SWOT Analysis

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Professor Anita Elberse prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

A N I T A E L B E R S E

Burberry in 2014

It was February 17, 2014, and Kensington Gardens was buzzing with fashionistas arriving for what a local newspaper described as “the most sought-after ticket in town”1 during London Fashion Week—the Burberry show. It did not disappoint: “Free-form hand-drawn flowers and foliage smothered everything from shearling coats and jackets to dresses, ponchos, traily scarves, blanket throws, and booties. It gave everything a welcome flavor of the domestic, the cozy, the romantic, and the very special,” fashion magazine Vogue wrote afterwards, pointing to the collection’s “charming sense of the eccentric, arty Britishness”2 with two other reviewers classifying the event as “a beautiful and telling recreation of the natural changing of the seasons”3 and one that founder Thomas Burberry “would have undoubtedly appreciated”4 (see Exhibit 1 for selected impressions).

While chief creative officer Christopher Bailey was the center of attention backstage, outgoing chief executive officer Angela Ahrendts watched the show from the boardroom at Burberry’s London offices. “Angela sent me a beautiful email just before, saying ‘good luck’ and other lovely things,” said Bailey, who would add the role of chief executive officer to his existing responsibilities in May 2014. “It was the first show of its kind I wasn’t at,” said Ahrendts, who was dialing back her involvement in the company. “The collection was so strong—it exuded confidence. It was a little sexier, a little more artistic than people had seen before from Christopher.” She added: “When he returned to the office we just gave each other a big hug. We have an amazing partnership.”

Under that partnership, Burberry’s revenues had tripled from £740 million in 2006 to £2 billion in 2013, while its operating profits jumped from £170 million to £430 million in that same period. Together, Ahrendts and Bailey had helped to transform Burberry—founded in 1856 and known for its trench coat and its distinctive check pattern—from an aging, increasingly ubiquitous brand into one that truly stood for luxury and that had a strong global and digital footprint. Now, after eight years as chief executive officer, Ahrendts was leaving to join Apple as its global head of retailing, while Bailey would assume the role of chief executive officer while also continuing to serve as chief creative officer.

The leadership change—and in particular the unusual double role for Bailey—was met with skepticism: when it was announced in October 2013, three quarters of a billion dollars were wiped off Burberry’s market capitalization.5 “Ahrendts’ move to Apple makes more sense than Burberry’s response. It’s hard to see why the fashion house thinks it can replace a very successful CEO by asking its creative guru to do two jobs,” wrote a British reporter. “Bailey’s dual role is an outright gamble that a superstar designer can manage both the product and the company. No other major company in the retail industry does it that way.“6 One industry analyst stated that even though Bailey “has proven to be a phenomenal designer, the jury will be out in terms of him running the company,”7 while another agreed that it was “almost unknown for a design specialist to lead a company of Burberry’s size” and in fact questioned “whether they had any plan in place” at all.8

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515-054 Burberry in 2014

“It is time to put visionaries back at the helm of creative businesses,” countered Ahrendts. She added: “The biggest question has been how can he handle both jobs, and we keep saying, ‘He’s not going to do both jobs. It’s a new job, surrounded by an exceptional team, a strong culture, and processes that were firmly embedded into the company.’” Bailey was confident he was up to the task. “I have been with the company for thirteen years and have been closely involved in shaping its strategy and direction—that has always been a part of my world. So I’m energized and excited by the challenges we’re in the midst of tackling and which will define our next chapter. We just brought our beauty business in-house, we’re looking for continued growth throughout our product portfolio, and we have a big shift in Japan ahead of us next year when we move from a licensing to a retail model there— those are the big things we need to work through.” Was the current strategy also the right one for the future, and could Bailey continue to drive success at Burberry?

The Business of Luxury Fashion

Definitions of what constituted “luxury goods” and therefore estimates of the size of the luxury- goods market varied widely, with one industry report valuing the total market at $300 billion and another at $1.8 trillion in 2013 (see Exhibit 2). The luxury-fashion market generally included categories such as apparel, leather goods, watches, jewelry, and cosmetics. It was made up of individual brands such as Chanel, Hermes, and Giorgio Armani, as well as conglomerates such as Moët Hennessey Louis Vuitton (LVMH) and Kering that owned multiple brands (which for Kering included Gucci, Saint Laurent, Alexander McQueen, and Brioni). Luxury fashion was a highly fragmented market: the top four players accounted for less than ten percent of estimated global revenues. Market leader LVMH had only a 3% market share, and Kering a 1% share.9 In a recent ranking of the world’s top luxury brands, Burberry ranked eight (see Table A).

Table A The World's Top Luxury Brands

Rank Brand Estimated Brand Value (in $ billions)

1 Louis Vuitton 23.58

2 Gucci 9.45

3 Rolex 7.90

4 Chanel 7.07

5 Hermes 6.18

6 Cartier 5.50

7 Tiffany 5.16

8 Burberry 4.34

9 Prada 4.27

10 Ralph Lauren 4.04

Source: Interbrand, as reported by Forbes, “The World’s Most Valued Luxury Brands,” June 7, 2013.

Prominent designers brought their collections to life for the fashion community by organizing fashion shows and operating showrooms. High-end brands typically introduced their collections to editors, stylists, retail buyers, and other tastemakers during the semi-annual fashion shows in London, Milan, New York, and Paris. Major designers also had showrooms in their offices full of clothing and other product samples. These showrooms were not accessible to the public; they were intended to give retail buyers a look at the full collection before making purchasing decisions for the stores they represented. Each major retailer employed a buying team that was responsible for making these selections. Because designers usually produced new apparel for each one of the four seasons in a year, these teams visited showrooms every quarter to purchase three months’ worth of clothing and other items. They made their purchasing decisions roughly seven months in advance of delivery.

Consumers could purchase luxury fashion items in a number of different ways (see Exhibit 3), including through luxury department stores such as Nordstrom, Saks Fifth Avenue, Bloomingdale’s,

Burberry in 2014 515-054

Harrods, Galleries Lafayette, and Lane Crawford, boutique stores that carried at most a small handful of brands, and outlets that sold discounted goods. Many of the top luxury fashion brands, including Burberry, also had their own offline and online stores. Online stores, including those operated by traditional and new retailers, had strongly increased in importance in recent years. The internet had even given rise to new business models, such as so-called ‘flash sales’ retailers like Gilt Groupe that offered a curated selection of premium merchandise at steep discounts for a limited time.

