Burberry Replaces CEO as Part of Turnaround Effort

The CEO came under pressure due to weak sales and a falling share price

Burberry's flagship store in Shanghai, China, on April 25, 2014. Kevin Lee/Getty Images

The U.K.’s biggest luxury brand Burberry appointed Marco Gobbetti as its new chief executive, replacing Christopher Bailey who has been the target of criticisms for declining sales.

Bailey, who was appointed CEO in October 2013 in addition to his role as the chief creative officer, will take on the newly created role of president. According to experts, holding both the CEO and chief creative officer positions was too much responsibility for Bailey.

“Burberry seemed stuck with a less than ideal senior management structure. It was clear that the ‘dual role’ solution was not working, and that both the business and the share price had suffered under Christopher Bailey’s joint CEO and Creative Director stewardship,” said Luca Solca, the luxury goods analyst at Exane BNP Paribas.

Burberry Group PLC (BRBY:LN) shares dropped by nearly 25 percent over the last 12 months, and the company has been struggling with slow revenue growth in the United States and China. Critics say Burberry has excessive exposure to China, which accounts for 35 percent of the company’s overall sales. Especially, lower luxury spending in Hong Kong and Macau affected the company’s overall performance. Sales from the traveling luxury consumer from China also declined sharply.

Burberry share price declined 25 percent in the last one year due to weak sales. Bloomberg

Gobbetti is currently chairman and CEO of French luxury brand Céline, owned by LVMH. He has been in the fashion industry for more than 20 years, having previously worked at Givenchy and Moschino. He will join Burberry in 2017. Both Gobetti and Bailey will report to the Chairman Sir John Peace.

Burberry shares jumped 5 percent on the news on July 11.

Burberry also appointed Julie Brown as new chief operating and financial officer. Brown will join Burberry in early 2017. She is currently CFO of Smith & Nephew and credited with experience of cost discipline and restructuring, according to Solca.

“All in all, this is a step forward for Burberry, where we perceived a need of reinvention and stronger direction. … Clearly, Marco [Gobebetti] will have to prove himself in a much larger company than Céline,” said Solca.

“We will have to wait a few quarters before the impacts of the new leadership translate in the business.”