Burberry’s revival: can it sustain ?
Lacambre Aurelie N0595498
Table of contents Executive summary 1 ... Discussion 2 ... Conclusion 14 ...
List of illustrations
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... Bibliography 17 ... Appendices 18
Executive summary
Burberry is a unique British luxury brand. The case study “Burberry’s revival: can it sustain” written by Doris Rajakumari John in 2014 aimed at analysing the brand difficulties and turnaround. In this report attention will be put on comparing different strategies for this brand to grow back to its prestigious status. Thanks to its two well- known American woman CEO’s the brand managed to be successful again. But in 2013 with the new tenancy of chief designer Christopher Bailey as a CEO analysts wonder wether the brand will manage to sustain and keep on track. This report will thus evaluate strategies and future opportunities.
Keywords: Burberry, turnaround, business model, strategy, management, rebranding, sustain
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Discussion
Angela Ahrendts and Christopher Bailey
Burberry was created by Thomas Burberry in 1856, it first operated in menswear product category with outer gear such as raincoats. The brand strengths are quality superior craftsmanship, tradition and British heritage along with worldwide recognition. It then started womenswear being now its most selling line of products. Burberry is a well-established worldwide brand with legacy, heritage, quality and unique style resonance. And yet, over the years weaknesses appeared such as lack of control resulting in diluted brand equity.
Rose Marie Bravo
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In the following report both Rose Marie Bravo and Angela Ahrendts strategies will be analysed. Alfred Chandler (1963) explains that strategy is “the determination of the longrun goals and objectives of an enterprise and the adoption of courses of action of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”. Michael Porter (1996) retains that “competitive strategy is about being different. It means deliberately choosing different set of activities to deliver a unique mix of value”.
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Rose Marie Bravo’ s strategy (1997- 2006)
Rose Marie Bravo became Burberry’s CEO in 1997. At this period the brand image had been diluted and suffered from a bad reputation. Due to lack of control upon the huge amount of licensees and to the grey market in Asia the brand was in a critical situation (Goldstein Lauren, 1998). Burberry lacked central focus and Bravo had to face many challenges. Fig 1: Porter’s Value chain
Porter’s value chain is used to identify key primary activities and support / secondary activities. This allows the company to see how activities link between themselves and where are the sources of competitive advantage. In the following analysis, this tool is useful for Burberry to understand which areas need improvements. 1 Under-investment in corporate infrastructures, specifically concerning marketing, merchandising, product development and other support functions. Promotion
Product
Her strategy was to appeal to the old existing customer base as well as to new clients targeting fashion connoisseur. To do so celebrity endorsement was used via the launch of new advertising campaigns. The emphasis she put on marketing and advertising resulted in increased sales and profits.
New services were launched with the woman personalised high end tailoring service. From that point womenswear was expected to overtake menswear, the original activity of Burberry. The new designer, Roberto Menichetti was in charge with creating products appealing to younger clients. In that direction the collection Prorsum was launched in 1999.
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Price 2 Parallel trading of Burberry products by legitimate wholesale customers to other non-approved distributors and stockists. In order to revamp the brand and to return to its luxury position the priority was to curb the grey market. The grey market in Asia meant that Burberry’s products were traded by legitimate wholesale customers to other non-approved stockists and distributors. Those could then apply the price they desired and extensive discounts. All these elements were truly damaging the image of the luxury position of Burberry. Indeed luxury key aspects are rarity and exclusivity.
Place 3 Decentralised distribution strategy resulting in inconsistencies in prices, design and quality across markets. Licensing is another issue which was damaging Burberry’s equity. Licensing gave other brands the right to use Burberry trademark. Burberry’s symbol was then applied to basic products such as toys or credit cards. The overuse of the check pattern affected luxury key aspect being exclusivity. Bravo focused on renegotiating those licenses and thus, reducing the variety of good using the checks. In Japan, a licensing agreement was signed with Mitsui enabling the brand to have better control. 4 Company-owned retail network based within nonstrategic locations. It was necessary to rework the distribution which also did not reflect the luxury positioning of the brand. Essentially, some selling points needed to be closed and transferred to more appropriate places such as Harrod’s (Burberry- fashion philosophy).