Burberry

History

In 1856, the then 21-year-old Thomas Burberry opened a small outfitters’ shop in Basingstoke, England, eventually making a name for himself based on the technical prowess of his products. Burberry patented gabardine, a lightweight, breathable, and yet water-resistant and remarkably durable fabric that revolutionized outerwear.10 At the turn of the 20th century, the British War Office commissioned the brand to create a new uniform for its military officers, inspiring the name “trench coat.”11 Soon, Burberry also became known for its camel-ivory-red-and-black check pattern, which lined every trench coat. The coat’s iconic appeal was only heightened over the years by its popularity among celebrities, athletes, politicians, and adventurers. Even King Edward was known to regularly utter, “Fetch me my Burberry!”12

Great Universal Stores Plc., a British diversified holding company, bought Burberry in 1955. During the ensuing years, successive managers agreed to license the Burberry name across many product categories and geographies. Over time, however, the brand’s failure to exercise control over its licensees led to inconsistencies in the design, price, and quality of its products in local markets. Parallel trading, in which wholesalers supplied products to unsanctioned retailers who then often sold those in a way that clashed with Burberry’s desired brand image, also grew increasingly common, especially in Asia. By the 1990s, the majority of Burberry’s products were made under license or sold through distributors.

Under Rose Marie Bravo, brought on board as chief executive in 1997, the company began a turnaround strategy focused on repositioning the brand, updating the product line, and expanding the retail footprint. Bravo and her team worked to minimize differences across markets by reining in licensing agreements and taking greater control over distribution. By 2006, 40% of revenues came through retail. During Bravo’s tenure, revenues grew from £230 million in 2000 to £740 million in 2006, profitability increased significantly, and Burberry completed a successful IPO on the London Stock Exchange.

Burberry under Angela Ahrendts' Tenure

When Bravo decided to step down in 2006 and Burberry began its search for a new chief executive officer, Ahrendts’ name quickly rose to the top of the list of candidates. An American executive with twenty years of experience in the fashion industry spanning roles at Warnaco, Donna Karan, Henri Bendel, and Liz Claiborne, Ahrendts was no stranger to Bailey, Burberry’s creative director. “I’d worked with Angela at Donna Karan,” he said, “and we always had an extraordinarily strong relationship.”

The two met in New York to discuss the job and their vision for Burberry, Ahrendts recalled: “I asked, ‘Christopher, is this our chance to create the kind of company that we’ve both always dreamed of working for?’” “It was a long lunch,” Bailey remembered. “Most of that conversation was about culture and the kind of company that we envisioned. A company with passion and energy, where people were inspired by their work and felt empowered, that was entrepreneurial but truly global, and that had strong values at its core.”

The prospect of partnering with Bailey was a key factor for Ahrendts: “I said ‘yes’ only after sitting down with Christopher.” She pointed to other examples of successful partnerships in the world of fashion: “It’s no different than designer Tom Ford and his CEO Domenico De Sole, or Ralph Lauren and the partners that he’s had all those years. In our industry, these right-brain and left-brain partnerships are quite common. But I think the difference with us is that I’m a 50/50 and Christopher is a 60/40, so there’s a huge overlap.” Ahrendts explained: “I always say, ‘I know enough about

515-054 Burberry in 2014

creative to be dangerous,’ and he’s pretty commercial, so we knew intuitively if there was something that we both agreed on, then it was going to be great.”

Building on the principles that Ahrendts and Bailey outlined in that lengthy meeting, they developed what she called a “multi-dimensional strategy” for Burberry.

One Brand, One Company One of the first goals was to unify Burberry’s branding. Worldwide, Burberry had 23 licensees, each operating independently. Products varied from the renowned trench coats and scarfs to polo shirts and dog leashes—“something for everybody, but not much of it exclusive or compelling,” as Ahrendts put it.13 The opportunity was evident to Ahrendts from the beginning: “During a six-month transition period with my predecessor Rose Marie Bravo, we traveled to stores and factories in forty cities all over the world. I met a design team in Hong Kong, where I saw polo and check shirts, in all their own colors. Then we’d go to New York, where they designed outerwear and manufactured it in our factory in New Jersey at a lesser quality than that made in the UK. The company had traveled far under Rose Marie’s leadership, but I realized she was right in saying there were many more miles to go.”

“I also recognized during that period that what we needed was a ‘one brand’ mantra,” Ahrendts recalled: “We said that if we were going to win going forward, we have to all agree to do what is best for the brand. We don’t do what’s best for you, your boss, your store, your country, or your region— we do what’s best for the brand.” Changing the culture was integral to the new mantra, according to Ahrendts: “It sounds really terrible, but when Christopher and I started working together, we said, ‘We’re going to create a cult-like culture.’ That’s how united we needed to make everyone on serving the brand.”

In order to sustain the mantra, three years into Ahrendts’ tenure Bailey’s position was renamed ‘chief creative officer’: “It re-emphasized Christopher’s authority over all customer-facing activities— from product design and development to store design and creative marketing—anything the consumer sees, touches or feels would go through his office,” Ahrendts said, adding: “I called him the ‘brand tsar.’ We had kings in their own countries, and they were all doing their own thing. But a tsar is bigger than the king of any country.”

Changes were also made to the production process. The design teams in the US and Hong Kong were disbanded, and the New Jersey factory was closed, centralizing all design to the UK. “We’re a British brand, and we felt everything had to be designed in England,” Ahrendts said. “We wanted to reinforce our British-ness. Burberry is the largest British luxury brand, competing with the big French and Italian brands. We heightened our focus on that—the models we use, the music we play, all the design and marketing should reinforce our British heritage.”

Focus on the Core While Burberry had a rich and storied legacy centered on gabardine and the trench coat, in the years preceding Ahrendts’ arrival the brand’s global sales did not reflect the outerwear category’s importance. Ahrendts and Bailey decided to reemphasize core products such as the trench coat, keeping them at the heart of everything Burberry did. “Some managers were skeptical,” Ahrendts said. “I’m sure they were left wondering, ‘Focusing on trench coats—that’s our strategy?’ But most of us were confident that it was the right plan.”14

Ahrendts drastically reduced product variety: “Back in 2006, when retailers would come into the showroom, the salespeople were sitting at the table with them but the designers were showing the collection. That is doing things backwards. What you end up with is fifty iterations of a trench coat in ten different colors, ten different lengths, with all different details, because each retailer wants to have it personalized for them.” She added: “So we no longer allowed designers in the showroom, we produced one collection, and we let the salespeople sell.”

