The Burberry check is back in fashion. But it’s an imminent check-out that is weighing on the British luxury group.
Late last week, Burberry Group Plc reported a rebound in sales. But with chief executive officer Marco Gobbetti poised to leave at the end of this year to join smaller Italian rival Salvatore Ferragamo SpA, the company’s nascent turnaround risks coming apart at the seams.
A big part of Gobbetti’s goal at Burberry was elevating the company from something that was simply premium to the top echelons of luxury. He’s stabilized it since joining in July 2017. That’s evident from same store sales, which have risen 90% from the year earlier in the three months to 26 June, ahead of analysts’ expectations. They were just above pre-pandemic levels, too.
Also read | Cannes fashion: The good, the bad and the plain weird
He brought in a new designer — Riccardo Tisci — and laid the foundations for a super-luxe Burberry, building a handbag business, modernizing its trademark coats and expanding footwear, including sneakers. He also stopped selling products in down market stores and cut back on special offers. Burberry is now more in vogue with millennial and Generation Z shoppers, thanks in part to streetwear-style “drops” of limited edition products. It’s not uncommon to see young people on the streets of London wearing the trademark tan, black, red and white check alongside Gucci and Balenciaga.
But the British company still doesn’t have the sort of buzz — not to mention the sales growth and margin expansion — that Gucci was commanding just a few years after parent Kering SA embarked on its transformation in 2015. Indeed, Burberry’s reinvention is far from finished. For example, there is still more work to do to bring handbags to full potential. Elsewhere in the luxury industry, they are the engine of sales and profit.
Progress was derailed by the pandemic. And, emerging from the crisis, the company must embark on a search for a new chief executive. Given the trajectory of the turnaround, the strategy of the new CEO must remain broadly in line with Gobbetti’s. That may deter some candidates who want to put their own stamp on Burberry.
Even more crucial will be the new CEO’s chemistry with Tisci, who had worked with Gobbetti at LVMH’s Givenchy. The designer was brought on board at Burberry in March 2018. Boding well for continuity is Tisci’s history of staying in place. He spent more than a decade at Givenchy after Gobbetti moved to LVMH Moet Hennessy Louis Vuitton SE’s Celine. Tisci’s relationship with the new CEO will be crucial in determining whether he has a similarly long tenure at Burberry.
At Ferragamo, Gobbetti will not have as much heavy lifting as at Burberry. The former LVMH executive will be focused on rejuvenating a heritage name that has lost its way, but which is already at the high end. It won’t be an easy task and will require fresh creative direction and millennial-friendly marketing. But Ferragamo is also less than half the size of the British company; and it is under the stewardship of a single controlling shareholder. Gobbetti doesn’t have to answer to a diverse investor base.
There is much riding on Burberry getting the new CEO appointment – and the rest of its revival — right. It is vulnerable to the current financial fashion: Private equity eyeing undervalued UK businesses. Burberry’s forward price to earnings ratio is at a discount to bigger rivals. Excluding store leases, it also had almost almost 1 billion pounds of net cash on its balance sheet.
The luxury conglomerates LVMH, Kering and Cie Financiere Richemont SA – which has more than doubled fiscal first-quarter sales – have enjoyed more robust post-pandemic recoveries, and have muscular balance sheets. Kering has said its priority is organic growth, but it won’t rule out deals. The company’s track record of turbocharging tired brands – not just Gucci, but also more recently Bottega Veneta – makes it ideally positioned to take on Burberry.
If Burberry doesn’t manage Gobbetti’s check-out smoothly, then someone else might be tempted to finish what he started.