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Fig 2: Perceptual Mapping of Burberry and its competitors
Benchmark In 1994, Burberry’s main competitor Gucci went through a revival phase. The brand faced the same situation as Burberry due to over licensing and was in a deeply critical financial situation. With Domenico de Sole as CEO and with Tom Ford as creative director the brand turnaround was a great success. Ford injected the brand with a touch of sexy, cool glamour that took the international fashion industry by storm. Along with marketing and communication, solutions were to maximise control by abandoning licencing operations and to rework the distribution.
They integrated different departments (design, marketing, distribution) working towards same goals rather than having different departments operating separately. Then they re-build the brand image. Marketing and adverts were promoting the image not the product, this was a different approach from competitors. The same approach needed to be taken by Burberry in a quite aggressive strategic philosophy. Leading to the business transformation in four key areas for its growth strategy: Customer Relationships, Innovation, Assets, and Internal Teamwork & Collaboration. This is the approach followed by Angela Ahrendts later on.  
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b- Angela Ahrendts’ s strategy (2006- 2013) In the early 2000’s Buberry equity suffered greatly from “Hooligans” wearing counterfeit versions of the checks. Buberry was perceived as very low-end and cheap products that upper-class people did not want to be associated with (Bothwell Claire, 2005).
The following models are all relevant to illustrate this tendency. According to Maslow’s hierarchy of needs people buy luxury products to achieve high levels of self-esteem, to get recognition from peers demonstrating their social status.
Fig 3 : Maslow’s hierarchy of needs (Maslow, 1943)
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Fig 4: Diffusion on innovation (Rogers, 1962)
Fig 5: Trickle-down theory (Veblen, 1899)
A fashion trend firstly introduced by high-end brands to appeal to higher classes of society then accepted by those in lower classes exemplifies the trickle-down theory. In the social hierarchy those at the top seek distance from those below them. For this reason once the fashion is adopted by lower classes, upper classes reject it (Veblen, 1899).
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Flagship store in Regent Street, London
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When Ahrendts took over as a CEO in 2006 the long term objective was to double profits and revenues (by 2011) in “Leadership of A. A.”. This goal was successfully reached one year early in 2010. Ahrendts strategy was to target the younger generation born between 1980 and 2000. This is the last generation of the 20th century and the first one starting to be highly digitally connected. Promotion Naturally, she wanted to speak the “same language” as the targeted market segment which meant following the digital sphere revolution. It became necessary to engage customers online through social media (Facebook, Twitter, Art of the Trench). Emma Watson became the face of the brand and Burberry Acoustic was launched to promote young British musicians. In 2009 Burberry was back to the London fashion’s week and overstepped competition with digital achievements live streaming the show. Product Burberry lacked a central design and uniqueness in its offerings (Smith and Milligan, 2011). For this reason she decided to focus on its core product, the trench coat, representing the brand’s point of differentiation. People She believes that “a company is as good as its people” that is why she focused on building relationships and a clear vision internally. The brand image was so badly deteriorated that even employees did not wear Burberry. This was also explained by Burberry’s pricing (Heisler Yoni, 2013). Her aim became to unite people internally and promote a corporate vision through training. To reflect the digital positioning of the brand the internal vision of the company had to go through the “connected-culture”. To reflect the young and dynamic new target and vision, 70% of staff are under 30 years old.
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Operations A significant shift from wholesale activities to retail took place. In that view, she transformed the retail environment to make it digital and similar to the website experience. Very innovative visual merchandising tools were created, i.e. mirrors turning into communication screens displaying catwalk videos. Internal information sharing: IT Under the name ‘Project Atlas’, a three-years initiative aiming at improving the communication flow within the company as well as intersection with stakeholders (Wharton University of Pennsylvania, 2008). To further centralize the organization, Burberry integrated a SAPbased network for ÂŁ50 million. SAP is best known for its back-office software. A back office system is a tool that can help a company streamline its entire business operations, process and vastly improve cost efficiency. The benefits of this was to help more accurate sales prediction and to achieve faster movements of merchandise into stores. This also helped to increase supply chain efficiency and to dissolve bottlenecks.