Making sure that key products and styles were stocked properly was another aspect of a renewed focus on the core. “Nine years ago we had no replenishment system. So we brought in a chief merchandising operations officer and told him we wanted 6-6-6-6 for the top fifty styles: six weeks of supply in the store, six weeks in the warehouse, six weeks work in process, and six weeks worth of raw materials.” The move paid off, said Ahrendts: “Today, half of our business is done on replenishment—the key styles that you never want to be out of stock on. Our most popular scarfs, for instance—those are high-margin products.” She estimated scarfs, priced between £295 and £335, to now be a £100 million business for Burberry.

Burberry in 2014 515-054

Despite a focus on the core, the need for innovation was not lost on Ahrendts: “In luxury, an average customer is coming back to a brand every month. We have to wow them with newness and excitement.” Bailey added: “We are famous for trench coats. We’re also famous for our iconic check, and for our cashmere scarves. But it is critical we use that core as a foundation for innovation.”

The Right Organizational Structure Streamlining the organization was another early goal for Ahrendts. “When I started, I had seven countries reporting directly in to me. Today, we have two regional chief executive officers who cover their part of the world,” she said. The transition was not easy, recalled one executive: “It required us to operate with less independence.” Pascal Perrier, chief executive officer for Asia Pacific, noticed the improvement: “It was more a federation of independent businesses than one business. The eight markets in Asia where Burberry was doing business had less than 1% of their products in common—less than ten products out of thousands we were selling.” By 2014, the percentage was up to 75%.

Ahrendts also worked to bring in functional expertise, including a new head of planning, head of corporate resources, and a chief supply chain officer.15 One of the early hires recalled how important a piece of the strategy this was: “Burberry was a very big company that had a lot of people that did a lot of things, but that approach is not scalable.”

The desire to empower lower-level employees led to a third organizational change. Recognizing that 70% of the people at Burberry’s headquarters were under the age of thirty, Ahrendts felt a need to adjust the company’s governance structure “to make sure that the younger generation had a voice and knew they were being heard.” Burberry created a ‘strategic innovation council,’ a monthly forum chaired by Bailey and intended to gather this “next generation of thinkers.” She explained: “Its remit is simply to dream.” Another group, the ‘strategic executive council’ with more seasoned executives, was tasked with executing that vision. Ahrendts and Bailey also introduced ‘Icon Awards’ to recognize exceptional work by individual employees and teams.

Embrace New Technology During Ahrendts’ tenure, Burberry placed a much greater emphasis on digital technology—in fact, both Ahrendts and Bailey were known to describe Burberry as “a digital media company”—which set it apart from most of its competitors in the luxury fashion market. But executives were quick to point to the nuances in attributing its success to that strategy. “It’s much broader than just a digital story,” said Matt McEvoy, senior vice president of strategy and new business development. “There’s a lot to be written about how technology was a big strategy. It was and it wasn’t,” added Bailey. “When you work with a relatively young team, it’s second nature that you’re going to be excited about technology because it’s defining everyone’s lives. Asking ourselves what our voice was going to be like on new platforms, whether it is Facebook or Twitter, just came naturally.”

Bringing about this perspective across the organization was not easy. During her first year, Ahrendts recalled a conversation with chief technology officer John Douglas, hired around the same time as she was and tasked with the global implementation of its enterprise and point-of-sale system. “When I joined Burberry, IT was sitting at the back of the bus. Technology was seen as a service or support structure—as a cost,” Ahrendts recalled. “I said to John, ‘We need you at the front of the bus. How we use technology will transform every facet of the business. You should be a key partner to the creative and retailer sides of the business.’” Douglas described his role since that moment as two- fold: “One is to take the teams’ crazy ideas and build technology around those ideas. Another is to bring technology to them—to give them a blank canvas to work with.”

Ahrendts saw digital as a differentiator: "Eight years ago we set our sights on becoming a luxury- sector leader. This was our catalyst for change. We sensed the digital tsunami coming, we felt that we could use it to target the young millennial consumer, so we embraced it and reallocated resources to support it.” That strategy also was instrumental to the ‘one brand’ push, she explained: “When I started, we had different websites for different countries, regions shooting their own commercials, countries making their own products. We used digital to explain why they couldn’t do things locally any more. There’s only one Internet—how could we have twenty websites?”

Burberry in 2014

The strategy paid off in spades. Burberry reported annual revenues of £2 billion in the year ending on March 31, 2013, up from £740 million in 2006. Nearly three quarters of revenues came from retail channels, up from less than half in 2006. Burberry operated over 200 stores (and another 200

515-054 Burberry in 2014

concession stores), and opened 23 stores in 2012-2013 alone, in flagship markets such as Chicago, Hong Kong, Milan, and London. Operating profit was £430 million in 2013, up from £170 in 2006 (see Exhibit 4). During Ahrendts’ tenure, Burberry’s shareholders saw a 340% total return, while LVMH returned 109% and the FTSE 100 only managed 46%.16

The company employed 11,000 people by 2014, compared with 3,000 in 2006 (see Exhibit 5 for an overview of the organization). Burberry ranked 30th in LinkedIn’s listing of the world’s most in- demand employers in 2013, and had claimed a spot in Interbrand’s top-100 ranking of global brands. Online, Burberry was one of the dominant brands in luxury fashion. By early 2014, it had amassed 17 million Facebook fans, nearly 3 million Twitter fans, and nearly 1.5 million Instagram followers.

Burberry’s Products, Architecture, and Media

The experiences of Burberry’s customers were defined by three components: its products, its architecture, and its creative media. “If you imagine what a customer sees,” clarified Bailey, “it is our products ranging from clothes to bags, shoes, watches, and eyewear, but it’s also our physical spaces, which can be stores but also our offices and our event spaces, and it’s our visual imagery, such as video, photography, music, and packaging. We are touching our customers in all of those worlds.”

