Fears Burberry overhaul will be left out when CEO dons new dresses

Burberry launched its new Olympia handbag in May with an advertising campaign that featured Kardashian star Kylie Jenner and British musician FKA twigs as modern Greek goddesses and opened 45 stylish pop-up stores from Shanghai to Houston.
The saddle-shaped bag that costs £ 1,150 to £ 1,890 is a symbol of what CEO Marco Gobbetti aimed at in his turnaround of the UK luxury goods company: to inject youth and glamor into the brand, move it upmarket and improve product quality. .
But the surprise announcement on Monday that the Italian executive will step down from the management post of small Italian rival Salvatore Ferragamo by the end of the year sowed uncertainty on the group and left investors worried that the recovery could be not finished. Burberry has lost around £ 1 billion in market capitalization since the news broke, or nearly 10% of its value.
“Marco’s efforts have paid off but there is still a lot of work to be done,” said Mario Ortelli, who advises luxury groups on strategy and mergers and acquisitions. “Raising a brand the size of Burberry is like lifting an elephant.” . .
One of the 20 largest shareholders told the Financial Times that Gobbetti’s departure could disrupt the creative side, where Burberry star designer Riccardo Tisci has brought “buzz” to the brand best known for its trench coats and dress. tartan. Gobbetti hired Tisci in 2018 and the couple are said to be close after working together at Givenchy, prompting analysts to point out the risk that he too may leave or not work as well with the next CEO.
âUnplanned CEO departures are always disruptive, but this is especially difficult at Burberry where success and failure are inextricably linked with chemistry and the alignment between its business and creative leaders,â said the shareholder.
“The uncertainty will remain until the new CEO is selected, in place and in delivery.”
Repositioning blocked
Tisci’s vision has been to bring a modern twist to the traditional British spirit of Burberry by incorporating elements of streetwear, all with the aim of appealing to the young Chinese customers who are driving the growth of the luxury sector. One of his first gestures was to create a new logo with the initials of founder Thomas Burberry, which was quickly splashed on all clothes and bags, similar to Louis Vuitton’s LV.
Gobetti’s efforts to reposition Burberry have been delayed by the coronavirus pandemic. But even before that, other steps he had taken, such as phasing out discounts and reducing reliance on department stores, had stagnated revenues even as industry leaders posted record sales. Tisci’s designs have found success with consumers in China, but have sometimes struggled to stand out in the United States or Europe.
Burberry’s impending change of leadership comes as the fallout from the pandemic has widened the wedge between the haves and have-nots in the luxury industry.
Demand for the biggest brands like Louis Vuitton of LVMH and Dior and Hermès has rebounded strongly since the end of last year, helping them to take market share even as the pandemic has interrupted the international tourist flow which under- tends the sector.

With affluent customers in the US and China spending more at home, big brands have once again seen rapid growth. Analysts predict that LVMH, Hermès and Kering, owner of Gucci, will generate more revenue this year than before the pandemic, according to data from Refinitiv.
In contrast, smaller brands like Burberry have struggled to regain momentum and some, including Ferragamo and fellow Italian Tod’s, are expected to take another year or two to recover, prompting some analysts to point them out. as potential buyout targets.
Burberry has grown in line with the industry over the past few quarters and is not losing any share relative to the market as a whole, said Erwan Rambourg, analyst at HSBC. But its growth rate is slower than that of big brands like Dior and Louis Vuitton.
Revenue growth “remains subdued at a crucial time in the history of the turnaround,” wrote UBS analyst Zuzanna Pusz, adding that Burberry may have to “spend a lot more to boost” sales as well as reset margins.
Burberry’s profit margins before interest and taxes hovered around 16% before the pandemic, against 20 for Kering and more than 30% for Hermès and the fashion and leather goods division of LVMH which houses Louis Vuitton.
Creative overhaul
Part of the difference can be explained by the product mix: Burberry relies more on ready-to-wear sales than its competitors who derive most of their revenue from higher-margin leather goods. This makes it more exposed to the vagaries of trends and vulnerable to discounts.
âWith fashion, there is complexity to manage, you need different sizes, to manage inventory and outlets, and the wholesale component,â said Rambourg of HSBC. âIf something doesn’t sell, you can’t just keep it and try to sell it again later, like you can with a purse or a wallet. “
Since joining in 2017, Gobetti has made the expansion of leather goods a key focus to drive growth and profits. Creative Director Tisci revamped the brand’s handbags, tote bags and clutch bags to focus on five key models, including the Olympia. Burberry has also improved the quality of its products by bringing more in-house manufacturing after acquiring one of its leather goods suppliers in Italy in 2018.
During his tenure, Burberry’s stock price rose about 25 percent, topping a 3 percent decline for the FTSE 100, but lagging behind the industry leader, up 200 percent for LVMH.
But Burberry still has a ways to go to be seen by consumers as a top luxury brand given that its prices are often lower than those of its competitors, analysts say. More work is needed to clean up distribution, eliminate discounts and improve product quality, while designs must appeal to new customers, especially in China.
These tasks will fall to the next head of Burberry.
Burberry officially began the search on Monday. As part of its usual succession planning, the board has already identified potential candidates and aims to appoint a new CEO within the next six months, according to a person familiar with the matter.
Another top 20 shareholder told the FT he did not anticipate any recruiting problems. âGiven the good fundamentals and dynamics of the business, we would consider Burberry to be a very attractive hand of cards for any new CEO,â the person said.