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LONDON — When Angela Ahrendts took over the helm of Burberry last year, one of her mantras was “innovate and elevate.” The staff listened, and now the Burberry chief executive officer is having trouble sleeping at night.
Orders for luxury handbags — all costing upward of $1,000 — from Burberry’s new Icons collection leaped to 200,000 units in March from 2,000 a year earlier and the company is fighting to keep up with demand.
“What keeps me up at night is the supply chain. We never really had one, we’re in the process of building it — and it takes time,” said Ahrendts from her bright, white office, the walls of which are studded with black-and-white images from Burberry’s last ad campaign. “It’s an amazing challenge to have, but it’s a whole different game.”
When she replaced the ever-energetic Rose Marie Bravo in July, the Indianapolis-born Ahrendts, 46, inherited a company that was already healthy, revitalized and holding its own on the London Stock Exchange, having just fully demerged from its parent, Great Universal Stores.
At the time, Ahrendts, who refers to herself as a “brand purist” and thinks of Burberry as a specialty, global luxury retailer, pledged to take the business to the next level. Over the past 10 months, she has attempted to hone Burberry’s image and merchandise offer and flow product into stores more evenly throughout the year. The quick-shot growth that resulted was more than she was expecting.
In the 2006-07 fiscal year ended March 31, sales rose 14.4 percent to 850 million pounds, or $1.69 billion, from 743 million, or $1.48 billion. The third quarter, during which sales rose 22.6 percent, was the most successful quarter Burberry has had since it floated on the London Stock Exchange five years ago. Full results and profits will be released Thursday. In the past year, the company’s share price has nearly doubled from 4.25 pounds to 7 pounds, or $13.65 at current exchange.
“The city [of London] has really given us such a vote of confidence, and it’s not as if our profits have doubled or anything,” said Stacey Cartwright, chief financial officer. Indeed, profits slid 4.9 percent to 106.4 million pounds, or $200 million, from 111.9 million pounds, or $209 million, due exclusively to costs related to the brand’s technology overhaul program, Project Atlas.
The speed of growth may be intimidating, and Ahrendts is well aware of the challenge she faces in keeping that growth rolling.
As a result, honing the company’s image has been a priority for Ahrendts, who works closely with Cartwright and creative director Christopher Bailey, whom she refers to as the Burberry “brand czar.” To wit, Burberry is set to introduce a string of store innovations.
The company plans to overhaul some of its larger stores — in Knightsbridge, London; Manhattan’s SoHo, and Los Angeles. The newly refurbished stores will be a departure from the cozy, pale oak interiors of the current stores. The new units will feature dark wood, smoked chrome and floors made of stone the color of a Burberry trench. Ahrendts and Bailey are experimenting with the idea of “cold weather” and “warm weather” stores, the latter of which will feature more white and glass.
Burberry also plans to test different store formats. The new, smaller stores will carry chiefly nonapparel and outerwear and Ahrendts said that, if the new formats work, they could serve both as entry points into new markets and “second or third stores” in a market where Burberry is already established. The first new format store opened in Tampa, Fla., earlier this month, and others will follow in Los Angeles and Copley Square, Boston. A further six stores are opening this year with the new format in the U.S.: Austin, Tex.; Beverly Center in Los Angeles; Palo Alto, Calif.; Natick, Mass.; Boston, and Venetian Palazzo in Las Vegas. The brand also is doubling the square footage of its Short Hills, N.J., store in the fall.
Back in London, the company also is laying down plans for its new headquarters, on Horseferry Road in Westminster, located near MI5 — Britain’s equivalent of the FBI. The space will unite all the Burberry divisions under one roof — they are currently scattered around five buildings in central London near Piccadilly Circus.
“And Christopher’s office is right up there,” said Ahrendts, pulling out an architect’s rendering, and pointing to the penthouse overlooking the Thames.
“We love him so we like to take care of him,” she said with a laugh.
The Thirties building was formerly occupied by the British government; Burberry plans to overhaul the fusty interior and install glass walls and a bright central atrium. The new building is set to open in fall 2008.
