Burberry designer Bailey to be CEO as Ahrendts goes to Apple

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Courtesy of the Associated Press

(c) 2013, Bloomberg News.

PARIS — Burberry Group has named Christopher Bailey as chief executive officer to succeed Angela Ahrendts, tasking a designer with no board level experience to helm a company that has lost its top two directors this year.

Ahrendts, 53, who made Burberry a digital forerunner in the fashion world, will depart for Apple Inc. in the middle of 2014, leaving the 42-year-old Bailey to assume her role while retaining his former job as chief creative officer.

Ahrendts "leaves the company at a crossroads, as there is no clear development strategy in place," said Mario Ortelli, an analyst at Sanford C. Bernstein in London. Additionally, "we believe that in a company as big and complex as Burberry, even for a person as talented as Mr. Bailey, it is hard to have enough time to carry out both of these roles."

Under Ahrendts, who led the British 's largest luxury company for almost eight years, sales have more than doubled to about 2 billion pounds ($3.2 billion). The shares have gained more than threefold as she developed Burberry's digital strategy and took Bailey's designs into new markets such as Africa.

Separately, Burberry said Tuesday that first-half retail sales rose 20 percent to 694 million pounds, falling short of the 698 million-pound median estimate of 13 analysts. Comparable-store sales increased 13 percent, matching estimates.

Since joining Burberry from Gucci in 2001, Bailey has transformed a British company best known for plaid-lined trench coats into a full-fledged luxury-goods maker. He enlivened Burberry's classic designs by using new colors and materials and introduced more expensive ranges including the Prorsum and Brit ready-to-wear collections as well as tailoring and kids wear.

The award-winning designer, who has also worked at Donna Karan, will continue to oversee Burberry's creative department when he becomes CEO. As Chief Creative Officer, a position he was named to in 2009, he is also responsible for the company's overall image, including advertising and store design.

Burberry doesn't plan to recruit anyone to help him with the creative side, Chief Financial Officer Carol Fairweather said on a call with reporters. Bailey has a creative team of about 70, she added.

"While Christopher Bailey has proven to be a phenomenal designer, the jury will be out in terms of him running the company as CEO," said Erwan Rambourg, an analyst at HSBC.

Ahrendts' resignation, which the company said it received Monday, follows that of Stacey Cartwright, who stepped down as CFO in July. While Burberry bolstered its ranks by naming John Smith to the new position of chief operating officer in February, the company has now lost "the two key architects" of its growth, according to Nomura.

American-born Ahrendts built on the foundations created by former CEO Rose Marie Bravo, who transformed Burberry from a maker of raincoats with a trademark lining and umbrellas into a worldwide luxury fashion brand.

Ahrendts raised prices, pushed into new markets and expanded Burberry's non-apparel business. The former Liz Claiborne Inc. executive also led the company — and the luxury industry — into the digital age, streaming Burberry's fashion shows live on its website and allowing customers to order items online during the events. Last month, the 157-year-old company filmed its women's show in London on Apple iPhones.

Ahrendts will leave a year before Burberry expects to complete an overhaul of its business in Japan, where it is cutting its licenses, and as the company develops its own beauty business amid a slowdown in global luxury demand.

Burberry doesn't expect any change in strategy under Bailey, Fairweather said. "This is succession planning in action," the CFO said. "He was our preferred successor."

According to Bernstein's Ortelli, a strategic change is required. Bailey must decide if he wants Burberry to become "a fully aspirational brand" challenging Prada, Gucci and Louis Vuitton for wealthier clients, or a mass luxury company, offering a wide range of cheaper products, he said.

Ahrendts, who will be a senior vice president at Apple reporting to CEO Tim Cook, said Burberry expects the business climate to remain "uncertain" and currencies volatile. The company, however, is in "brilliant shape," she said.

Ahrendts is "going out on a high," Rahul Sharma, managing director of Neev Capital, said in a Bloomberg Television interview. "This whole team has actually transformed Burberry from what it was 10 years ago to what it is today. A super-cool, young, if that were possible, luxury brand."

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