Burberry Group Plc (BRBY) named Christopher Bailey as chief executive officer to succeed Angela Ahrendts, tasking a designer with no board level experience to navigate the U.K.’s largest luxury company through a slowing industry.
Ahrendts, 53, who made Burberry a digital forerunner in the fashion world, will depart for Cupertino, California-based Apple Inc. (AAPL:US) in the middle of 2014, leaving the 42-year-old Bailey to assume her role while retaining his former job as chief creative officer, the British company said today.
Bailey takes over at a time when the luxury industry is polarizing and must decide whether to move more upscale to challenge brands like Prada and Louis Vuitton, or target a wider audience with less expensive goods, according to Mario Ortelli, an analyst at Sanford C. Bernstein in London. Under Ahrendts, who led London-based Burberry for almost eight years, sales more than doubled and the shares have gained more than threefold.
Ahrendts “leaves the company at a crossroads, as there is no clear development strategy in place,” Ortelli said. “We believe that in a company as big and complex as Burberry, even for a person as talented as Mr. Bailey, it is hard to have enough time to carry out both of these roles.”
Ahrendts said today she expects the business climate to remain “uncertain” and currencies volatile. Burberry’s first-half retail sales of 694 million pounds fell short of the 698 million-pound median estimate of 13 analysts. Comparable-store sales increased 13 percent, matching estimates.
Burberry dropped 7.6 percent to 1,464 pence today in London, the steepest decline in the U.K. benchmark FTSE 100 Index. Ahrendts’s exit will leave the index with two female CEOs: Alison Cooper of Imperial Tobacco Group Plc (IMT) and EasyJet Plc’s Carolyn McCall.
Since joining Burberry from Gucci in 2001, Bailey has transformed a British company best known for plaid-lined trench coats into a full-fledged luxury-goods maker. He enlivened Burberry’s classic designs by using new colors and materials and introduced more expensive ranges including the Prorsum and Brit ready-to-wear collections as well as tailoring and kids wear.
The award-winning designer, who has also worked at Donna Karan, will continue to oversee Burberry’s creative department when he becomes CEO. As Chief Creative Officer, a position he was named to in 2009, he is also responsible for the company’s overall image, including advertising and store design.
Burberry doesn’t plan to recruit anyone to help him with the creative side, Chief Financial Officer Carol Fairweather said on a call with reporters. Bailey has a creative team of about 70, she added.
“While Christopher Bailey has proven to be a phenomenal designer, the jury will be out in terms of him running the company as CEO,” said Erwan Rambourg, an analyst at HSBC.
Ahrendts’s resignation, which the company said it received yesterday, follows that of Stacey Cartwright, who stepped down as CFO in July. While Burberry bolstered its ranks by naming John Smith to the new position of chief operating officer in February, the company has now lost “the two key architects” of its growth, according to Nomura.
American-born Ahrendts built on the foundations created by former CEO Rose Marie Bravo, who transformed Burberry from a maker of raincoats with a trademark lining and umbrellas into a worldwide luxury fashion brand.
Ahrendts raised prices, pushed into new markets and expanded Burberry’s non-apparel business. The former Liz Claiborne Inc. executive also led the company -- and the luxury industry -- into the digital age, streaming Burberry’s fashion shows live on its website and allowing customers to order items online during the events. Last month, the 157-year-old company filmed its women’s show in London on Apple iPhones.
Ahrendts will leave a year before Burberry expects to complete an overhaul of its business in Japan, where it is cutting its licenses, and as the company develops its own beauty business amid a slowdown in global luxury demand.
Burberry doesn’t expect any change in strategy under Bailey, Fairweather said. “This is succession planning in action,” the CFO said. “He was our preferred successor.”
According to Bernstein’s Ortelli, a strategic change is required. Bailey must decide if he wants Burberry to become “a fully aspirational brand” challenging Prada, Gucci and Louis Vuitton for wealthier clients, or a mass luxury company, offering a wide range of cheaper products, he said.
Ahrendts, who will be a senior vice president at Apple reporting to CEO Tim Cook, said Burberry is in “brilliant shape,” despite an “uncertain” business climate.
Ahrendts is “going out on a high,” Rahul Sharma, managing director of Neev Capital, said in a Bloomberg Television interview. “This whole team has actually transformed Burberry from what it was 10 years ago to what it is today. A super-cool, young, if that were possible, luxury brand.”
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