Shortly after 4.30pm on Monday afternoon, Sir John Peace called Burberry’s senior management in to a board room at the retailer’s Horseferry House headquarters in Westminster.
With the chief operating officer, John Smith, and the chief financial officer, Carol Fairweather, among those gathered around the table, he relayed surprising news.
Just hours earlier, Angela Ahrendts, chief executive of the company since July 2006, had told him she was going to leave.
Having tried all that he could to persuade the Indiana-born Ahrendts from returning to her native United States, what mattered was what happened next.
Only one name was discussed: Christopher Bailey. As chief creative officer for the past six years, he was, sources present at the meeting say, the “obvious choice.”
But if that was the reaction in the tight-knit group who knew of the impending change at the top of the 157-year-old fashion house, it was not to be replicated yesterday morning when the news was released to investors.
Within an hour of markets opening in London, Burberry’s shares were off 6pc. With the sell-off accelerating after US investors awoke to the news, the shares closed down off 121p at £14.64, off 7.6pc on the day.
Not quite the reaction Bailey, used to critical acclaim for his designs from the doyennes of the fashion world, might have hoped for.
The reaction was as much about Bailey’s appointment– to an enlarged role of chief creative and chief executive officer – as it was about the pending loss of a woman who has overseen a significant transformation of the luxury brand.
During her time Burberry’s share price has quadrupled and pre-tax profits have more than doubled.
Ahrendts, 53, took the helm in the summer of 2006, following in the footsteps of Rose Marie Bravo, chief executive from 1997-2006, who began the turnaround and led Burberry out of its demerger from GUS.
Critics of Ahrendts, of whom there are few willing to speak publicly or even at all, suggest that she is “over-rated” and has merely taken the credit for groundwork put in place by her predecessor. But the success story is clear for all to see, most notably in Asia.
China has perhaps been the poster boy for Burberry’s success – the brand has 69 stores there out of a worldwide total of 479 directly operated stores and 66 franchise stores – and Burberry’s fortunes in the country have transformed since she spearheaded buying out its franchise partners for £70m in the summer of 2010.
It has been under her that the company has focused on five strategic initiatives, including leveraging the franchise, intensifying accessories and accelerating retail-led growth.
This has led to tangible results; with retail revenue rising from £484m in 2008 to £1.4bn in 2013. At the same time, she has worked on reducing costs, with the retail/wholesale gross margin up from 58.5pc in 2008 to 70.6pc in 2013.
At the same time, she has overseen dramatic shifts in the way the company operates – famously shifting its flagship fashion show back to London – as well as driving Burberry’s technological push.
Bailey, who is due to take the reins by the middle of next year, takes over the brand at a hectic time for the company.
Despite Burberry on Tuesday announcing first half sales of £1.03bn, up 14pc on an underlying basis, investors have questioned the push into Asia, given the slowdown in major economies in the region.
Fairweather said that the company is just as focused on the travelling Chinese consumer as it is in stores in the country, and pointed to strong sales in Hong Kong and elsewhere despite concerns about emerging market growth generally.
Japan is another area of concern, with the company due to end its licence with Sanyo Shokai and Mitsui & Co in 2015. Rogerio Fujimori, at Credit Suisse, said Ahrendts’ exit “came slightly earlier than we expected ahead the 2015 Japanese change.”
Although Smith’s experience of global brand management as former head of BBC Worldwide will come into play there, some investors are concerned about how the transition will play out.
Smith is also in charge of the new in-house beauty division, revenues for which in the first half were affected by its former joint venture partner flooding the market with old stock before the agreement ended.
Bailey must also come to terms with the ways of the City – a very different breed of critics.
Although Ahrendts has been sure to introduce him to analysts and investors at events in the last few years, as part of her grooming process of him, it remains to be seen whether he will have the executive mettle to guide Burberry through its next chapter, and make his name as synonymous with the company as it is with the brand.
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