Burberry’s Christopher Bailey makes way for new CEO

burberry products 2016

Powered by Guardian.co.ukThis article titled “Burberry’s Christopher Bailey makes way for new CEO” was written by Rob Davies, for The Guardian on Monday 11th July 2016 17.35 UTC

Burberry’s chief executive, Christopher Bailey, is to cede control of the company’s day-to-day management as part of a boardroom overhaul amid criticism from investors. The luxury goods veteran Marco Gobbetti will take over as chief executive in 2017, leaving his position at the helm of French luxury brand Céline.

Bailey will hand over the daily running of the business to become president. He will also retain his role as chief creative officer, a position he previously held alongside the CEO job, to the dissatisfaction of some investors.

Investors and retail experts welcomed the handover, which they said would help Burberry cope with falling profits due to flagging demand for luxury goods in markets such as China and Russia.

Burberry also announced it had poached Julie Brown from medical supplies group Smith & Nephew to serve as chief operating officer and chief financial officer.

Burberry’s annual meeting, at which investors were expected to lodge a protest vote against Bailey continuing as chief executive, takes place on Thursday.

Gobbetti will start on a pay arrangement that could be worth up to £11.5m a year, depending on performance, including an £80,000 allowance for clothing, car and travel. The deal includes shares worth £4.2m as compensation for stock he forfeited on leaving Céline. There are no performance conditions attached to the award.

Brown’s deal is worth up to £7.4m and includes an award free of performance conditions, made up of shares currently worth £2.95m. Burberry did not say how Bailey’s move out of the chief executive’s chair he has occupied since May 2014 would affect his pay arrangements.

Burberry’s chairman, Sir John Peace, pointed to Gobbetti’s track record at the helm of luxury brands, having served as chief executive of Moschino and Givenchy before taking charge at Céline. “Marco brings incredible experience and skills in luxury and retail with him that will be invaluable to us,” he said. “He has an outstanding track record of delivering growth in the luxury industry, and his vision for the sector and how it will evolve is extremely impressive.”

The company is due to release a quarterly trading update on Wednesday.

A Burberry store in Beijing, China
A Burberry store in Beijing, China. Sales in the country have slowed. Photograph: Kim Kyung Hoon/Reuters

Burberry’s share price rose more than 6% on Monday after the appointments were announced, before falling to close up about 4.5% at £12.12.

Despite early concerns over whether he could cope with being the firm’s creative chief as well as its boss, investors backed Bailey at the firm’s last annual meeting. But anxiety over his leadership – and the pay deal that came with it – has grown in recent months, fuelled by worries about the company’s financial performance, after pre-tax profit fell 10% to £421m for the year to the end of March.

Several investors were understood to be prepared to vote against Bailey’s reappointment, despite his announcement of a review aimed at trimming £100m off the company’s annual costs by 2019.

Sources familiar with the situation said Bailey had realised during talks with investors that it would be better for the company to bring in a new face. Richard Marwood, an equity fund manager at Royal London Asset Management, which owns a stake in Burberry worth nearly £25m, welcomed the change. “It tidies up what was a slightly unusual situation. The combined roles looked a little bit peculiar and the skillsets of both roles are not necessarily the same.

“Many people have been concerned that you need someone with vision, but you also need someone who does the mundane day-to-day tasks, making sure that everything is done properly.”

Analyst Mario Ortelli said the rise in Burberry’s share price was a reflection of investors’ desire for the firm to find new leadership without losing Bailey’s creative spark. “We appreciate the fact that Bailey stays as creative officer, which gives continuity to the stylistic direction,” he said.

But Ortelli warned that the fact that the new management would not be installed until next year left some cause for concern.

“The big question mark is in the next month how the incumbent management will be able to deal with the brand in the current business environment. That’s six months in which the management faces a turbulent environment.

“In the short term, there’s a big relief in the weakness of the British pound but they cannot get that advantage without also working on the business model of the company.”

RBC Capital Markets analyst Rogerio Fujimori said: “Burberry is moving back to the successful arrangement in place before Angela Ahrendts left Burberry to join Apple a couple of years ago.”

Anusha Couttigane, senior retail analyst at Kantar, said Burberry was now better placed to deal with slackening demand in the luxury sector.

Chinese sales have slowed, while Russian buyers have been slapped with economic sanctions and Middle East demand has cooled.

“While Christopher Bailey is still highly respected for his creative talents, these have been difficult challenges to face for someone with little experience leading a business in its totality,” said Couttigane.

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