Dressing Up An Old Brand Burberry's first designer collection has fashion editors calling it the next Gucci. Given the company's sinking numbers, analysts are suspicious. Is there enough room in the shaky world economy for another luxury revival?
(FORTUNE Magazine) – Rose Marie Bravo, the CEO of Burberry, is nervous. The hot designer she hired, Roberto Menichetti, is presenting his first collection to the fashion press in the showroom of their newly renovated store on Haymarket in London. Bravo's not worried that they'll hate it--the woman who brought Gucci, Jil Sander, and Prada to Saks Fifth Avenue when she was president of the chain is well aware of what pleases the average fashion editor. No, she's nervous because she knows turning out a collection that's fabulous solves only one of the company's many problems.
During her first year at the helm, Bravo made several other bold moves to try to turn around the sagging Burberry brand: She closed two costly raincoat factories in Britain, sharply curtailed distribution of a lower-priced Gap-like line, and cut off all sales to the gray market in Asia--a move that forced the company to write off $29 million in inventory last year. She also made a multi-million-dollar investment in updated computer and manufacturing systems. Not bad for a woman with no previous experience in running a multinational manufacturer.
Strangely, at the presentation Bravo tries to keep expectations low. She reminds the press that Menichetti's collection is the DNA of the new Burberry--not the final product. Luckily, the genetics are sound: The collection is the talk of the spring 1999 fashion shows; Women's Wear Daily pronounces Burberry "born again." Nice to hear, but Bravo knows it will take much more to make up for the neglect suffered at the hands of its parent company, Great Universal Stores.
"There's not an aspect of our business that's not going to require work, work, work to get it right," Bravo says. And though mundane, nitty-gritty back-office details like costing, manufacturing, and contracts are all new to her, hard work isn't. Her reputation as a workaholic is one of the things that made her such an attractive candidate to Great Universal Stores during its seven-month search for a new CEO.
GUS, as it's traded on the London exchange, has recently gone through an equally dramatic shift. Lord Leonard Wolfson, the man who ran GUS for the past 34 years, stepped down in 1996, and his cousin, Lord David Wolfson, took over and promptly began to spend the $3.4 billion in cash the company had on the books for acquisitions in GUS's core businesses of catalog retail and consumer data services. Then he turned his attention to Burberry (the company recently dropped the "'s" for aesthetic reasons), placing it in the care of another cousin, Victor Barnett. "I've always had a belief in the destiny of this brand," Barnett says, making it the latest in a string of global luxury brands like Gucci and Louis Vuitton to attempt a revival. Barnett, who is based in New York, scrapped most of the senior management, and brought in Bravo. Her mission? To do what had once--before the miraculous turnaround at Gucci--seemed impossible: Undo years of brand neglect.
Since it was founded in 1856, Burberry has been synonymous with British tradition, in the form of gabardine raincoats lined in that trademark plaid. Analysts say revenues had been growing steadily at about 15% a year since the mid-1990s, with sales reaching a high of $466 million in fiscal 1997. But last spring Burberry reported that sales took an unprecedented 7% hit, dropping to $435 million in the fiscal year ended March 1998. Even more devastating was last year's 60% drop in profits, from $106 million to $43 million.
Although her drastic moves are partly responsible for those grisly numbers, Bravo is not apologizing for them. In fact, the company has already predicted another drop in sales for next year; analysts are forecasting that they could be down as much as $66 million. It is the price to pay, Bravo says, to bring a neglected brand back and into the future.
The old management at Burberry--like many British brands--had come to rely on exports for growth. But Burberry was particularly laissez faire in its approach, leaving each country to develop the brand as it saw fit. In the U.S., Burberry mostly meant $800 raincoats, $300 umbrellas, and $225 scarves. Switzerland sold Burberry watches. Italians were mad for Burberry's Italian-made men's suits. Korea sold Burberry whiskey. Britain tried Burberry biscuits. "There was no cohesion, no central focus," concedes Barnett, 65. Family ties meant he'd been intermittently involved in Burberry for years, but Barnett was largely a fashion unknown. Not so with Bravo, 47, who is a brand name herself in the fashion world.
As the president of Saks, Bravo was charged with raising the image of the chain back to a level at which it could compete with the likes of Neiman Marcus and Bergdorf Goodman. Her Rolodex, built at Saks and in earlier days at I. Magnin, is one of her greatest strengths. So is her impeccable taste, although she doesn't look like an arbiter of style, preferring blue suits and colorful scarves to the mandatory black of the hard-core fashion crowd. Bravo began at Burberry by doing what she does best: buying brand-name talent. The people she hired to oversee the men's, women's, and accessories divisions--Stanley Tucker from Saks, Michelle Smith from Barneys, and Robin Marino from Ralph Lauren--were heavy hitters from the New York fashion business.
But then she had to deal with Burberry's bigger problems: In the past ten years, the company had become overly dependent on Asia; by 1996 more than two-thirds of Burberry sales came from Asians, whether they were traveling or at home. In fact, Burberry has the distinction of being one of the top five international fashion brands in Japan. It's a distinction that meant disaster when Asia's economies collapsed.
The company's problems in Asia, however, went even deeper. Shoppers could buy an array of Burberry products cheap because Burberry was feeding the region's ample appetite for gray goods, which are sold in bulk to off-price retailers, which then sell them at discount. Initially the strategy worked for the bottom line, but it became a nightmare, since such stores undermine higher-margin, full-price retailers. And because today's luxury shopper is a world traveler, the brand's image quickly tarnished too. It took one trip to Asia for Bravo to decide that gray goods had to go.
Bravo's primary mission is to make Burberry appealing to customers the company has never lured before--the fashion cogniscenti. "We have to get new clients who will say, 'Oh, my God, I never really thought of Burberry,'" says Bravo.
While she's at it, Bravo's got to avoid alienating the loyal old customers. Bravo hired Vogue photographer Mario Testino to shoot a series of ads that feature the unconventionally beautiful model Stella Tennant, a nod to Burberry's fashionable new followers, in a trench coat on the wind-swept moors, a nod to the old.
The British financial press has reported that Burberry--which accounts for less than 10% of GUS's profits--will be sold off once it's repositioned. Barnett insists that's not so, saying that the company wouldn't make such a massive investment only for the short term. That's good, because a turnaround of this size is going to take time; analysts warn it may take as long as five years, depending on what happens to the world economy. In the meantime, look for the Burberry plaid to start turning up in new places--in nightclubs and Harper's Bazaar, on rock stars and runways. After all, the fashion world loves nothing better than a good revival.