The move to the new headquarters will firmly mark the Ahrendts era at Burberry, where Bravo remains vice chairman. Ahrendts said the last 10 months have been ones of transition. She is looking forward to the upcoming year being one of execution. Her style is different from that of Bravo: While both are extremely high-energy, Ahrendts is very collaborative — one reason why she is doing this interview with Bailey and Cartwright by her side. While Bravo was a whiz at product and merchandising, Ahrendts has more experience with the vertical process of a fashion collection, from sourcing to manufacturing and production to delivery on the shop floor. She also has an exuberant, fun-loving side, whereas Bravo was business, business, business. “There’s an informal atmosphere here. We work hard, we play hard, we have fun — and we laugh like hell,” said Ahrendts.
Ahrendts will be putting her experience at Liz Claiborne Inc., where she served as executive vice president before joining Burberry, to the test as she hones the company’s dated back-office operations. “Some of the divisions were sharing mills and factories and they didn’t even know it! They were mom-and-pop operations so we are unpicking them,” she said. The changes will eventually be supported by Project Atlas. Industry observers would agree this is her biggest challenge.
“Burberry has tremendous style leadership thanks to all of the work that Rose Marie Bravo did — but now it needs to become a truly global brand, in the same vein as Gucci and Louis Vuitton,” said Edward Whitefield, chairman of Management Horizons Europe Retail, a London-based consultancy. “The company needs to tune its supply chain, correct the flow of goods and have greater operational competency on a worldwide basis.”
Part of that process began in 2005 — before Ahrendts joined the company — although she was soon to feel the pinch wrought by the changes. Earlier this year, Burberry shut a polo shirt factory in Wales, because it was no longer cost-effective. The closure ignited outrage among unions and in the British press, and even Prince Charles weighed in to ask if there was anything that could be done to keep the factory open. In March, Burberry closed the factory, which had employed 300 workers, as planned, but made a number of concessions to the community, including donating the factory building to the town of Treorchy, and offering enhanced redundancy payments, outplacement counseling and IT training for the employees. Although the headlines in the British press were anti-Burberry for six months, the company’s image appears to have emerged untarnished by the bad publicity.
Over the past year, Burberry’s growth spurt has been coming mainly from a sharper approach to the collections and steadier flow to market. In March 2006, Burberry introduced its Icons accessories collection, which is filled with products including handbags, shoes, skiwear and silk pajamas bearing various Burberry logos and patterns.
Under Ahrendts’ directive, the company also has increased its annual market weeks to five from two, which ensures new product is reaching the stores at a quicker, steadier pace and that the final customer gets to see new product more frequently. As a result, over the past year, Burberry has seen a growth across all markets and product categories. Bailey said he’s working in a different rhythm. “I have an umbrella concept for the season, which reflects the mood of the moment,” he said. “And then we break it down into smaller deliveries, designing the collections by monthly product flow. And it makes sense: The pre-collections have become major for us. Almost as important as the main collections.”
As a result of the recent spike in sales, Ahrendts has had to rethink her ambitions for the accessories business as a whole. In July, she said she’d like to increase the accessories business, which makes up about 25 percent of sales. “Well, it turned out that every category grew phenomenally, so right now we’d be happy to keep accessories at 25 percent.”
As for the company’s positioning, Ahrendts has always said she’s happy being the “opening price point on a high-end street, and there alongside Gucci and Louis Vuitton.”
Ahrendts considers Burberry in a league with the top 10 luxury players. “We sold six mink coats during our latest New York trunk show. And we have the casualwear and rainwear base that our luxury peers don’t have,” she said, adding, “We consider ourselves a democratic, unintimidating luxury brand.”
To wit, Ahrendts said the team purposefully keeps the Prorsum line — which is shown on the Milan runways — scarce on the shop floor.
“Strategically, we’ll keep one piece on the sales rack in our stores. We treat the line as precious, elegant and unique,” she said, adding that the strategy was working. “The customer knows us as Burberry. There is a brand unity there and the collections all serve the customer for different moments in his or her life.”
While the bulk of Burberry sales are coming from Europe, with Spain alone generating about 19 percent of overall Burberry sales, Ahrendts is looking to emerging markets for future growth. In China, where Burberry has 33 outlets, the company is looking to begin sending in its own team to work alongside its Chinese partners. The goal is to micromanage product assortment.
Ahrendts said it’s still a male-dominated market, where the bestsellers are men’s outerwear and nonapparel. She said the company has a one- to two-year strategy in that market. Other markets that are growing rapidly, she said, are the Middle East and Russia. India, however, is still in its embryonic stages: “That’s more of a three- to five-year strategy. There really are not even malls there yet.”