The departure of the boss who stabilized the ship leaves Burberry with a feeling of sinking | Economic news
There are several very good reasons why Burberry shares fell nearly 10% at some point this morning when Marco Gobbetti was announced to step down as chief executive.
first of all, news of his resignation – becoming Managing Director of Salvatore Ferragamo in his native Italy – was unexpected.
Second, it is because Mr. Gobbetti is considered to have done a good job.
And third, it’s because it rekindled memories of how Burberry handled things badly when a highly regarded former CEO unexpectedly resigned.
The world’s only major UK luxury fashion group blundered when in October 2013, well-respected Angela Ahrendts announced she was leaving to become head of retail at Apple.
His response was to name as successor Christopher Bailey, Creative Director of Burberry, a figure highly respected in the fashion world but totally unknown as a business leader.
There was a lot of skepticism that Mr Bailey was able to retain the roles of CEO and Creative Director and investor unease was only heightened by one particular company video in which Ms Ahrendts said she had “such peace that she could leave the stage on the left … with Christopher at the helm, leading, dreaming”.
Investor moods were not assuaged when, the following spring, it emerged that Mr Bailey had received a ‘golden hello’ in the form of shares worth Â£ 7.6million by becoming general manager.
This was in addition to a retention bonus worth around Â£ 15million he had received the previous summer.
None of these share grants were subject to conditions or performance targets.
Shareholder anger was also raised by the news that he had also controversially received an ‘annual allowance’ of Â£ 440,000 which the company made little attempt to explain but which has been interpreted by some in the media as a clothing allowance.
More than half of Burberry shareholders voted against the awards – the vote was non-binding – at Burberry’s annual meeting in July 2014.
The mood did not improve when, a few weeks later, Mr Bailey sold for Â£ 5.2million of shares.
Unease rumbled when in June 2016 it was announced that John Smith, the beloved Burberry COO and man presented to investors as the person focusing on results while Mr. Bailey focused on the hems, left.
The pressure finally said when, the next month, Burberry announced that Mr. Bailey would be replaced by Mr. Gobbetti as Managing Director, but would retain the role of Creative Director and be given a new title of President, saving him from having to suffer a pay cut.
He also received Â£ 10.6million in additional shares to cushion the blow.
It was, however, an admission by Burberry that the experiment had failed and that Mr. Bailey’s appointment had been a disaster.
Burberry shares, which were at 1490p when Mr Bailey’s appointment was announced, had fallen to just 1175p by the time it was announced that he was stepping down.
Mr. Gobbetti, who had been hired by the French luxury brand Celine, of which he had been chairman and CEO, quickly stabilized the ship by finally taking the helm in July 2017.
Within months, Mr. Gobbetti – renowned for the growth and development of Givenchy, Moschino and Bottega Veneta – had unveiled a turnaround strategy, at the heart of which took Burberry further into the luxury fashion market to compete more directly Gucci. and Louis Vuitton.
Burberry products will no longer be sold to wholesalers and retailers in the non-luxury sector, particularly US mass market outlets, and the production of luxury leather handbags is intensifying.
The company bought one of its Italian leather goods suppliers to efficiently take charge of in-house production.
Another decision Mr Gobbetti had to make at the start of his tenure was to replace Mr Bailey, who resigned as Creative Director in early 2018.
He descended on Riccardo Tisci, an Italian compatriot, with whom he had worked successfully at Givenchy.
Around the same time, Gavin Haig, former CEO of luxury group Belstaff, was hired in the newly created role of commercial director.
Burberry has also started to take a more imaginative approach to e-commerce, for example by making its entire range available on the luxury online fashion platform Farfetch.
It has signed agreements with other partners such as Chinese entertainment and tech giant Tencent.
Another announcement was just as important to highlight the changes underway in the company.
Back in the days when Mr. Bailey was managing director, Burberry was embarrassed by revelations that it had been burning unsold inventory for years, despite its apparent support for sustainable fashion causes.
Gobbetti announced in September 2018 that he wouldn’t do that anymore and, at the same time, said he would no longer use real fur.
The progress was encouraging.
Burberry’s sales and operating profits have started to recover, despite headwinds such as unrest in Hong Kong, which disrupted retail activity in one of the company’s most important markets. .
Mr. Tisci’s new ranges were well received, and by the start of 2020, Mr. Gobbetti seemed increasingly confident.
Then came COVID-19.
Retailing has stopped in much of the world, as have international travel and duty-free sales.
Burberry, with its strong position in Hong Kong and China, was among the first to warn of the evil impact of the pandemic.
For the year to the end of March 2021, sales were down 11% and profits were down 14%.
Despite this, when unveiling the results in May, Gobbetti told investors, âWe wanted to revitalize our brand, renew our product, evolve our communications and transform the customer experience.
âWe have also set out to maintain broadly stable sales and earnings while undergoing this transition.
“And I’m happy to say that over the past three years we’ve achieved what we set out to do and transformed our business.”
These comments today give the impression that Mr Gobbetti already knew he was about to return to Italy.
So it’s no surprise that investors are worried about his departure.
Burberry was at an all-time low when, in July 2016, Mr. Gobbetti was appointed chief executive.
He restored his fortune.
However, it is not immediately clear whether he has set up a longer-term path to sustainable growth or whether he has simply stopped the rot that has set in under Mr Bailey.