Products

Products could be divided into four categories, excluding the beauty category that was introduced in April 2013:

 Accessories: Representing nearly 40% of annual revenues, accessories included items such as bags, shoes, scarves, and small leather goods. Large leather goods accounted for nearly half of these revenues alone; prices for Burberry’s collection of bags ranged from roughly £500 (for one called ‘the little crush in leather and house check’) to over £15,000 (for an alligator ‘bowling bag’). Men’s accessories accounted for nearly a fifth of revenues in the accessories category, showing especially strong growth in Asia and online.

 Women’s apparel: Here, core outerwear—the trench coat—accounted for half of revenues from Burberry’s stores and represented the strongest growth. The classic women’s heritage trench coats retailed at £995 for the shortest length, £1,095 for the mid-thigh length, and £1,195 for the full-length trench. Burberry carried a full product line encompassing additional outerwear products such as quilts and puffers, jackets, tailoring, dresses, skirts and trousers, shirts, knitwear, polos and t-shirts, denim, and swimwear.

 Men’s apparel: Men’s heritage trenches were priced similarly to women’s, while other trenches ranged from £495 to £1,395. As in women’s, Burberry carried a full line in men’s apparel that even included underwear: briefs and boxers ranged from £22 to £70.

 Children’s apparel: Driving just under 5% of annual revenues, children’s items ranged from miniature versions of Burberry’s adult parkas, dresses, trousers, and shoes to one-piece playsuits and jumpers. Burberry also offered gift sets that packaged multiple pieces together. Prices varied from £500 for a child-sized heritage trench to £30 for a cotton infant’s bodysuit.

Burberry’s products were designed under three labels: Prorsum, London, and Brit (see Figure A). The most expensive line catering to Burberry’s most dedicated and fashionable customers, Prorsum was the “highest expression of the Burberry brand,” as McEvoy put it. Showcased on the runway each season, it featured key traits of haute couture—hand tailoring, exquisite craftsmanship and innovation—and served as a design inspiration for the other lines. London, Burberry’s core label, was a collection of smartly tailored, professional clothing. The brand’s most casual label was Brit, relaxed, sportier clothing most suitable for weekends or evenings after work. Prorsum represented up to 10% of annual sales, while London and Brit accounted for 40% and 50%, respectively.

Burberry in 2014 515-054

Figure A Burberry’s Labels

Source: Burberry’s annual report 2013.

Design Each of the labels had a dedicated design team that reported to Bailey. As Burberry grew, he had cut back on working on the minutia of design himself. “I no longer sketch,” he said. “I haven’t done that for a long time. We have an amazing team of designers that do the sketching.” Bailey provided the vision that guided their work as the designers prepared for a particular season. “For our recent show, for example, we started the process in December. I told the team: ‘I feel it’s the right moment to do something with a little bit more of an artistic reference. The collection needs to be a little softer—have a more gentle spirit.’ It was inspired by a group of artists called the Bloomsbury Group, whom I have always loved.” He added: “So I set the direction. We talk about possible prints, textures, textiles, embroidery, and colors.”

“Design is about instinct—it’s not tangible,” Bailey explained. “It’s very difficult to rationalize it because the very core of it is not rational. It’s certainly not about market research, about ‘we’ve researched and the color red is important.’ Life just doesn’t work like that because human beings are not like that. None of us wake up and say, ‘I have to just wear red.’ We all wake up and we’re inspired by things. If as a designer you are doing something that inspires people, that makes people excited and curious, then you will create demand.”

“Some things happen by instinct, and some things are incredibly strategic,” Ahrendts remarked. “Take the ponchos in the last show. As the team is starting to hand paint, it hits him that could be beautiful on scarves as well. As they start preparing the show, things can go from being just an idea to becoming a big business strategy.” She gave an example: “If with the poncho Christopher can showcase a whole new item in the category of scarfs, wraps, and shawls that is already strong for the company, then it’s a monster home run. And if he adds personalization—the ability to have your initials printed on it—that’s even bigger.”

Product development After settling on the design direction for a collection, a team of product developers was responsible for taking the output of the design teams and producing physical samples. The product-development team handled tasks like sourcing raw materials for prototypes and final products, interacting with suppliers, and planning seasonal development cycles. “They take the work of the designers and bring it to the factories,” is how Bailey put it.

Bailey’s roles in this stage included both that of a curator, selecting those pieces that best matched his vision for the brand, and a connector, ensuring that the design and development teams worked in harmony. “Probably the biggest part of my job is editing,” Bailey clarified. “Usually, out of a hundred ideas only one is actually workable. Once you’ve found that one, you go, ‘Okay, this is the direction.’ Then another hundred versions are produced and you find the one or two winners there.” He added: “I work with all my teams in that way: I ask them to research and develop certain things, and I try to be the dot-joiner between all the different worlds.”

Merchandising and planning After creating, prototyping, and editing the designs within a collection, the merchandising, planning, and supply-chain teams moved to the forefront. Their role was to create a focused, marketable product assortment, forecast demand, and negotiate with suppliers. “Where Christopher’s design teams represent the art, we’re the science behind it,”

515-054 Burberry in 2014

remarked chief merchandising officer Paul Price, who worked closely with chief merchandising operations officer Donald Kohler. “We’re the architects behind the assortments that you find in the store. We make sure that we deliver the results that Burberry needs.” Kohler added: “Paul’s role is focusing on the customer and the brand, whereas I’m trying to assess the financial implications and to balance the risks and rewards.”

The merchandising team made quantitative and qualitative assessments of the viability of items within each collection, so as to find the right balance between what Price called “inspirational items” and more commercially viable products. “We make sure that we maintain the integrity of Christopher’s vision,” he said. Ahrendts described the process as “very collaborative,” pointing out that “from design to product development to merchandising to marketing, they all are working together nonstop throughout the season. And for a runway show, everybody is involved” (see Exhibit 6 for an overview of the process).

Architecture

Burberry sold its products through a variety of different channels, from high-end department and specialty stores to its own (bricks-and-mortar and online) stores. During Ahrendts’ tenure, the brand opened a large number of retail stores; overseeing the design of those physical spaces also was part of Bailey’s responsibility. Stores across the world shared important design features (also see Exhibit 7). The floors were made of a characteristic Corinthian beige marble, for instance, and steel-and-marble staircases were common. The tables, shelves, and cases that exhibited products on the floor were the same in every store, as well as the furniture amply spread around the display areas and waiting rooms. And digital technology played an instrumental role in all stores.

