Burberry prepares for a new start: less edgy and lower prices

Burberry’s newly appointed chief executive, Joshua Schulman, fought through jet lag to reach the headquarters of the luxury group near the River Thames as soon as his transatlantic flight landed in London. The fortress-like structure has seen the kind of drama that is usually found in Westminster.

Burberry announced on Monday that Schulman, 52 years old, would replace Jonathan Akeroyd who had been sacked after two years of a tumultuous tenure.

It was hard to imagine a week earlier that hundreds of Burberry staffers would gather in the office cafeteria for their first meeting with Schulman.

Schulman reassured his staff that he had been observing and admiring Burberry for 25 years. He also insisted he would not turn the brand into a British equivalent of Coach, an American mid-market handbag label which he used to run.

Schulman’s situation is becoming more and more crisis-like despite his soothing messages. Burberry, Britain’s most prestigious luxury brand, announced that like-for-like retail sales fell by 21 percent in the first three months of this year. This is Burberry’s forth profit warning in nine months.

The decision to cancel the dividend by the company has only added to the pain and pressure placed on Gerry Murphy. His underwhelming tenure as chairman of Burberry has made it vulnerable to a takeover. “Gerry’s role is totally untenable. Jonathan [Akeroyd], who was appointed by Gerry, has seen the company’s decline accelerate. It has been almost six years since there has been any success. “The chair is ultimately accountable,” said an institutional shareholder of Burberry. Daniel Lee’s future, the Bradford-born director of creative design whose influence has already been reduced, is uncertain.

Beyond the immediate bloodshed, Akeroyd’s defenestration sparked a larger debate: Is Burberry right in trying to reinvigorate high-end fashion again? Should a brand best known for its scarves and trenchcoats give up on their dream to be mentioned alongside Chanel and Dior?

Joshua Schulman will have to stop the profit warnings – four in just nine months

Since the 1990s, when football fans began wearing the Burberry check in stadiums, a brand that was not intended to be associated with, a series of chief executives has tried and failed to move the brand upmarket. In the 2000s, former boss Angela Ahrendts along with creative director Christopher Bailey were able to elevate the brand using Burberry’s aristocratic heritage.

Akeroyd’s arrival in 2022 coincided with a period of unprecedented growth for the luxury sector. This encouraged Burberry’s new cricket-loving CEO to set ambitious goals to double Burberry’s revenue to more than £5billion and to boost profit margins through developing handbags, leather goods, and other products.

Lee was Akeroyd’s choice for the lead. The 38-year old, who was a rising star and had changed the fortunes for Italian luxury house Bottega Veneta by introducing the “Pouch”, a squishy clutch bag, and the puffy “Cassette”, bags, received a warm welcome.

According to Luxurynsight, under Lee’s guidance, the price of the average Burberry handbag nearly doubled, to £1,700. His collections were launched as the richest 1% of the world tightened their purse strings. The move upmarket was at best clumsy.

Pauline Brown said that when you want to move upmarket you cannot start by raising prices. You must start with the desireability. “LVMH inflates a lot, but [they have invested] in their brands over many years.” You can’t expect to achieve this overnight. You have to involve the consumer.

In just a few weeks, Lee’s debut collection, which was released in September last year, had disappointing sales. Akeroyd suggested to the board to delay making a decision until after Christmas. Burberry had to issue three profit warnings between November, January and may.

Murphy hired headhunters at Egon Zehnder in March to help him find a new nonexecutive director. It was hoped to find a candidate who had industry experience to counteract the perception that Burberry’s board lacked fashion expertise. Schulman was one of the candidates.

Sources close to the process say that Murphy only decided to replace Akeroyd a few weeks ago when the horrors of the recent trades began to surface. One insider explained that it’s like owning a football team: You support the manager, until you don’t.

Jonathan Akeroyd, pictured here with his wife Julie, lasted only two years as the head of Burberry

Schulman was known to Burberry’s board. He was in the running to be the Burberry chief executive in 2021. However, he pulled out when Michael Kors appointed him as chief executive.

According to reports, the new Burberry chief executive has diagnosed that Burberry had been focusing its marketing efforts on the wrong products and at the wrong prices. Schulman, according to an insider, plans to focus Burberry’s core products – raincoats and outerwear – on the company’s core products. Lee’s window display, where the mannequins were replaced with expensive handbags, is set to be scrapped.

Schulman was the first person Schulman encountered when he arrived in Burberry’s HQ on a Wednesday morning. Schulman said that the next day, at a town hall meeting with staff, he looked forward to working closely together with Lee.

Lee’s more avant-garde, edgier work will be diluted or masked by his plans to refocus on Burberry’s history. Burberry’s creative director introduced streetwear, as well as a new color called “knight-blue”, to the collection. Murphy, in a sign that Lee’s impact is about to diminish further, told investors that his work will merely be “the topspin”, to Burberry’s entire collection.

Daniel Lee’s future as creative director is uncertain

Lee has tried to make Burberry a symbol for modern Britain by bringing in people like Chelsea footballer Raheem sterling and grime artist Skepta. Many still associate the brand with Britain’s aristocratic history. Lee said to reporters at Burberry London Fashion Week in February that if you try to please everyone you will end up pleasing nobody.

Some industry analysts believe Burberry is best positioned to position itself as the British version of Ralph Lauren – distinctly English, sensible priced and offering timeless fashion rather than cutting edge chic.

Former Burberry executive said: “You’ll be able to tell that it is working when instead of seeing ads featuring rappers who you have never heard of before, you see the modern equivalent of Kate Moss in a trenchcoat on a London roof, or Emma Watson riding a horse through rainy Yorkshire.”

Murphy, who is also the chairman of Tesco’s board, spent a large part of last week trying calm investor unrest. He said that Burberry still aspires to be in the top luxury tier. The brand plans to launch more products, but at lower prices.

One major shareholder said, “He contradicted himself…it didn’t make sense.”

Burberry’s struggles show that the stock exchange, where investors are looking for solid earnings and dividends, is not the right place to invest the time and money necessary to build a brand. The fall in Burberry share price, which is now 698p down by 68 percent over the last year and valued at £2.5 billion, has made it more susceptible to takeovers.

Luca Solca is an analyst with the equity research firm Bernstein. He believes a private equity investor could make a handsome profit by cutting costs, opening up more outlets, and doing, in essence what Schulman said he would not do: turning Burberry into Britain’s answer to Coach.

Sources close to the board who spent collectively about £260,000 buying Burberry’s bombed out shares last week said that the current stock price undervalues Burberry — and any approach near its current level would receive very little attention. Another source stated that the price was “f***ed off”. Burberry faces a real and humbling prospect of falling out of the FTSE 100.

Last week, a visit to Milan’s shopping district revealed the challenges Schulman faces. The queue outside Goyard’s handbag shop was twenty-long, and Gucci’s store had a “one-in-one-out” policy. Sales assistants were outnumbering shoppers at the Burberry store on the corner of Via Sant’Andrea & Via Bagutta.

A Chinese man gave up on looking for a stylish gift and instead was doing a Zoom Call while sitting in a chair with a check-motif.

One sales assistant said, “It is an interesting time,” with a tired smile.