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

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Burberry launched the new Olympia handbag in May. Publicity A campaign that features Kardashian star Kylie Jenner and British musician FKA Twigs as the goddess of modern Greece and opens 45 sophisticated pop-up stores from Shanghai to Houston.

The £ 1,150 to £ 1,890 saddle bag is a symbol of what CEO Marco Gobbetti has set for himself. turn around Characteristics of UK luxury companies: Inject youth and charm into your brand, enhance your brand and improve the quality of your products.

But surprise Ad On Monday, Italian leaders taking the lead of Italian rival Salvatore Ferragamo by the end of the year cast some uncertainty on the group and investors feared the recovery was incomplete. Burberry has reduced its market capitalization by around £ 1 billion, or nearly 10% of its value, since the news broke.

“Marco’s efforts have paid off, but there is still a long way to go,” said Mario Ortelli, who advises luxury groups on strategies, mergers and acquisitions. “Improving a brand to the size of Burberry is like lifting an elephant.”

One of the top 20 shareholders told the Financial Times that Gobetti’s departure could disrupt the creative side. Burberry star designer Riccardo Tisci has brought “vividness” to the most well-known brands of trench coats and tartans. Gobetti hired Tisi in 2018, and the couple are said to be set to work with Givenchy before, and analysts may leave him or not work well with the next CEO. I urged you to point out the risk of not having it.

“The unexpected CEO turnover is always confusing, especially at Burberry, where success and failure are closely tied to chemistry and the collaboration between its business and creative leaders. “The shareholders said.

“Uncertainty persists until a new CEO is elected, posted and delivered.”

Offshoring blocked

Analysts follow retired CEO of Burberry chief designer Riccardo Tisci, highlight risks of leaving luxury brands © Gonzalo Fuentes / Reuters

Tisci’s vision is traditional Burberry English, Street clothing – All aimed at attracting young Chinese customers, the driving force behind most of the growth in the luxury sector. One of his first steps was to create a new logo with the initials of founder Thomas Burberry. It quickly splashed into clothing 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 it took, such as phasing out discounts and reducing reliance on department stores, stagnated revenues, despite the fact that leaders in the sector recorded record sales. Was here. Tisci’s design has been successful with Chinese consumers, but it has also struggled to stand out in the United States and Europe.

Burberry’s impending leadership change comes when the fallout from a pandemic widens the gap between what the luxury industry has and what it doesn’t.

Demand for the biggest brands like LVMH Louis Vuitton And Dior Hermès has been heavily pushed back since late last year, helping to gain market share even as the pandemic halt the flow of international tourism that underpins the sector.

Instead, wealthy American and Chinese customers were scattered around their homes, and big brands grew rapidly again. The analysts are Kering, owner of LVMH, Hermes and Gucci. Bring According to data from Refinitiv, this year we are making more money than before the pandemic.

On the other hand, small brands like Burberry are struggling to regain momentum, and some brands, including Ferragamo and fellow Italian Tod’s, should take another year or two to recover. Some analysts are urging them to designate them as potential acquisition targets.

HSBC analyst Erwan Rambourg of HSBC said Burberry has grown in this sector this quarter and has not lost market share across the market. But its growth is slower than that of big brands like Dior and Louis Vuitton.

Revenue growth “remains limited at key points in the history of the turnaround,” UBS analyst Zuzanna Push said, and Burberry must “spend a lot more to boost” sales. He added that it might be necessary to reset the margins.

Small brands like Burberry have struggled to regain momentum after the pandemic hit sales © John Sibley / Reuters

Burberry’s profit before interest and tax margin was around 16% before the pandemic, while Kering was in his 20s and the fashion and leather goods division of LVMH, the headquarters of Hermès and Louis Vuitton, exceeded 30%. I did.

Creative overhaul

Part of the variance can be explained by the product configuration. Burberry relies more on ready-to-wear than its competitors, who derive most of their income from high-margin leather goods. As a result, you are more likely to be exposed to the vagaries of trends and to benefit from discounts.

“Fashion is complex to manage, requires different sizes, and has to manage inventory and retail and wholesale components,” explains HSBC’s Lambourg. “If something doesn’t sell, you can’t take it and sell it later, just like you can with a purse or purse.”

Since joining the company in 2017, Gobetti has driven growth and profits with a focus on the expansion of leather products. Creative Director Tisci revamped the brand’s handbags, tote bags and clutch bags to focus on five major models, including Olympia. Burberry has also improved the quality of its products by bringing more in-house manufacturing after acquiring one of the Italian leather goods suppliers in 2018.

During Burberry’s tenure, Burberry’s stock price rose about 25%, outpacing the 3% drop in the FTSE 100, but lagging behind industry leaders, registering a 200% rise in LVMH.

However, according to analysts, Burberry still has a way of being viewed by consumers as a prestigious luxury brand, given that Burberry’s prices are often cheaper than its competitors. More work is needed to clean up the cast, eliminate discounts, and improve product quality, but the design must appeal especially to new customers in China.

These tasks are left to the next head of Burberry.

Burberry officially launched its search on Monday. As part of the usual succession development plan, 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.

The other 20 major shareholders told FT they did not expect any hiring problems. “Given the good fundamentals and the dynamics of the business, Burberry is seen as a very attractive card hand for the next CEO,” he said.

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

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