For example, all sales associates were equipped with an Apple iPad that connected to a proprietary system tracking each customer’s shopping history as well as a database showing product availability in the store and in central warehouses. In some stores, the iPad even functioned as a mobile checkout station, allowing customers to make purchases directly on the floor instead of going to a traditional fixed register. “No other luxury company has an iPad in their salespeople’s hands, much less a customized app that allows them to access details about consumers,” said Ahrendts. “It took us over a year to build, and it is the ultimate in customer service. If you identify yourself, we can see what other stores you’ve shopped in, what you’ve bought, what’s in your basket online, and so on.” Around a quarter of digital sales were made through the store employees’ iPads.

Offline and online stores were tightly integrated. “We say that digital is the sun that shines on everything,” said Ahrendts. “So the moment a new set of images go up on the landing page for our website, Burberry.com, on the first of every month, the items featured in that image also go up on our mannequins in the store. Our physical stores have sections that at all times look just like that landing page online. Each store has to have at least 80% of the styles.”

Among Burberry’s latest store openings was its new flagship store on Regent Street in London (pictured in Exhibit 7). The 27,000-square-foot store heritage space, unveiled in September 2012 after two years of renovations, displayed over 8,000 pieces across four retail floors. More than any other store before then, it blurred the physical and the digital. Much of the clothing and accessories on display on the floors were equipped with radio-frequency identification (RFID) microchips. When a customer took an item from a rack and held it in front of one of the numerous “magic mirrors” on the sales floor or in a dressing room, the display showed media content specific to that item, such as details about its craftsmanship and origin, how it was styled with other items on the runway, what complementary items were available for purchase. The store featured over a hundred audio-visual displays that alternated between live content streams, mirrors, and looks from the current collection. The most prominent was a 22-foot tall screen in the center of the floor, the largest digital display in any retail location anywhere in the world. Each Burberry runway show was streamed live on this screen. Outfitted with 500 speakers, the store was even capable of hosting live music events.17 In 2013, Burberry launched Live at 121 Regent Street, a series of shows featuring emerging British artists.

Burberry was scheduled to open a new flagship store in Shanghai, its eighth in the city and largest in China so far, in April 2014 (also see Exhibit 7). Set over three floors that mixed digital and physical displays, including a dynamic illuminated facade on the outside and over forty video screens on the inside, the store would carry the full Burberry lines, and have dedicated watch and beauty areas.

Burberry in 2014 515-054

Creative Media

A third area under Bailey’s responsibility was the creation of visual media. Burberry employed a large team, known as the “creative-media” team, who were tasked with producing all content—or, as Ahrendts put it, with “finding ways to bring the brand, our culture, and our values alive digitally.” Unlike most fashion houses, Burberry no longer had any agencies on retainer, it did not outsource photography and videography shoots, and it did not use any outside agencies to secure music for its runway shows and commercials.

Explaining the decision to take media production in-house, Bailey said: “It is always difficult to express your passion through a third party. It was also limiting: you had to sign contracts to say you’ll get two videos and one still. But it doesn’t work like that. You can’t tell me that we have to plan three months in advance to take one picture. It has to be organic. We want to create more videos and more images, and post and publish them on social media when and how we want.“ “We talked it through,” said Ahrendts, “Then we recruited a small team of maybe twenty people, and transitioned away from one agency. Then we hired a few more, and transitioned away from the other. [Professional photographer] Mario Testino continued to shoot our main campaigns, but everything else we photograph in-house. We have our own studio downstairs.”

Greg Stogdon, senior vice president of creative media and one of Bailey’s original recruits, reflected on those early days: “From day one we looked at the way in which the brand used its assets and the way it spoke to different audiences. We did everything, from designing corporate presentations to our logos, and we produced lots of social-media content.” Stogdon’s group worked closely with Burberry’s other departments. “Even the design of our store windows comes out of the center,” said Ahrendts. “We shoot everything in the showroom downstairs, and those images become the guidelines for how windows across the world need to look.”

By 2014, the team’s competencies had grown to span art direction, production, graphic design, event design, website design, photography, videography, post-production, and 3D visualizing. “We have fashioned ourselves after a media company,” Ahrendts added. Stogdon noted: “We’ve created a unique model for luxury brands. We oversee and control all aspects of creative media. We hardly use third-party agencies, and when we do, it’s for a very specific skill or piece of software.”

Ahrendts saw immediate benefits: “We spent less money the first year and got significantly more content. And because we focus more on digital advertising than our peers in luxury fashion who still concentrate their spending on expensive media like magazines, we are much more efficient with our budget.” Sarah Manley, Burberry’s chief marketing officer who was responsible for all external and internal communications, saw additional advantages: “Because of our internal creative-media team, we can take the content we create, immediately upload it to all our platforms globally, and execute decisions quickly,” she said.

Online platforms Aside from being present on social media, Burberry also operated various online platforms (see Exhibit 8 for impressions).

Burberry.com, known internally as ‘Burberry World,’ was an ecommerce site and brand reference point for Burberry’s consumers, store managers and employees, and its industry partners. “We tell store managers, ‘Go to Burberry.com every day. You’ll see what we want the store to look like, and what energy to bring.’ And the iPads in the hands of our sales associates all connect directly to Burberry World,” Ahrendts said. The site served 50 countries in eleven languages, had sections for its women’s, men’s and children’s wear as well as its beauty offerings, its trench coat, and shows and events, and each month reflected a new theme that fit the vision for the season. A “Burberry Bespoke” section enabled visitors to make selections on the cut of their trench as well as its fabric and color, then modify it further with personalized options like shearling or wool collars, studded sleeves or belts, linings in cashmere, mink, or silk, and various buttons, yielding over twelve million different combinations.18 In terms of traffic, Burberry ranked behind Ralph Lauren and Chanel, but ahead of Gucci, Prada, Hermes, Louis Vuitton, and other luxury fashion brands.19

Available via Burberry World, Burberry Acoustic showcased music videos by British artists. “Communication is not just visual. To help people feel our brand, the creative teams want to use the power of sound,” said Ahrendts. In 2013, visitors to Burberry.com spent an average of 8 minutes on the site, while visitors to Burberry Acoustic spent an average of 18 minutes.20

