Burberry's in Bad Need of Buzz

A bit more buzz is badly needed , the management's just fine

Burberry needs a style update.

The luxury goods group is looking to appoint a senior manager to support chief executive Christopher Bailey, who is also its creative director, according to the Financial Times.

This is not what Burberry needs.

Bailey was already the brand's top designer when he assumed the CEO role in May 2014, after his predecessor, Angela Ahrendts, quit for Apple.

The dual role was controversial, with some investors concerned that the remit would be too broad. Compounding the concern was Bailey's lack of experience running a company.

Fast forward two years, and those fears have been realized. Shares in Burberry have fallen more than 20 percent since Bailey took over. They have lost their traditional premium to the Bloomberg Intelligence luxury goods peer group, and now trade at a slight discount.

Trending Down

Burberry's lost its premium on concerns about its exposure to China

Source: Bloomberg Intelligence

But the problem isn't that Bailey is chief executive. It is that he is creative director. Burberry should bring in fresh design talent to work with him -- he's already well supported on the management side.

The decisions made during Bailey's time as chief executive have mostly been good ones. Making the clothes and accessories on its catwalks immediately available to buy is a sensible move, as is moving to a single Burberry brand, rather than multiple labels such as Burberry London and Burberry Brit.

Focusing on beauty makes sense too. It’s a fast growing part of the luxury industry, although for Burberry it's still small. It accounted for 8.6 percent of sales in the six months to March 31, compared with 14.1 percent at LVMH in its most recent quarter.

Asian Exposure

Burberry generated more of its sales from Asia last year than from either Europe or the Americas

Source: Bloomberg Intelligence

But conditions have abruptly changed in the luxury goods market. Growth for many global brands is no longer being fueled by the travelling consumer, particularly the Chinese. Burberry is more exposed to this than most. It generates about 40 percent of its retail sales from Chinese shoppers -- at home and abroad -- compared with the industry average of about 30 percent.

The changing dynamics mean luxury goods groups must reconnect with domestic customers, which they have neglected to varying degrees for the past few years.

A key element here is young, tech-savvy shoppers. Burberry is well placed with them, thanks to its lead in digital. Yet currently, it has few products that appeal to them.

It is relying on beauty to bring in a new generation of shoppers. But this is just not enough. Years ago, it had more-affordable products, such as cheaper bikinis, bags and scarves. Bailey could have tackled this sooner, but there's no reason why he can't fix it.

Burberry needs some fresh creative thinking to encourage more of its 6.6 million Instagram followers to actually shop with it.

Where it has worked to make the brand more appealing to fashion-forward consumers -- think its best-selling check poncho -- it has been well received.

But 1,100 pounds ($1,600) for a poncho is hardly accessible. It needs to create both cheaper and chicer products.

Burberry is certainly capable of a creative overhaul. Just look at Gucci. The brand is enjoying a renaissance thanks to hot new designer Alessandro Michele, who has sent the fashion pack scrambling for its horse-bit loafers and double-G logo bags. Burberry could do with a touch of this magic.

Bailey may have dressed Adele for her world tour, and Blake Lively at the Metropolitan Museum Costume Institute gala. But it needs to create more of a buzz around the brand.

Only then will it be able to fill the void left by Chinese consumers tightening the strings on their Burberry check purses.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andrea Felsted in London at afelsted@bloomberg.net

    To contact the editor responsible for this story:
    Jennifer Ryan at jryan13@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.