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c- Linking both strategies Under Bravo, the new strategy sought to re-position the Burberry’s brand as a distinctive luxury brand with a clear design, merchandising, marketing and distribution strategy, which would be appealing to new, younger, fashion-forward customers, while still retaining the traditional customer base (Burberry IPO Prospectus, 2002).
Understanding this was greatly achieved later on with Ahrendts. Unlike Bravo, Ahrendts focused on the core product the trench coat being the brand essence for this reason her strategy was more successful. This was the key element to re-give the brand its unique selling point and luxury appeal.
We can say that the same guidelines also drove Ahrendts strategy. Bravo’s actions were good for the brand but needed to be taken even further. Bravo’s weaknesses is that she did not focus enough on the image of the brand and what it first stands for. To make it unique and different from competitors it was the trench coat and its military feel that first made the brand a success.
It seems like Ahrendts was much more successful for she tackled each problems in an aggressive way. She strongly believed in the brand’s capacity to revive and wanted her team to be convinced too so that Trust would be employee’s leitmotiv. Ahrendts strategy was also more efficient as she pushed even further the idea of centralising the brand. This was achieved by closing two manufacturing facilities along with the Hong Kong design team and by buying back licenses. Even the website was centralised to one unique platform. Burberry had lost control of its business and thanks to Ahrendts it regained control (vertically integrated).
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d- Can Christopher Bailey (CEO in 2013) make it continue to grow? Knowing that economy is slowing down in Asia and in Europe it can seem difficult to hope for a bright future. Burberry price point are lower than competitors (democratic luxury) so that its customer base is more exposed to the recession. Consumers buying entry price products will be affected while for even more upper class people it would not impact a lot their buying behaviour. Aside from economic matters, the Chinese market was miscalculated for the product offer was too sober and not bling enough for these consumers, explaining lower sales figures in this country in 2012. Angela Ahrendts put a lot of dedication into the company and relegated her role as CEO to Christopher Bailey. Bailey’s weaknesses are that he never managed a company before, he is a designer, and his strengths are that he has been working for Burberry for more than 10 years and that he has a young innovative vision. Bailey strength not only resides on his creativity and design experience but also with his experience surrounding all activities he undertook to follow the digital turn and innovation of the brand. Indeed as he was not only in charge with supervising runway shows but also all supports conveying the brand’s image (in stores, online and in live shows).
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C. Bailey and A. Ahrendts knew each other as they had worked together before for Donna Karen. She picked on him to replace her after all the hard work she has accomplished because she has trust in his vision and abilities. Furthermore she does not believe in individuals working independently but she relies on team work as a strength with passion uniting and leading people. Bailey strength not only resides on his creativity and design experience but also with his experience surrounding all activities he undertook to follow the digital turn and innovation of the brand. Indeed as he was not only in charge with supervising runway shows but also all supports conveying the brand’s image (in stores, online and in live shows). Bailey will have to keep his previous functions as chief creative officer while learning his new ones as CEO which seems like a hazardous task to undertake. He has to deal with the introduction of the beauty and fragrance as new in-house ranges. Thus Bailey and his team in the short term will have to focus on searching for suppliers, building supply chains and distribution networks, marketing campaigns and pricing strategies as those products often embody an entry price point for aspirational luxury consumers. Along with this comes the restructuration in the Japanese market where Burberry planned on buying back licenses.
The Ansoff’s matrix allows identifying strategic options for growth (Johnson et al. 2006). By comparing possible alternatives the firm can choose whether developing new products and / or markets. Market penetration- means selling the same products to the same customers or market segment a- through high marketing skills b- by increasing the market share c- by developing competitive advantage d- by growing the total market size Product development- developing new products for the existing customers in order to satisfy their changing needs. Market development- gaining new customers Diversification- developing both products and markets, often done through acquisitions.