515-054 Burberry in 2014

In 2009, Burberry launched ‘Art of the Trench’ (www.artofthetrench.com). Described as “a living document of the trench coat and the people who wear it,” the site was the result of a partnership between Burberry and some leading street-style photographers. Users were invited to submit images of themselves and their friends wearing the Burberry trench coat. Others could like those images, comment on them, and share them with others. They could also sort images by trench type, weather, image popularity, and other metrics, and then connect to the main Burberry site to make a purchase. Released without any advertising support, the site generated 7.5 million views in its first year alone. 21

Looking to foster a more connected culture at Burberry, Ahrendts championed the development of an online platform for internal use—a “Facebook inside the company,” as she put it. Launched in 2012, Burberry Chat (see Exhibit 9) made it possible for employees and key partners to view and discuss company announcements, communicate through working groups, and manage key relationships. By 2014, Chat served over 11,000 Burberry employees and over 1,000 business partners globally. “Even our suppliers can come in, set up groups, and talk to each other now,” said Ahrendts. Although managing the platform was the responsibility of the head of corporate communications, the creative-media team supplied much of the video and photo content on Chat. Each month, Ahrendts and Bailey would shoot a black-and-white video in which they talked about current topics for the company. Chat also showed video interviews with other executives, covered events such as the fashion show and how news media responded to it, and offered glimpses of the latest photo shoots.

Events Finally, the creative-media and marketing teams were instrumental to the organization of several events, including the four runway shows Burberry held each year—two in women’s and two in men’s wear. “At these shows, very different communities come together: journalists, bloggers, VIPs, buyers, suppliers, and technology partners— it’s a privilege to have all those people in one space at one time looking at what you’re doing as a brand for half an hour. So our objective is to make sure that everybody leaves the space not just having seen our products, but actually having felt something,” said Bailey.

For the February 2014 fashion show, the creative-media team set up a high-quality concert-like setting in a tent in London’s Kensington Gardens, selected the musicians, and produced a video that played before the curtains opened to reveal the models. The event, attended by some 1,500 people, was live streamed to 250 media partners worldwide and to all of Burberry’s stores. And the team enabled Burberry’s social-media fans and followers to download the featured songs on iTunes as soon as the event ended. In addition, Ahrendts noted: “Because we’re doing it all ourselves, we could have a beautiful two-minute edit of the runway video play in all our stores and online the next day. Our staff stayed up the night after the event and got it done.”

At an earlier show in 2012, the creative-media team pioneered a hologram of British supermodel Rosie Huntington-Whiteley. As guests entered a scented room, the hologram greeted them to the Burberry Body fragrance product launch.22 For that show, Burberry also partnered with Twitter to introduce each look from the collection via “Tweetwalk” moments ahead of unveiling it live on the runway.23 Consumers streaming the event globally were able to purchase those items immediately, thanks to ‘runway-made-to-order’ systems Burberry designed and implemented.24 A year before, it had celebrated the opening of a Beijing store with a fashion show in which, as models walked the runway, real-time holograms complemented the models’ clothing and movements, blending physical and virtual worlds.25

Positioning Burberry for the Future

A Leadership Change

Ahrendts was due to join Apple in May 2014, after a six-month transition period. “It’s the only company I would leave Burberry for,” she said. Bailey recalled how he found out: “We just had a coffee, as we often do, and she said ‘I’m thinking of this’ and ‘I’m not sure I’ve made the decision yet.’ It was very natural. We have a very organic relationship. I don’t think either of us has ever surprised the other one.”

Once her decision was final, a first priority was to tell the employees and partners. “Christopher and I went to every floor, floor after floor, and told them in groups,” she said. They spent the next day doing live video webcasts via Burberry Chat with employees in various cities around the world.

Burberry in 2014 515-054

“They are used to hearing directly from us,” remarked Ahrendts. “We thought that if they heard this directly from us and saw that we were united on this, then the transition would be smoother.”

Four months into the transition period, Ahrendts had started to take Fridays off, had handed the monthly videos on Chat over to Bailey entirely, and more generally was dialing back her activities for Burberry. “One day I just won’t show up and nobody will notice,” she said jokingly. Meanwhile, Bailey was taking on more responsibilities that came with the role of chief executive officer. His new title would be chief creative and chief executive officer.

Ongoing Challenges

Bailey indicated he did not plan to stray from the current strategy: “I’ve been with the company for so long and have been so intimately involved in our activities, it would be weird if I came out tomorrow and said, ‘We’re changing everything.’” That also meant he would inherit the ongoing challenges.

Grow beauty A key challenge was absorbing the beauty business that Burberry brought in- house in the spring of 2013. “We’ve ended almost all the licenses—this was among the last. It was odd to me that we had a higher growth rate in outerwear than we did in fragrance,” said Ahrendts. “We need to reposition the fragrance portfolio, upgrade our distribution profile, and build make-up and potentially skincare.” The company had formed a partnership with Amazon to remove thousands of parallel and counterfeit goods from its US site, and launched fragrance via the online retailer’s new prestige beauty store. “Big digital relationships will likely play a key role as we develop this business,” said Ahrendts. Burberry had made the beauty category an important focus in their stores and on Burberry World, and had opened its first dedicated beauty store in London’s Covent Garden in December 2013.

Take control of the Japanese business Perhaps the biggest challenge on the horizon was the handover of Burberry’s Japanese business from a long-term license partner in 2015. “We closed Spain, where a licensee had a £200 million business that was hurting the overall brand. From the very beginning we told investors that Japan would be next,” noted Ahrendts. The licensing agreement with Burberry’s Japanese partner was initially set to expire in 2020. “We negotiated five years off of that,” said McEvoy, who pointed out that Japan contributed £60 million in profits. “But we need products with our name on them to have the right quality and style,” he said. Burberry had opened a Japan office tasked to wind down the licensing business and open new, Burberry-operated stores. “Nearly 500 doors will go away, around £700m worth of revenues, and potentially 1,000 people who work for the licensee are going to be affected,” said Ahrendts, who referred to the Japanese market as “the last big one” in which this change was planned.

“These are clearly things we need to figure out and work through,” said Bailey. “We are looking at them with intense focus.”

