Christopher Bailey’s reign as both chief executive and head designer at Burberry is unlikely to be repeated, writes Kyran Fitzgerald.
In the light of recent events, the demotion of the highly paid boss of a British luxury goods company hardly ranks that high on the Richter scale. However, the Christopher Bailey story is worth telling.
Mr Bailey is standing down as chief executive next year, following a reversal of fortunes at this high-flying company that led to a sharp drop in its share price. The reins are being handed over to an older man, Italian Marco Gobbetti, with extensive industry experience. A new chief finance officer, with extensive restructuring experience, is also being brought on board.
As chief creative officer and CEO of Burberry, the maker of upmarket trench coats, Mr Bailey has been a leading icon in what has been a golden age in the world of high fashion. Last year, he took home a staggering £7.5m as head of a company whose shares jumped fivefold in value from the time he joined as designer back in 2001.
Annual profits since then have risen by £350m. At one time, Burberry had a dowdy reputation, its outerwear worn mainly by country gents walking fat labradors.
But Mr Bailey — along with the company’s longtime CEO, Angela Ahrends — has transformed the group. In 2014, the year Ms Ahrends departed to work for Apple, revenues broke through the £2.5bn mark. Burberry has built much of this success on the back of Chinese spending on luxury items.
Mr Baileypresided over a team of designers who introduced dresses, suits, scarves, as well as coats, for a new generation of shoppers. And just as important, he was a pioneer in the use of digital-based selling direct from the catwalk.
Globalisation has created hundreds of millions of acquisitive middle-class people. At the same time, the ranks of the uber-rich have swelled exponentially. Between 1994 and 2014, the luxury goods market tripled in size to around €225bn.
The growth in online spending has challenged many ideas. Whereas physical shoppers prefer a ‘mono-brand’ environment, people buying online prefer to choose between many brands. The whole process of selling is being transformed.
Between 2003 and 2014, sales online rocketed. Department stores and e-tailers have led the way, but some individual brands have struggled, with 35% not selling online at all. A lot is at stake. In the UK alone, over £8bn worth of luxury goods are sold.
Much of this activity has been driven by a surge in asset prices which threatens to go into reverse. Already, the prices of high-end residences are tumbling in cities such as London and New York. Growth in many of the emerging economies is tapering off.
The public mood, too, has shifted against those fond of flaunting their wealth. Higher taxes could soon be slapped on empty luxury properties. Rising rents and tuition fees fan the flames of discontent.
Mr Bailey’s elevation to the role of CEO, two years ago, could be viewed as a high watermark for creative stars in a fashion sector that was riding high on what in retrospect may come to be viewed as a luxury consumables bubble. In taking on the job, he became the first openly gay CEO of a FTSE 100 company. He was innovative in the use of models and actors. But even as he ascended to the top position, the ground was beginning to shift under his feet. China was coming off the boil and the commodities boom was coming to an end, hitting spending on top line goods.
The terrorist outrages in France and Belgium have also hit high-end tourism with Paris particularly badly affected. A decline in travel means less traffic at the tills.
If the catwalk can be catty, then the cutting industry is cut-throat. In the past year, Burberry shares have tumbled by 22%. Once Mr Bailey stopped delivering stellar performances on the bottom line, the shareholders grew restless. There were plenty of grumblings at the company’s recent AGM aimed at Mr Bailey over his hefty pay package and dual role. In June, his package was cut 75% to £1.9m, but the wolves continued to circle. Following the announcement of his departure as CEO, the share price jumped by 75p to £12.50.
Mr Bailey has now stepped back from his dual role, but he may be relieved to shed responsibilities. The experiment of one person combining many roles looks unlikely to be repeated often, if at all.
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