Reference no: EM132149971

CASE STUDY : Burberry: Pairing Tradition with Innovation

When Angela Ahrendts took the helm as CEO of Burberry in July 2006, the ancient luxury goods company was struggling. Despite a burgeoning global luxury market, the brand, founded in 1856 in Hampshire, England, was growing at a sluggish 2 percent a year. Competitor brands were far outpacing Burberry in profits: Louis Vuitton Moët Hennessy had nearly 12 times Burberry’s revenue, and Pinault-Printemps-Redoute (now Kering) was pulling in more than 16 times.

Eight years later, American-born Ahrendts has turned the company around; her revitalization of Burberry even earned her the title of honorary Dame of the British Empire, and during her reign made her the top-paid CEO (beating out male and female peers alike) in all of Britain. By identifying why sales were sluggish and then making sweeping changes to the company’s organization, Ahrendts dramatically increased the company’s returns. Her clear vision and execution catapulted Burberry back into the circle of esteemed luxury brands.

How had an iconic brand like Burberry gotten itself into such a predicament? Although the problems were multifaceted, the short answer is inefficient organization. The challenges within the organizational structure resulted in a lack of a clear, long-term vision. Burberry and its employees had simply lost focus.

Ahrendts saw trouble at the very first planning meeting with Burberry’s top executives. Despite the typical British weather, none of the managers was wearing the company’s signature item: the Burberry trench coat. “If our top people aren’t buying our products, despite the great discount they could get, how could we expect customers to pay full price for them?,” she wondered.

Burberry had long been organized as though it was a department store. Each category of men’s and women’s categories had its own leader. That may seem to make sense, but there was little integration. This led to the heads of the various categories making decisions that were good for them but detrimental to the business as a whole. The problem extended all the way down to salespeople, who were focused on moving easy-sell items like shirts instead of higher-priced items that affected the bottom line. They did not have the resources to enable them to convince customers that items like the classic trench were a great purchase.

At the time Ahrendts took over, Burberry had 23 licenses worldwide. Issuing so many licenses with little direction had resulted in too many offerings, from pet outfits to kilts. Sales of signature outerwear made up just 20 percent of Burberry’s business. The trademarked check pattern had been coopted by the knock-off industry and had morphed into a distinctly “unluxury” identity. The brand had become more and more ubiquitous, but that’s not necessarily a good thing in the luxury market. The company was trying for mass appeal. As Ahrendts put it, Burberry had “something for everybody, but not much of it exclusive or compelling.”

Ahrendts took charge to restructure Burberry around an improved brand image. She accomplished this in three main steps. First, she created a clear long-term vision. Next, she made sure it was understood by everyone. Finally, she fully engaged people from top to bottom: top executives, salespeople, customers, and everyone in between.

Her vision began with remembering Burberry’s core: outerwear and its famous trench coats. Ahrendts realized that much of the disconnection between departments occurred because of organization, and that affected sales. She appointed designer, Christopher Bailey, as Burberry’s “brand czar.” His eyes would see every piece of merchandise to be sold anywhere in the world. This gave the brand significantly more unity; Bailey polished Burberry into a “luxury brand with a very British sensibility.” Ahrendts found that appointing a brand czar had an effect on customers, saying, “The purer our message, the more compelling it is to consumers.” Along similar lines, heads of other practical areas were appointed, including corporate resources, planning, and supply chain. The goal was to keep the best interests of the brand at the forefront of every employee’s mind.

The restructuring continued with the goal of injecting more authenticity into the brand. Thirty-five product categories were eliminated. They did away with the entire Hong Kong design team, brought US designers to the UK, and closed factories in New Jersey and Wales. These decisions were not without controversy: Ahrendts was made to testify in front of Parliament regarding the closure of the Welsh factory. However, streamlining in certain areas was paired with investment in others. Burberry’s Castleford facility in Yorkshire has since doubled its employee population. The facility has been around since near the founding of the company over 150 years ago. Doing more work in house instead of outsourcing to far-flung locations resulted in more cohesive processes—and brand.

Burberry also began strategically expanding is retail presence and sharpening its customer base. The company looked into cities in which at least two competitors had stores but Burberry did not. They also capitalized on so-called “underpenetrated” markets, including Baku, Azerbaijan; Nashville, Tennessee; Poznan, Poland; and many others. These budding markets have fueled an incredible growth for the business. In the space of six years, Burberry opened 132 new stores. While expanding, the company also trained its sales associates with a new education program so that they could better communicate with customers. Finally, Burberry shifted its customer focus from “everyone, everywhere” to what they saw as an overlooked contingent: millennials. The Burberry team created a mass of captivating digital content and sought to engage customers through storytelling via the latest platforms. As a result, Burberry’s Facebook page has several times the number of fans of other luxury brands, among other social media triumphs. Embracing digital and social media gave Burberry an edge, because most rivals were slower to take advantage of such marketing opportunities.

The results of Ahrendts’s reorganization speak for themselves. Burberry has since tripled its stock price and has a market capitalization approaching $10 billion. The company was named the fourth-fastest growing brand globally in 2011 and the fastest-growing luxury brand in 2012. Burberry catapulted back to success in its industry by realizing that the classic and the fresh are not mutually exclusive, just as its founder had known so many years before. She knew that tradition could serve as a catalyst rather than a detriment to innovation, and others are paying attention. Apple recently courted Ahrendts to head up its retail division with a signing bonus that could be worth as much as $68 million, making her the highest paid female executive at a public U.S company.

Case Questions

1. Define organizational strategy and why it was so important in the Burberry case study.

2. Discuss what type of organizational learning strategy Burberry used.

3. Explain how Burberry became a first mover to millennials in the digital market.