Looking Ahead

Bailey was keen to ensure that his new role would not interfere with delivering Burberry’s strategy. “I’m an ambassador for the company, but it would be irresponsible of me if Burberry became all about me. We’ve always said ‘it is brand first,’ but now I can see the danger of it becoming more about Christopher Bailey. I know it is a team sport. I work with the most remarkable, extraordinary team, and it’s a privilege to work with them. It should not be all about me.” He reflected on where the company stood:

Burberry is a company of contradictions. We are an old company but we have an incredibly young team of people working in the company today. We are very traditional, very classic, but we also love innovation, we love fashion, we love modernity, and we built a very big following around that. We are a relatively big company, but we always try to make sure that we’re still flexible, entrepreneurial, dynamic—that we’re agile. We are a British company, but we play globally and we talk to a worldwide audience.

Leaving Burberry after a highly successful tenure, Ahrendts noted that it was critical for Bailey to find the right balance in his new position. “If we get too creative, we won’t win. If we get too commercial, we won’t win either,” she said, noting that she hoped “the company will stay relevant

515-054 Burberry in 2014

for another 150 years.” Was the current strategy the right one to lead Burberry into the next 150 years? And could Bailey show investors, partners, and customers alike that he was the right man to do so?

“When I started back in 2006, the press saw me as a unique choice—they were certainly not betting on me,” recalled Ahrendts. “We have transformed Burberry, and have made several bold moves throughout my time at the company. I see this as another bold move. Never before in our sector has an acting chief executive officer of a large publicly traded business handed the reins to a chief creative officer, but I know Christopher will continue Burberry’s transformation. Putting creative people at the forefront is the future.”

Burberry in 2014 515-054

Exhibit 1 Burberry's Spring Women's Fashion Show in London

Source: Burberry company documents.

515-054 Burberry in 2014

Exhibit 2a Luxury Consumers: The Global Luxury Market in 2012 (in $ billions)

Source: Adapted from Boston Consulting Group, “True-Luxury Global Consumer Insight,” January 24, 2014.

Exhibit 2b Luxury Consumers: What Does Luxury Mean?

Percentage of consumers answering: “What is luxury to you”?

Total EU US Japan South Korea

China Brazil Russia

Quality 57 58 68 55 45 63 40 61

Exclusivity 35 36 22 25 59 26 38 46

Aesthetics 31 34 24 37 17 34 33 36

Craftsmanship 30 28 43 32 34 27 12 33

Timelessness 29 27 44 37 18 37 11 23

Brand 19 22 11 11 38 11 23 16

Customization 13 12 8 12 7 16 24 22

Trendiness 12 9 7 16 20 8 21 15

Source: Adapted from Boston Consulting Group, “True-Luxury Global Consumer Insight,” January 24, 2014.

Burberry in 2014 515-054

Exhibit 2c Luxury Consumers: Spending across Regions

Region Luxury Consumers Luxury Consumers (%) Luxury Spending (%)

North America 90 million 27% 17%

Western Europe 80 million 24% 17%

China 50 million 14% 28%

Japan 35 million 10% 13%

Other Asia 25 million 8% 9%

Eastern Europe 20 million 7% 5%

Latin America 20 million 6% 5%

Middle East 10 million 3% 6%

Total 330 million $300 billion

Source: Adapted from Bain & Company, “Lens on the Worldwide Luxury Consumer,” January 17, 2014.

Exhibit 2d Luxury Consumers: What Drives Purchases?

Rank Product Price Promotion Place

“Quality and

Durability”

“Value for

Money”

“Low Advertising

Influence”

“Own

Country”

   

1 Japan Western Europe Eastern Europe North America

2 Western Europe Eastern Europe North America Western Europe

3 Eastern Europe North America Western Europe Japan

4 North America Japan Japan Other Asia

5 Latin America Other Asia Other Asia Eastern Europe

6 Other Asia Latin America Latin America Latin America

7 Middle East Middle East China Middle East

8 China China Middle East China

   

“Brand

and Logo”

“Price

Insensitivity”

“High Advertising

Influence”

“Abroad”

Source: Adapted from Bain & Company, “Lens on the Worldwide Luxury Consumer,” January 17, 2014.

515-054 Burberry in 2014

Exhibit 3a Purchasing Luxury: The Importance of Channels Across Regions

Percentage of consumers answering: “Where have you mainly purchased your luxury goods in the past 12 months?”

Total EU US Japan South Korea

China Brazil Russia

Department store / malls 27 22 36 33 35 32 21 26

Directly operated stores 22 25 18 25 8 22 21 25

Online 15 14 18 13 14 10 26 12

Duty free stores 15 14 6 15 29 21 11 17

Multi-brand stores 14 17 14 9 6 9 13 16

Off-price outlet 7 8 8 5 8 6 8 4

Source: Adapted from Boston Consulting Group, “True-Luxury Global Consumer Insight,” January 24, 2014.

Exhibit 3b Purchasing Luxury: In Store versus Online Buying

Percentage of consumers answering: “Where did you research and buy the last luxury item you bought?”

In store only 47

Online only 7

Researched in store, purchased online 8

Researched online, purchased in store 38

Source: Adapted from Boston Consulting Group, “True-Luxury Global Consumer Insight,” January 24, 2014.

Exhibit 3c Purchasing Luxury: Digital Adoption Across Generations of Consumers

Percentage of consumers answering: “For what do you use digital beyond purchasing goods?”

Generation Z (18-20)

Generation Y (21-35)

Generation X (36-50)

Baby Boomer (51-67)

Silver (67+)

Price and product comparison 34 35 42 60 67

Access to brand content 14 15 14 9 11

Interaction with brand 20 19 17 12 5

Follow / influence trends 11 11 9 8 9

Opinion sharing 12 11 9 7 2

Feedback sharing 9 9 8 5 6

Source: Adapted from Boston Consulting Group, “True-Luxury Global Consumer Insight,” January 24, 2014.

