kering also reported weaker than expected sales growth last month and Hugo Boss, the German retailer, said this week it would cut costs as it warned of a “difficult global market environment”, particularly in the US and China.
Burberry relies on Chinese consumers for 40 per cent of its sales and has been hit hard by the sharp fall in Chinese visitors to Hong Kong. Sales in Hong Kong have fallen by more than 20 per cent for three consecutive quarters, as Chinese tourists have headed elsewhere, principally Japan.
Unfortunately for Burberry, as Carol Fairweather, its finance director, pointed out last month, “Japan is a much smaller business for us than many of our peers.”
Melanie Flouquet, analyst at JPMorgan, said the group’s geographical focus had not worked in its favour.
“Burberry is more exposed to the US, which has taken a turn for the worse,” she explained. “And, in Asia, it has far less exposure to Japan, which is really the only area that is doing pretty well for the industry.”
Ms Flouquet suggested the company would benefit from a wholesale re-evaluation of its network of stores, given that these account for the bulk of fixed costs.
“We think the store network needs an extensive review,” she said. “The company has regional heads but it does not have a global head of retail.”
Luca Solca, analyst at Exane BNP Paribas, agreed that Burberry needed to act. “The market is very difficult for everyone but, on the other hand, Burberry seems to be running out of steam,” he noted. “Other companies have got into similar difficulties but have addressed them through faster and stronger innovation because consumers are very fickle and not brand-loyal.”
