LONDON — Christopher Bailey soon will be the sole pilot at Burberry.
In a surprising move that sent the fashion brand’s shares down sharply, Burberry Group on Tuesday said Bailey, its chief creative officer, would add the duties of chief executive officer by mid-2014, succeeding Angela Ahrendts, who is leaving to join Apple Inc. as senior vice president of retail and online stores.
The unconventional choice forced Burberry’s stock down 8.8 percent on the London Stock Exchange to 14.64 pounds, or $23.40 at current exchange. Shares of Apple inched up 0.5 percent to $498.68, leaving the tech giant with a market capitalization of $453.05 billion.
On Tuesday, Burberry also gave an update on first-half trading: Revenues climbed 16.8 percent to 1.03 billion pounds, or $1.59 billion, reflecting double-digit gains in all regions, and high-single-digit comparable growth in China.
Dollar figures have been converted at average exchange rates for the six months to Sept. 30.
“I am proud to turn the reins over to whom I feel is one of this generation’s greatest visionaries — and I have always known it,” said Ahrendts in a prerecorded interview with Burberry’s chairman Sir John Peace, available on YouTube.
During the same interview, Bailey said he was “humbled” to be taking over the brand after 13 years with the company. “We are a design-driven organization, so it is a complete thrill for me to be able to take that innovation, design, and creative head and to marry it with the commerce side of our business…as we thrust ourselves into this next decade,” he said.
Barring entrepreneur-led designer brands, it’s rare in the industry that a designer takes on the role of ceo, especially in a publicly quoted company. Gabrielle Chanel served as ceo of her company and had several thousand employees, while Giorgio Armani took up the role of ceo after his business and life partner Sergio Galeotti died. Jil Sander also helmed her company before it went public, while Jean Paul Gaultier was briefly president of his namesake company. Ralph Lauren is both chairman and ceo of the company he founded.
Tom Ford, for whom Bailey worked while he was a designer at Gucci, was famously involved in the commercial and financial side when he was creative director of Gucci. He worked closely with Domenico De Sole, then Gucci’s ceo, in one of the industry’s legendary management double acts.
De Sole, who is now chairman of Tom Ford International, told WWD he believes that Bailey can fulfill both roles at Burberry: “Christopher is terrific, and if he has strong operational and financial support around him, he can do both jobs.”
During a 40-minute conference call to discuss the company’s first-half results on Tuesday morning, Burberry’s newly named chief financial officer Carol Fairweather was pelted with questions about the firm’s choice of Bailey to fulfill both roles — and about the timing of the announcement. Neither Ahrendts nor Bailey was on the call.
Fairweather sought to quash speculation that Burberry was keen to keep Bailey from defecting to a competitor, and that the succession plan was a last-minute one.
“Christopher has always been the board’s preferred successor [to Ahrendts], and there was no doubt in the board’s mind that Christopher is the right person to unlock the next phase of Burberry growth. It was a very measured, thought-through plan,” she said.
“We are a creative-led organization, and for the past 12 years Christopher has been influential in determining and executing strategies under [former ceo] Rose Marie Bravo and Angela. And he has a world-class creative and management team around him as he steps into the new role,” she added.
Fairweather added that no new major design talent would be hired to support Bailey in the wake of his appointment, and she said the management team still needed to “work through what the structure behind Christopher will look like.”
Bravo, whose famous turnaround of Burberry into a hot brand has become a fashion case study, plucked Bailey from the design studio at Gucci shortly before she handed the ceo reins to Ahrendts. Prior to Gucci, Bailey was a designer at Donna Karan International, where he first worked with Ahrendts, who was then president of the company. He has a Master of Arts degree from the Royal College of Art in London.
Although his creative talents are established — he is responsible for the design of every product category from ready-to-wear and accessories to fragrance to high-end watches — some financial analysts are skeptical about the plan to anoint him as ceo at such a critical time for the brand. Though still robust, growth is proving uneven in Mainland China; beauty has only this year been integrated into the group as a stand-alone business, and the Japanese license business is being terminated.
