Checked Growth: How Burberry's Angela Ahrendts Is Steering the Company through a Volatile EconomyPublished: November 20, 2008 in Knowledge@Wharton
Since arriving at Burberry Group in January 2006, CEO Angela Ahrendts has seen the Burberry brand "purified," its luxury line diversified, its retail reach extended, and its global organization centralized and connected with a new SAP-based IT backbone.
Now Ahrendts is banking on these changes, particularly in infrastructure, to support the company through the global economic downturn.
"I believe our inefficiencies will now become our greatest opportunities," Ahrendts noted during a keynote address at the recent Wharton Women in Business Conference. "Running our business smarter, tighter, we can pull £30 million to £40 million of benefits out of the business."
Founded in London 1856 by draper's apprentice Thomas Burberry and known for outfitting British military and global explorers, Burberry has evolved into a multi-faceted luxury brand that has more than 300 company-owned stores and concessions in high-end department stores around the globe.
Burberry, said Ahrendts, expects its all-important holiday quarter to remain "volatile and uncertain" as the global financial crisis and economic slowdown hurt even the luxury market. The company last week reported a 13% rise in first-half profits but predicted that adjusted profit before tax for the fiscal year will be in the mid to lower half of market expectations -- news that sent Burberry's share price to six-year lows. In the United States, the numbers reported by key Burberry wholesale accounts were somewhat bleak: October comparable store sales slid 16.6% at Saks Fifth Avenue and 15.7% at Nordstrom, while Neiman Marcus comparable store sales dropped 12.9% for September. Ahrendts said Burberry was watching global trends daily and re-forecasting "almost every week."
Getting Out of Your Comfort Zone
A native of New Palestine, Ind., Ahrendts described herself as "a born merchant" who loves to shop and had always wanted "to see the world with someone else's money." At Ball State University in Indiana, she focused on merchandising and marketing, then moved to New York to kick start her career. "I worked 80 hours a week for five years and gained 20 years of experience [in the process]."
Now, decades later, her life includes a husband and three children, and she says she would do it again all over. "I truly appreciate everything so much more.... We all control our careers. Those choices that you make are so critical." As for how she has balanced her personal and professional lives, "It's almost hard to split the two.... I know who I am. I know what I love. Work has never really been work for me. It's been a natural extension of my life."
Before coming to Burberry in 2006, she was executive vice president at Liz Claiborne, where she had been responsible for such global brands as Ellen Tracy, Juicy Couture and DKNY Jeans. She has also been executive vice president of Henri Bendel, president of Donna Karan International and president of Warnaco's Geoffrey Beene division. "It's important that for each role, you get yourself out of your box, out of your comfort zone," she noted.
Describing herself as a 50/50 split between "right brain" creativity and "left brain" logic, Ahrendts credits each stage of her career, and each of her mentors, with teaching her something new -- "left brain" skills from Warnaco ex-CEO Linda Wachner, the importance of getting the product right in a monogram business from Donna Karan, and managing a multi-brand company, presenting to a board of directors and talking to investors from Liz Claiborne chairman Paul R. Charron.
Ahrendts says she chose to move to Burberry in London in part because of her family. "I had wonderful work-life balance in New York City," she said. But London offered new experiences for her children. "I knew they would grow up to be 10 times more global and speak far more languages than I ever did."
At Burberry, she stated, "My role is to maintain the balance of art and commerce, left brain/right brain, constantly ... allowing the brand to go forward." Admitting that she trusts her own instincts more than anybody else's, Ahrendts said she also has been known to approach her executive team with, "This is my instinct; now confuse me with some facts."
A video presentation of Burberry waifs -- young men and women, fashionably street-hardened and long-limbed, wearing Burberry clothing, handbags, jewelry and shoes -- suggests that the company has come a long way from the khaki trench coat. The style diversification began with Ahrendts' predecessor at Burberry, Rose Marie Bravo, former president of Saks Fifth Avenue. Ahrendts' role has been to reorganize the company around a honed brand image while improving execution and efficiencies.
