Shares plunge as fashion house slashes outlook, prepares to rejuvenate brand
Burberry’s new boss has set a sensible path for the fashion house’s creative renewal. He just doesn’t yet have a creative director to take it from the boardroom to shops. Until that crucial post is convincingly filled, it is hard to get too excited about the stock, even after Thursday’s plunge.
Marco Gobbetti took over as chief executive of the London-based, tartan-themed trench-coat maker in July. Christopher Bailey, who controversially combined the roles of chief creative and chief executive officers before Gobbetti’s arrival, announced last week that he would step down from the board in March and leave the company entirely at the end of next year.
Investors can therefore expect a lengthy transition period while Gobbetti finds a new top designer and then gives that person the freedom to find a new creative voice. This will presumably have to resonate with the young, adventure-seeking and very British brand identity Mr. Gobbetti, an Italian, and new Chief Merchandising Officer Judy Collinson, an American, outlined in a strategy update November 9, 201.
There will also be a period of financial transition as the company takes its distribution arrangements upmarket. This strategy isn’t new: For years Burberry has tried to move into the luxury big leagues currently monopolized by French and Italian brands such as Louis Vuitton, from whose parent company LVMH Gobbetti came. Bailey canned the lucrative but brand-cheapening Japanese licensing business in 2015.
Now Gobbetti wants to get out of U.S. department stores that don’t match Burberry’s self-perception as a luxury brand, while refurbishing its flagship stores in key cities such as New York, London and Shanghai. This will be painful: Management slashed its forecasts for revenue and profit Thursday. The shares fell more than 10% in morning trading.
Investors are probably right to focus on the downside at this point. The shares are highly valued, reviving Burberry will be expensive, and there is no top designer. The way forward is foggy.
The Key figures published on November 9, 2017