Fig : Ansoff’s gowth matrix (Ansoff, 1957)
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Conclusion For Burberry the future direction would be to choose either to go up-scale or to mass-market. In view of the brand’s past it would seem totally wrong to choose to go to mass-market. This would only serve to bring back the cheap perception of Burberry that Ahrendts did everything to make disappear. Bailey, who used to shop second-hand Burberry trench coat as a collector when he was younger, has seen how Burberry suffered from being adopted all over in the high-street so he can certainly see this would not be the right direction. In this study it was identified that licensing comes with downsides being the lack of control and the limited participation. There are also advantages explaining why many brands are attracted to this method for entering markets, licensing is cost efficient and is a way to get passed entry barriers such as tariffs and quotas. Even though buying back licensees is a solution for Burberry to reposition itself it may come with a high costs to acquire full ownership in those markets. One of Burberry’s opportunity is market penetration, i.e. grow by opening new stores in China and Hong Kong where sales increased in 2013. A threat for such a strategy would be that eventually markets will be saturated and reach maturity. Burberry is also growing through product development with its new in-house beauty range and by extending its fragrance range too. Individualism and consumer customisation are areas luxury brands will be looking to exploit more and more in future. As seen in this study wider access to the luxury market has diminished the exclusivity of luxury products, a remedy to this situation is the increased use of customisation. Through customisation consumers will be able to put personal features on the product, providing it with a uniqueness relevant only to them. Which Burberry started doing with Burberry Bespoke, however the brand could further develop this kind of service.
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List of illustrations Burberry annual report 2013/2014 Burberry Pinterest official page: https://www.pinterest.com/burberry/ Business of Fashion: http://www.businessoffashion.com/2012/09/retail-recon-burberrys-bet-on-retail-entertainment.html Blog: http://2.bp.blogspot.com/7uop2BHCxkI/ToDcWKcL7fI/ AAAAAAAAACI/1nvUi0LQOMU/s1600/Rose+Marie+Bravo+Burberry.jpg Blog: http://retaildesignblog.net/2011/11/30/gucci-store-milan/
Bibliography Bothwell Claire, (2005). “Burberry versus the Chavs”, http://news.bbc.co.uk/1/hi/ business/4381140.stm
Insigniam: http://insigniam.com/case_ study/meeting-an-aggressive-growthstrategy/#sthash.okdau3ne.dpuf
“Burberry - Fashion philosophy” http://cdn. novafm.com.au/article/burberry-fashionphilosophy?page=7
Johnson, G., Scholes, K. and Whittington, R. (2006). “The Environment”, Exploring Corporate Strategy, 7th edition. Prentice Hall: United Kingdom
Business of Fashion, (2013). http://www. businessoffashion.com/2013/09/thebusiness-of-being-tom-ford-part-i.html Chandler, A.D. (1963). “Strategy and Structure: Chapters in the History of American Enterprise”, MIT Press Friedman, V. (2011). Woman in the new: Angela Ahrendts, Financial Times, [online] http://cachef.ft.com/cms/s/0/ e2f598ea-6d13-11e0-83fe-00144feab49a. html#axzz1c9fL22j7 Goldstein Lauren, (1998). “Dressing up an old brand Burberry’s first designer collection has fashion editors calling is the next Gucci. Given the company sinking numbers, analysts are suspicious. Is there enough room in the shaky world economy for another luxury revival?” http://archive. fortune.com/magazines/fortune/fortune_ archive/1998/11/09/250840/index.htm Heisler Yoni, (2013) “The parallels between Angela Ahrendts tenure at Burberry and Steve Job’s return to Apple”, http://www. tuaw.com/2013/10/21/the-parallels-betweenangela-ahrendts-tenure-at-burberry-and-ste/
Porter, M.E. (1996). “What is Strategy”, Harvard Business Review, 1996, NovemberDecember Shaun Smith and Andy Milligan, (2011) “Bold: How to be Brave in Business and Win” The future of luxury, (2013). “Luxury 2020: 3 Trends Reshaping the Luxury Market” http://www.thefutureofluxury.co.uk/luxury2020-3-trends-reshaping-luxury-market/ Unknown author (2014). “Leadership of Angela Ahrendts” on Youtube: https://www. youtube.com/watch?v=SEVi_X0sibE Wharton University of Pennsylvania. (2008). Checked Growth: How Burberry’s Angela Ahrendts Is Steering the Company through a Volatile Economy. From Knowledge@ Wharton: http://knowledge.wharton.upenn. edu/article/checked-growth-how-burberrysangela-ahrendts-is-steering-the-companythrough-a-volatile-economy/