Burberry in 2014 515-054

Exhibit 4a Burberry Financials (in £ millions)

Year to March 31

2006 2007 2008 2009 2010 2011 2012 2013

Revenue 743 850 995 1,202 1,185 1,501 1,857 1,999

By channel: a

Retail 319 410 484 630 710 962 1,270 1,417

Wholesale 343 354 426 489 378 441 478 473

Licensing 81 86 85 83 98 98 109 109

By region:

Europeb 326 382 383 524 422 475 553 560

Americas 178 197 235 309 325 387 435 463

Asia Pacific 145 168 189 240 283 457 653 745

Rest of the World 14 19 33 46 58 85 109 120

By division:

Women's 249 306 345 413 373 457 583 618

Men's 206 227 248 298 249 326 411 464

Accessories 189 211 290 366 417 563 689 734

Children's 17 21 28 41 48 57 66 73

Cost of Sales 297 329 378 536 424 492 558 557

Gross Profit 446 521 618 666 761 1,010 1,299 1,442

Operating Expenses 292 364 416 676 541 709 922 1,096

Operating Profit 166 185 206 181 220 301 377 428

Retail/wholesale - - 136 110 138 220 287 336

Licensing - - 71 71 82 82 90 93

Net finance charge 3 -0.7 -6 -6 -5 -3 -11 5

Exceptional items - - -3 -2 -10 -77

Profit before taxation 157 156 196 -16 211 296 366 351

Earnings per share 24p 29p 32p 30p 35p 49p 62p 70p

Source: Burberry annual reports.

a “Retail” includes 206 mainline stores, 214 concessions within department stores, digital commerce, and 49 outlets. “Wholesale” includes sales to department stores, multi-brand specialty accounts, travel retail, and franchisees who operate 65 Burberry stores, mainly in emerging markets. “Licensing” includes income from Burberry’s licensees, just over 60% from Japan with the balance from global product licensees (fragrance, eyewear, and timepieces), and the European wholesale children’s licensee.

b European revenues for 2006-2009 include Spain.

515-054 Burberry in 2014

Exhibit 4b Burberry Financials by Region

Source: Burberry’s annual report 2013.

Burberry in 2014 515-054

Exhibit 5 The Burberry Organization

Source: Burberry company documents.

By Channel By Region By Product By Function

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Asia Pacific

Europe, Middle East,

India and Africa*

Americas

Accessories

Womens

Mens

Design

Marketing

Store Architecture

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Customer Resources

Childrens

Beauty

(Directly operated

from 1 April 2013)

Corporate Affairs

Strategy & Finance *During the year Europe, Middle East, India and Africa (‘EMEIA’) was formed as a region integrating the former regions of Europe and Rest of World.

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Exhibit 7a Burberry's Retail Architecture: London’s Regent Street Store

Source: Burberry company documents.

515-054 Burberry in 2014

Exhibit 7b Burberry's Retail Architecture: The Store in Shanghai’s Jing An District

Source: Burberry company documents.

Burberry in 2014 515-054

Exhibit 7c Burberry's Directly-Operated Stores

Year to March 31

Store Type 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mainline Stores 65 77 97 119 131 174 192 206 215

Concessions 165 182 231 253 262 199 208 214 227

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Source: Burberry company documents, Burberry’s annual reports.

515-054 Burberry in 2014

Exhibit 8a Burberry's Digital Presence: Select Screenshots from Burberry World

Source: www.burberry.com.

Burberry in 2014 515-054

Exhibit 8b Burberry's Digital Presence: Select Screenshots from Art of The Trench

Source: www.artofthetrench.com.

515-054 Burberry in 2014

Exhibit 9 Burberry Chat: A Screenshot

Source: Burberry company documents.

Burberry in 2014 515-054

Endnotes

1 Alison Lynch, “London Fashion Week AW14: Burberry Paints the Changing Seasons in Swirling Watercolours,” Metro, February 17, 2014.

2 Sarah Mower, “Fall 2014 RTW: Burberry Prorsum,” Vogue, February 17, 2014.

3 Alison Lynch, “London Fashion Week AW14: Burberry Paints the Changing Seasons in Swirling Watercolours,” Metro, February 17, 2014.

4 Tim Blanks, “Fall 2014 Ready-to-Wear: Burberry Prorsum,” Style.com, February 17, 2014.

5 Sarah Butler, Jennifer Rankin, and Juliette Garside, “Angela Ahrendts Leaves Burberry for New Job at Apple,” The Guardian, October 16, 2013.

6 Nils Pratley, “Angela Ahrendts’ Move to Apple Makes More Sense Than Burberry’s Response,” The Guardian, October 16, 2013.

7 Andrew Roberts, “Burberry Designer Bailey to Be CEO as Ahrendts Goes to Apple,” Bloomberg, October 15, 2013.

8 Sarah Butler, Jennifer Rankin, and Juliette Garside, “Angela Ahrendts Leaves Burberry for New Job at Apple,” The Guardian, October 16, 2013.

9 Vanessa Giraldo, “Industry Report 54149: Fashion Designers in the US,” IBISWorld, October 2013.

10 Lauren Collins, “Check Mate,” The New Yorker, September 14, 2009.

11 Laura Barton and Nils Pratley, “The Two Faces of Burberry,” The Guardian, April 14, 2004.

12 Claire Streeter, “Caught Up In A Classic: Born In The Trenches Of WWI, The Burberry Survives As The Quintessential Raincoat,” Chicago Tribune, April 5, 1989.

13 Angela Ahrendts, “Burberry’s CEO on Turning an Aging British Icon into a Global Luxury Brand,” Harvard Business Review, January-February, 2013.

14 Ibid.

15 Ibid.

16 Quentin Webb, “Negative Initial Market Reaction to Changes at Top of Burberry,” The New York Times, Dealbook, October 15, 2013.

17 Tina Gaudoin, “Burberry Opens an Innovative London Flagship,” Architectural Digest, December, 2012.

18 Christian Layolle, “Burberry Bespoke Launches Early Next Year,” Fashion Mag, November 10, 2010.

19 According to data compiled from Alexa (www.alexa.com) in April 2014.

20 Jeff Chu, “What’s Next for Burberry?” Fast Company, January 6, 2014.

21 Jorge Grieve, Anita Idiculla, and Katie Tobias, “Entrenched in the Digital World,” Business Today, February 3, 2013.

22 Sarah Rascona, “What Makes Burberry a Best Global Brand?” Interbrand, October 4, 2011.

23 Lydia Dishman, “Burberry's ‘Tweetwalk’ Delivers to the Masses and Challenges Fashion's Old Guard,” Forbes, September 19, 2011.

24 Sarah Rascona, “What Makes Burberry a Best Global Brand?” Interbrand, October 4, 2011.

25 Madi Ju, “Burberry Hosts A Holographic Fashion Show In Beijing,” Vice, April 20, 2011.