By  on July 13, 2005

In the eight years since Rose Marie Bravo joined Burberry as chief executive, the company's market value has increased tenfold, there's preparation for a full flotation on the London Stock Exchange and designer Christopher Bailey has become a fashion world favorite, infusing the company's well-tailored, weather-proof heritage with a classy, youthful flair.

Its image is a seemingly effortless blend of luxury and whimsy. At Burberry's flagships worldwide, stylish trenchcoats stand shoulder-to-shoulder in one room; life-size toy sheep, a reminder of its bond to the wool mills of northern England, inhabit another. The new Burberry isn't only about the Mario Testino ad campaigns that have featured English aristos and top models. It's also about such attention to detail as the hand towels, chilled and infused with African rosemary, that Burberry staffers handed out to the hot and weary guests at the men's runway show in Milan last month.

The back end of the Burberry business, however, is light years behind. The company, which recently posted profits of $201.1 million on sales of $1.31 billion, has been leaving money on the table for a variety of logistical reasons: It's failed to leverage its size — and spending power — with suppliers, for example, and it's been "shipping air," because some boxes are too big for the merchandise they contain. On the retail front, Burberry stores don't have a uniform way of dealing with returns, and individual countries source packaging from different places.

But that's all about to change.

In May, Burberry announced a major infrastructure redesign initiative called Project Atlas aimed at revamping its wholesale, retail and finance systems. The program will affect various parts of the business, including supply chain, shipping, merchandising and support services.

At that time, Burberry talked about its plan to invest $91.5 million over three years in Project Atlas, which is currently being put into effect. The company plans to reap annual benefits of $36.6 million by year three, and that figure is expected to grow by years four and five.

"Until now, we've been spending our time on the front end of the business, and we realized it was time to step back and reinforce IT and supply chain systems," said chief financial officer Stacey Cartwright, who's spearheading the IT revolution at Burberry."The back end of the business has been locally led and operating on what I call a ‘silo basis.' Each country has been devising its own solutions to common problems like returns and how to source packaging," said Cartwright from her spare white office at Burberry's corporate headquarters and showroom near London's Piccadilly Circus.

Antoine Belge, an equities analyst at HSBC in Paris, agreed wholeheartedly when Burberry made the announcement, along with its fiscal results, two months ago. "The company has been growing at a fast pace, and growing sales, and I think they realized just how behind they were in terms of infrastructure," he said.

But Burberry's situation is not unusual among luxury retailers. "We believe that, on average, the luxury goods industry has been lagging behind High Street retailers such as Zara, H&M or TopShop in addressing logistical issues and implementing SAP, just-in-time or other logistics-enhancing techniques," said Jacques-Franck Dossin, a luxury goods analyst at Goldman Sachs in London.

"We believe this is all the more important for Burberry versus other large luxury brands as Burberry is more dependent on third-party retailers than a number of other brands, as evidenced by wholesale sales accounting for over 50 percent of total sales," he added.

Cartwright said that despite Burberry's spending might as a billion-dollar-plus public company, it has been behaving like a group of small companies in dealing with suppliers. "We're not leveraging our purchasing power," she said.

For example, Burberry uses the same tanneries to source the leather for its jackets, bags and coats, but buys each leather category separately. As a result, it's treated like a small business each time it places an order. Employees also waste time keying and re-keying orders when the retail team buys from the wholesale team, or when specifications need to be changed on a certain garment order — like when one retailer wants horn buttons on a jacket instead of the standard military ones.

"We need to create one central repository for that kind of information and bring some visibility into place," said Cartwright, who was previously chief financial officer at London-based Egg plc, a publicly listed financial services provider.Cartwright and her team have chosen enterprise resource planning software from SAP of Walldorf, Germany, to deal with the wholesale and finance systems, and is still deciding on a software company for the retail side. She said SAP is definitely a candidate, but declined to give any details. This current fiscal year is about phasing the SAP system into each geographical region, she said.

"The overall strategy is to go around the globe and pilot and phase in the template," said Cartwright, who plans to begin in Asia and move west. (Spain, one of Burberry's largest and most mature European markets, is the one exception. Its stores there already use the SAP software that Burberry plans to roll out.)

Not surprisingly, Burberry's supply chain will be one of the main sectors of the business to benefit from the overhaul.

"Right now, there's too much physical movement of stock," said Cartwright, describing the journey that Burberry's buttons, for example, can make in any given season. The buttons, which are made in Italy, are shipped to the Burberry warehouses in northern England, and later back to the Italian clothing factories that manufacture for Burberry. After the buttons have been sewn onto trenchcoats, dresses, jackets and blouses, they return to the Burberry warehouses in northern England. Finally, many of those outfits will return to Italy — and hang on the racks at Burberry's flagships in Rome and Milan.

"Thanks to the new system, we'll be able to tell our suppliers how and when to divert product to the different markets so that it doesn't have to travel so much," she said.

The new software system will make the actual transportation of goods more efficient, too. "A lot of our products are shipped in boxes that are too big, which means we end up shipping a lot of air. The new software will help us get the packaging and configuration right," she added.

It's the improvements to the retail end of the business that Burberry's end customers will benefit from the most. The new software system will allow Burberry to put in place global data standards to replace regional ones. Right now, an evening dress with an Empire waist might have a completely different code in Europe than it does in Asia. The system will also allow the company to track sales trends globally rather than just regionally."That means we'll understand not only what customers are buying, but how they're buying it," said Cartwright. For example, Burberry will be able to see whether customers in the U.S. buy more bags when they're displayed with a dress, or analyze why customers at the Moscow store might buy trenches with their eveningwear.

"It means we can merchandise certain products in such a way that makes them more appealing," she said.

The new software will also show Burberry staff where certain merchandise is in the supply chain and when they should place reorders. "It means we'll have the right product available for the consumer and we'll be able to market out goods to customers more smartly," she said.

Cartwright added that while Burberry may have its back-end problems to untangle, it's certainly not an exception in the world of luxury goods. "I don't think we're far off kilter with regard to the other players. There's no one out there whom I would hold out as a best-practice example," she said.

Cartwright added that her team's philosophy regarding the new IT system dovetails with Burberry's internal mantra. "It's about ‘enabling the magic' of the front end of the business. We now need to do the front end of the business justice," she said.

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