Burberry may need a metaphorical trenchcoat to hide from the string of events that have befallen it in recent years.
Like other luxury players, the iconic trench coat maker has experienced a slump in the sale of high-end goods. But unlike others, it also had to turn the entire company around simultaneously as it had lost its spark with shoppers and was in a financial mess.
Suffice it to say the twin challenges have hurt Burberry. On Monday, the British company issued a profit warning—its third one since the start of the year—and announced the departure of its CEO Jonathan Akeroyd, in a fresh affirmation of the fashion giant’s dire situation.
Akeroyd will be replaced by Joshua Schulman, the former CEO of Michael Kors, Coach and Jimmy Choo.
Burberry also said it would pause dividends to shareholders, causing shares to plunge 16.6% as of 12 noon London time.
“Losing 70% of its market value in just over a year is embarrassing for Burberry, given it is meant to be one of the world’s shining lights in the luxury goods market,” AJ Bell’s investment analyst Dan Coatsworth said in a note Monday. “Swiftly hiring a new chief executive isn’t going to fix everything in an instant.”
What’s brought Burberry to this point?
Turnaround mission gone awry
Burberry, known for its outerwear with signature checks dating back 100 years, has long attempted to regain its former glory.
Since former CEO Angela Ahrendts left the company in 2014, it has also switched up creative directors and chiefs multiple times who took the company in different directions—and didn’t succeed in making it as appealing as it once was (Schulman will mark Burberry’s fourth CEO in 10 years).
For instance, under Marco Gobbetti, who was made CEO in 2017, the brand sought to “elevate” itself with higher-end pricing.
Akeroyd, in his two-and-a-half-year stint, also tried to move Burberry from mid-market to upmarket within luxury—a mission he inherited when he joined the company. He also wanted to boost Burberry’s finances by selling more high-margin accessories like bags and scarves. That impacted how the brand was priced and perceived, but this didn’t click with shoppers who looked to the likes of Louis Vuitton and Hermès within that category.
“For past years Burberry was trying to be a fashion trend setter and leather goods company - neither of which is really in the brand DNA,” Jelena Sokolova, Morningstar’s senior equity analyst, told Fortune.
Akeroyd and the designer who joined shortly after he did, Daniel Lee, devised a plan to bring Burberry’s mojo back by reminding shoppers of its British heritage (including a new equestrian logo).
Burberry took over London’s Bond Street tube station last September during London Fashion Week, hoping to excite people about the company and its sway as a luxury label. Neither of those attempts was entirely successful in rejuvenating the brand.
Meanwhile, financial troubles continued to mount. The company’s full-year operating profits, announced in May, fell by 34%, with demand from key markets like China and U.S. faltering.
Burberry also reportedly axed hundreds of jobs earlier this month due to its shrinking market value. The company’s shares have slipped over 64% in the last year.
To be sure, the luxury market downturn has created winners and losers across the industry. Gucci owner Kering has also faced struggles similar to Burberry's in making its brands sought-after again.
While Burberry’s business has struggled in most markets, Japan has been an outlier in the trend with positive sales growth. The British company has also improved and streamlined its distribution channels over the years, said Sokolova.
Still, there are far too many challenges for the brand to overcome.
Will things get better?
Riding against the tide is hard, especially when it's smacking even the bigger players down. But how Burberry’s incoming CEO rises to the task could change the 168-year-old brand’s course.
“I think refocusing on outerwear, where the brand is the strongest in communication, marketing should be something to start with. Introducing more affordable product ranges is another,” Sokolova said.
With a fresh reset, the company plans to focus on getting its business back on track in the long term, starting first with better sales in the latter half of this year.
“We expect the actions we are taking, including cost savings, to start to deliver an improvement in our second half and to strengthen our competitive position and underpin long-term growth," Burberry’s chair Getty Murphy said in a statement.
