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What Now for Burberry’s Turnaround?

CEO Marco Gobbetti is leaving for Salvatore Ferragamo with the British brand’s revival only partially successful.
Burberry Spring/Summer 2021 show finale|Source: Courtesy
Burberry Spring/Summer 2021 show finale|Source: Courtesy

Marco Gobbetti was hired to revive Burberry’s fortunes and reposition it further upmarket as a top-tier luxury player. Now, after less than five years in the job, he’s departing for Italian shoemaker Salvatore Ferragamo, with the British brand’s turnaround still only partially complete.

The sudden announcement comes at a delicate moment for Burberry. The company has made strides to revitalise its brand, but its ambitions to become a British Gucci or Louis Vuitton remain a work in progress.

The company’s market capitalisation has increased by roughly a third since Gobbetti took the helm in 2017. Ahead of the pandemic, it flagged that efforts to overhaul its aesthetic under creative director Ricardo Tisci were resonating with shoppers and sales fell a relatively modest 10 percent over the 12 months to March.

“It is difficult at this stage to think Burberry will come out of this management transition reinforced, yet the foundations laid out by Marco Gobbetti and his team are solid,” said Thomas Chauvet, head of luxury goods equity research at Citi. On the other hand, the executive’s departure raises the risk of further disruption should other senior executives, and especially Tisci, follow his exit, Chauvet said. Ferragamo is currently down a creative director.

Burberry’s share price fell nearly 9 percent Monday.

The Turnaround Strategy

Gobbetti was responsible for a wide-ranging overhaul at Burberry, intended to elevate the label from an accessible luxury brand to a true luxury player. He joined the company from Céline where, together with then creative director Phoebe Philo, he transformed the LVMH-owned brand into one of fashion’s most cult luxury labels.

At Burberry, Gobbetti brought in star designer Ricardo Tisci, with whom he previously worked at Givenchy, to head up creative direction. He raised prices and tightened control over distribution to elevate the brand, scaling back on wholesale partnerships in favour of higher-margin direct sales. While Burberry was seen to underperform in cash-generative handbags and leather goods, Gobbetti invested in boosting its offering. Together with Tisci, he embraced a more streetwear “drops” approach to product releases and rebranded the company’s logo.

And, while other luxury brands have been slow to adapt to digital, it’s an area Burberry took an early lead and which Gobbetti sought to leverage to appeal to Gen-Z and high-spending consumers in Asia. The company enjoyed “strong double-digit” growth in China, the key driver for luxury sales during the pandemic, in every quarter last year.

Gobbetti’s departure adds uncertainty in a particularly challenging business environment. While luxury sales have shown a strong rebound as the pandemic recedes in key markets, the recovery is uneven and has served to widen the gap between the strongest players in the industry and rivals seeking to catch up to them. Burberry is lagging behind its largest rivals, with sales still below 2019 levels in its most recent quarter.

Meanwhile, the company is particularly exposed to headwinds related to the UK’s decision to leave the European Union and abolish tax breaks for high-spending international tourists.

Burberry said Gobbetti will remain in his current role until the end of the year and work closely with chairman Gerry Murphy to facilitate a smooth transition. His departure will allow him to return to Italy and be closer to family, the company said. A Burberry spokesperson said the company has plenty of time to find a suitable successor.

“In the meantime you’ve got a very strong leadership team that are capable of taking the brand forward and a very clear strategy that is working … There’s no change to our outlook, no change to our strategy,” the spokesperson added.

Moving On

Gobbetti’s new role represents another “monumental challenge,” according to Bernstein analyst Luca Solca. Ferragamo is one of the few independent luxury brands with global name recognition left, famous for outfitting Old Hollywood stars like Audrey Hepburn. But it has suffered years of lacklustre sales performance, and the pandemic dealt a significant financial blow to the label.

In 2020, revenue dropped 33 percent to €916 million ($1.1 billion). Losses before interest and taxes were €62 million last year, compared to a €150 million profit in 2019. It was the brand’s first year of losses since the company went public on the Milan stock exchange in 2011.

Ferragamo is also undergoing an internal shakeup. Creative director Paul Andrew departed last month, leaving the brand without a lead designer. His exit came amid a broader board reshuffle that fuelled speculation the Ferragamo family, still the company’s main shareholder, could be open to a sale. Ferragamo denied the rumours in an email to BoF, reiterating the Ferragamo family has always denied any intention of selling.

Gobbetti will take up his new position at the Italian label as soon as he is released from his contractual obligations at Burberry, Ferragamo said.

With his departure, “Burberry is in a far better position today than when Marco took responsibility for it,” Solca wrote in a note. “Yet, the magnitude of the issues at hand didn’t offer a chance for the runway success that some had hoped for.”

Related Articles:

Paul Andrew To Exit Ferragamo in Company Shakeup

Burberry Sales Rebounded in June. Why Did Its Shares Plunge?

Riccardo Tisci’s Burberry Challenge

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