New CEO named, challenged to turn around lagging sales
By Carol Ryan
LONDON (Reuters) — Burberry has finally owned up to its ill-fitting C-suite. The British luxury brand on July 11 said Marco Gobbetti would succeed current boss Christopher Bailey as chief executive, with Bailey staying on as president and design chief. Given that it could improve Burberry's below-par sales performance, investors cheered. The risk is Bailey sees what looks like a demotion as demotivating.
The two-year experiment with Bailey in a dual CEO/lead designer role hasn't exactly been a roaring success from investors' perspective. Total shareholder return has fallen 16 per cent over his tenure to date - better than a 58 per cent drop at Prada over the same period, but trailing gains at LVMH and Hermes. Admittedly, a sharp slowdown in the luxury sector hasn't helped.
Gobbetti, who comes from LVMH-owned Celine, may help Burberry improve lackluster sales densities and bring in more money from existing stores. The trenchcoat maker generates roughly 1,500 euros of sales per square foot per year, based on UBS research, around two-thirds less than Louis Vuitton. The new boss also comes from a brand that has very strong handbag sales — a profitable category that is a priority for Burberry.
Gobbetti's first job will be to execute pre-existing plans to rip out 100 million pounds of overheads. Julie Brown, joining as chief operating and financial officer from hospital equipment group Smith & Nephew, should help. She has no luxury sector experience but comes with a track record of gutting costs.
The appointments leave Bailey to focus on the design side of the business, to boost flagging sales. If he could strike up a good partnership with Gobbetti — like the one he had with former Burberry boss Angela Ahrendts — not much needs to change. But with 15 years under his belt at the British label, and a 75 per cent cut to his overall pay last year due to Burberry's struggles, the risk is that other design houses may start to look more attractive.
