Comment: Burberry changes may prove a faux pas

Martin Flanagan. Picture: Adrian Lourie
Martin Flanagan. Picture: Adrian Lourie
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BURBERRY has had a serious City wardrobe malfunction. The camel, black and red fashionwear group yesterday delivered two shocks to its market-followers.

First, it jolted them by revealing that long-standing chief executive Angela Ahrendts is to quit next year. True, Ahrendts has been at Burberry eight years in all and was bound to leave sometime (in this case for Apple, praise be upon its apps).

But she was a luxury brand superstar, and Britain’s highest-paid corporate earner in 2011-12 at £16.9 million. And it’s a rare company viewed more benignly when a superstar leaves.

However, it is arguably the second shock that was the greater driver behind the fall in Burberry’s share price yesterday. The company’s chief creative officer, Christopher Bailey, is to take over from Ahrendts at the helm, but is to combine the role of chief executive with his existing one.

This looks executive stretch. The understandable worry is that Bailey, well-regarded in the luxury retail industry though he is, could be taking on too much.

In addition, chief creative officer and chief executive are fundamentally different roles that require different skills. Arguably, the chief creative officer can use intuitive and lateral thinking without being accused of self-indulgence.

A chief executive’s role, by contrast, is often not just about broader strategic issues facing a group, but also on occasion reining in the adventurousness of subordinates in various functions.

In a company like Burberry, now re-established as a high-end beacon of fashion after a failed takeover by the chav constituency a decade ago, both roles are utterly time-consuming.

It cannot be compared to Tesco group chief executive Phil Clarke taking direct control last year of the supermarket giant’s UK operations.

Tesco’s UK operation remains its linchpin, and was in need of a turnaround so there was some logic in Clarke doing both jobs. But Burberry is a far more specialised operator, in an industry far more subservient to passing fashions than food retailing. To manage to retain both the creative vision of a fashion captain while having the overall field responsibilities of a general may be a difficult trick for Bailey to pull off.

The market will keep a watchful eye on him and Burberry before the ignited fears are allayed.

Inflation puts pressure on Carney’s strategy

INFLATION staying stubbornly at 2.7 per cent in September, above a consensus forecast fall to 2.6 per cent, will fuel market scepticism about Bank of England governor Mark Carney’s guidance that interest rates are likely to stay at current historic lows for another three years. Particularly with house prices rising at the fastest pace in almost three years in August.

Carney has built in get-outs by saying that rates could go up faster than the headline trigger of unemployment falling to 7 per cent if the BoE’s central mandate of controlling inflation is threatened.

And each time inflation disappoints, expectations will rise in markets that the governor will play his joker card, so to speak, to break his guidance and hike rates to curb rising prices.

Admittedly, other data yesterday showed factory gate inflation slowed appreciably in September, which will cheer the central bank. But not enough to prevent interest rate second-guessing becoming endemic.