“Ahrendts and Bailey have been working together brilliantly, reshaping the brand for more than eight years,” said Erwan Rambourg and Antoine Belge of HSBC in a note following the announcement. “But while Christopher Bailey has proven to be a phenomenal designer, the jury will be out on how he can run both roles and if he will succeed as ceo.”
Luca Solca, managing director and sector head of global luxury goods at Exane BNP Paribas, said Ahrendts’ departure and Bailey’s appointment are “not good news. First of all, it’s too much work [for Bailey]. And there have been two major changes in six months: First the cfo leaves, then the ceo.”
Cartwright, who later said she was looking to move on to “a consumer-facing, chief executive role in 2014,” is tipped to replace Joseph Wan as group ceo of Harvey Nichols.
During Tuesday’s conference call, Fairweather dismissed speculation that Cartwright resigned after she was snubbed as Ahrendts’ successor.
Solca of Exane BNP Paribas called Bailey “a creative genius, but he is not tested as an executive. To top it all, Burberry stands in front of formidable challenges as they have to give up 60 million pounds-plus [$96 million] in royalties from Japan — and try and make up for that with beauty.”
There is no doubt the company has grown under Ahrendts’ watch: Burberry has seen its share price advance 250 percent since she joined in 2006, while sales reached a record height in the 2012-13 fiscal year of 2 billion pounds, or $3.16 billion.
She helped transform Burberry into a retail business, with 75 percent of sales coming from own-stores; streamlined the group by dismantling noncore regional operations and licenses; brought the beauty business in-house, and thrust Burberry to the forefront of the digital frontier. RELATED STORY: Burberry's Spring Show Goes Global >>
She and Bailey live-streamed men’s and women’s fashion shows, allowed customers to order online immediately following the runway shows and sought to blend the online and brick-and-mortar shopping experience on the store floor. Last month, Burberry pushed its spring women’s show in London across 11 social networks, its own digital flagship and through 13 live-streams on outdoor screens worldwide as part of a partnership with Apple, featuring the tech giant’s iPhone 5S.
“Social media is as important as search, as print, as outdoor, because you’re reaching a totally different consumer,” said Ahrendts in an interview with WWD after the show last month. “You can either put it out there or let them say whatever they want, but we prefer to lead the conversation, fill it with rich content, to start a higher level discussion. And why not? I think that’s great branding today.”
The challenges remain, including the roots of future growth, and a belief by some that Burberry needs to reestablish its high-end fashion positioning, especially in the Far East.
Retail sales in the first half increased by 20 percent, with comparable-store sales growth making up 13 percent in the first and second quarters, and the balance from new stores. Burberry admitted that footfall remained soft offline — a problem the company has called out in the past — although it grew online. The company said sales via iPads in stores and “order online, collect in store” both performed strongly.
Outerwear and large leather goods drove about half of the growth, and men’s tailoring continued to outperform. Men’s accessories also grew strongly, Burberry said.
By region, there was double-digit comparable-store sales growth in Asia-Pacific and EMEIA (Europe, the Middle East, India and Africa), and high single-digit growth in the Americas. The company said Mainland China delivered “high-single-digit comparable growth” in the second quarter, while Asia-Pacific benefited from traveling Chinese luxury customers.
Burberry’s in-house beauty business was integrated for the first time, and kicked in 51 million pounds, or $78.5 million, in wholesale revenue, and the target remains 140 million pounds, or $215.6 million, for the year, driven more by product launches than originally planned, the company said, adding that Brit Rhythm for Men had a successful launch in September.
Her push of Burberry into the forefront of the digital fashion world was no doubt what caught the eye of Apple. Ahrendts, who before joining Burberry was executive vice president of Liz Claiborne Inc., also served as executive vice president of Henri Bendel, and spent six years as president of Donna Karan International.
At Apple, she will fill a role previously occupied by Ron Johnson, who, while at the tech giant, helped create a retail model that was the envy of the fashion industry in terms of sales per square foot and service. Johnson left Apple to become ceo of J.C. Penney Co. Inc., where he failed to institute many of the same practices he had introduced at Apple retail.
Ahrendts will have oversight of the strategic direction, expansion and operation of Apple retail and online stores. Apple’s ceo Tim Cook, to whom she will report, said: “She places the same strong emphasis as we do on the customer experience.”
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