Appendices Marketing Mix 7 P’s PRODUCT
PEOPLE
- womenswear - menswear - non-apparel - bespoke - high-quality - limited availability
- clear vision - corporate culture > connected and based on Trust - high employee engagement - knowledge through training > equals added value to the business
PRICE
PROCESS
- prestige pricing - limited discounting
- one-to-one interactions, personalised services - high quality customer service - consistency throughtout every channel
PLACE
PHYSICAL EVIDENCE
- flagship store and concessions - online - new emerging markets
- very spacious stores - warm atmosphere - Buberry acoustic music playing on screens
PROMOTION - digital - TV, magazine, social media - celebrities (Kate Moss, Emma Watson) - product placement (french movie “Comme t’y es belle”)
SWOT analysis (general) STRENGTHS - reputation - longevity - heritage - Britishness - unique style - superior craftsmanship - strong management - strong digital technologies - storytelling, not only sells products but emotions and history
WEAKNESSES - too many licenses - lack consistency - diluted brand image - pricing strategy
OPPORTUNITIES
THREATS
- innovation - licences acquisition - new technologies and social media - younger target customers
- economic recession - competition - constantly evolving digital world - counterfeiting - reliance on Asian market - currency fluctuation & exchange rates
SWOT analysis (Bravo) S
W
- her experience at Saks - management skills - understands priorities
- grey market - too many licensees - diluted brand image - lack of consistency
O - licences acquisition - new services - more consistent distribution - new markets
T - overdependence on Asia threat of economic instability in this market mainly in Japan being the brand’s biggest market globally - highly dependent on exports threat of barrier and legislation regulating export + currency fluctuation and exchange rates
SWOT analysis (Ahrendts) S
W
- focus on the core product - management skills - midwest American values - work ethic
- grey market - licences - decentralised - diluted brand image - lack of consistency - no existing corporate culture when she arrived in 2006
O
T
- new technologies (mobile) - social media - younger generation - innovation - product diversification (beauty, accessories) - extension of apparel offering - retail environment
- economic recession - competition - constantly evolving digital sphere - counterfeiting - the digital generation customer is hard to retain
PESTLE analysis POLITIC
TECHNOLOGICAL
- taxes VAT - a free-trade agreement betwen the EU and the US is currently being negotiated
- social media - digital innovation - wearable high-tech - e- tail, m-tail, retail environment - artofthetrench.com where customers customize their products
ECONOMIC
ENVIRONMENTAL
- economy is slowing, GDP Currency fluctuation, exchange rate, inflation > It is essential that Burberry monitors inflation rates as it can impact their buying capacity. For example, when recession hit the UK, stocks stumbled to ÂŁ1.60 forcing Ahrendts to cut costs by ÂŁ50m and staff by about 10 percent (Friedman 2011).
- natural disasters - waste disposal - economy of energy - corporate social responsibility
SOCIAL
LEGAL
- demography: growing population - culture: mobile use, music to appeal to younger audience - income distribution - lifestyle, consumer tends to shift to more underground smaller fashion luxury brands - due to recent Paris attacks people live in a situation of fear and footfall to stores has dropped
- import export restriction laws - counterfeiting
Primary research
Gucci in Via montenapoleone, Milan also uses digital technologies to show live virtual content integrated in the store. the aim is to make customers interact with this digital content. High street brands such as Victoria Secret and Jennyfer also have big screens in stores. Primary research done through observation also identified that the strategy of linking fashion brand with music band is not a Burberry exclsuivity other brands such as Asos or The Kooples do the same.