Ten years ago, Burberry was "a largely licensed business in the hands of distributors," Ahrendts said. It was operating in 35 countries, via retail stores, wholesale distribution and licensing, but as an organization it was "never fully integrated. In some ways, we were kind of like a $2 billion start up, with many versions of Burberry, both brand and company."
Soon after her arrival, Ahrendts named designer Christopher Bailey as Burberry's brand tsar. Bailey sharpened Burberry into "a global, high-growth ... luxury brand with a very British sensibility." The best brands "are the pure brands," she said. "The purer our message, the more compelling it is to consumers."
At the same time, Ahrendts reorganized Burberry around the principle of "brand first." Internally, she said, the brand became "a beacon around which the entire company would serve" and "a touchstone for every decision." Externally, the brand unified Burberry's product lines, advertising, public relations and online presence.
In this evolution, Burberry opted to capitalize on its core: outerwear and the classic, trademarked Burberry check, which first appeared as trench coat lining in the 1920s. Over the years, Ahrendts said, the check had become "overexposed, underappreciated and undervalued," yet it was "the highest volume, most recognized brand icon" Burberry had. "We needed a pure laser vision to elevate and authenticate this icon."
Bailey developed luxury variations of the heritage pattern -- the Mega Check, The Beat Check, Exploded Check, Haymarket Check -- while Ahrendts shut down 35 different product categories, each with check all over them, because she believed those products were "devaluing the icon instead of elevating it."
Given that outerwear is Burberry's top-of-mind destination category for consumers, Ahrendts said, "It simply must be the best thing we do." So Burberry has enhanced outerwear's presence on its runways, created a dedicated outerwear sourcing team and invigorated its outerwear marketing.
Burberry became centralized as an organization, closing or buying its distributorships to pull businesses in-house. Almost three years ago, the company embarked on the rollout of a SAP-based network in a £50 million, three-year initiative dubbed Project Atlas. Although the goal of Atlas was global connectivity to improve corporate analytics, Ahrendts said, "We're also using it as a forum to communicate" brand strategy and vision. Burberry information flows through the organization via a comprehensive intranet site, quarterly web casts by senior executives, and email blasts of recent runway shows, PR events and store openings.
This approach is part of Ahrendts' work to re-invigorate Burberry culture even as the organization becomes more tightly centralized, to maintain the "entrepreneurial magic" of its distributorship-based past. "To revitalize a company of this scale, we needed almost a cult-like culture," she noted. "The larger and more global we become, the more important it is to have an even more powerful culture." Constant communication "is good for employees and the company. Employees are both intellectually engaged in facts and emotionally motivated for the big picture."
The big picture is challenging, given the global economic downturn. Burberry, whose 2007 sales were $1.67 billion, has in recent years greatly expanded its luxury offerings and the geographic reach of its retail distribution. Its merchandise mix has grown with seasonal trenches, handbags, scarves, mufflers and shoes; new (licensed) fragrances and eyewear, and entirely new categories including jewelry, belts, men's accessories and luggage. The company also introduced a Burberry Sport sportswear line and created a new childrenswear product division.
The company's goal of investing in "under-penetrated" markets has meant a significant expansion. In 2008, Burberry opened new stores in Cape Town, South Africa; Delhi, India; Ekaterinburg, Russia; Baku, Azerbaijan; and Aspen, Colorado, plus a standalone childrenswear store in Hong Kong. Also during 2008, new Burberry stores opened in Kuwait City; Nashville, Tenn.; Copenhagen; Budapest; Cannes; Las Vegas (second location); Knokke, Belgium; Poznan, Poland; Jakarta, Indonesia; and Al Khobar, Saudi Arabia. Emerging markets, including China, the Middle East, Eastern Europe and Russia, have helped drive Burberry's growth.
However, Burberry, like many others, is facing the grim reality of economic downturns in Europe, the U.S. and Asia. Even with the company's emerging market gains, Ahrendts said, "You can't off-set huge markets like that." In the meantime, "We will continue to reforecast flexibly, dynamically adjust ... and micromanage the business on a weekly basis before making plans going forward."