MARCO GOBBETTI RESIGNS FROM BURBERRY
The departure of Marco Gobbetti from Burberry caused its share price to tumble by 7.8%, effectively wiping £1 billion off the value of the brand. Gobbetti, who has previously led fashion brands including Céline, Givenchy and Moschino, will take the lead at Salvatore Ferragamo, where share prices have also fallen by 1.2%. As Burberry look for another CEO to replace Marco Gobbetti, one can only hope that the board has learnt from its past mistakes and not make Riccardo Tisci, Burberry’s current Creative Director, the brand’s CEO. This was a big error made by the previous management under Sir John Peace when Christopher Bailey was appointed into a dual role as CEO and Creative Director with predictable, dire consequences.
WHAT CAUSED THE SHARE PRICE SLUMP?
The Telegraph considers these 3 factors as contributors to the share price reaction following the resignation of Marco Gobbetti:
- an acknowledgement of his abilities
- a CEO of a fashion company is more critical to its future than the boss of a cardboard box manufacturer, for example
- a recognition that Gobbetti’s work at Burberry was not complete – analysts spoke of “a partially successful brand turnaround”
DID MARCO GOBBETTI TURN BURBERRY AROUND?
It is this third element that raises the biggest questions. The impact of the coronavirus pandemic has masked comparisons of the success, or otherwise, of Gobbetti’s plan to raise the Burberry brand to that of the likes of Gucci. Gobbetti has served 5 years at Burberry. Nevertheless, the cynics amongst us may believe that his turnaround is ineffectual. Hence, before his failures becomes obvious, he has decided to join a much smaller brand.
HOW DO SHARE PRICES COMPARE?
Comparing the share prices of Burberry with fashion conglomerates and other luxury brands speaks volumes. Over these 5 years, LVMH is up 250%, Kering up 251%, and Hermes up 202%. In contrast, Burberry has risen just 38% pre the Gobbetti announcement, although some could argue the comparison is not valid.
A £4 MILLION GOLDEN HANDSHAKE
Gobetti’s departure means that he will not be paid out his £9.7 million unvested share awards but he will be compensated by a £4 million golden handshake from Salvatore Ferragamo.
BURBERRY’S TWO CHALLENGES
Luca Solca, an analyst at Bernstein said Burberry faced two big challenges:
- to catch up in the retail of luxury leather goods and handbags
- to improve sales per square foot of retail space
Regarding its foray into leather, Burberry has always lagged behind rivals. Although the brand recognised this shortcoming some 10 years ago, one could well ask why it is still under-performing in this market? As for the return on retail space, Solca said this was “critical” but “lower than best in class.”
SALVATORE FERRAGAMO VERSUS BURBERRY
Salvatore Ferragamo is a much smaller brand. In the 12 months to 31 December 2020, its turnover was £797 million (€916 million) down from £1,212 million (€1377 million) in 2019. Compare this with Burberry’s massive revenue of £2,344 million for the 12 months to 27 March 2021, slightly down from £2,633 million the previous year and operating profits down to £396 million from £433 million. At least Burberry remains profitable. Salvatore Ferragamo has been severely impacted by COVID-19 with its operating profit of £132 million (€150 million) in 2019 turning into a loss of £55 million (€62 million) in 2020.
FOURTH TIME LUCKY?
Marco Gobbetti will be Salvatore Ferragamo’s fourth CEO in 5 years. Michele Norsa stepped down in 2016 after a decade, Eraldo Poletto left in 2018 after less than 2 years on the job, being succeeded by le Divelec Lemmi who will leave in September. Analysts see Gobbetti’s arrival as delaying a potential sale of Salvatore Ferragamo. The brand has been on a downward spin for the last 5 years. In 2015, its revenue was £1,021 million (€1,430 million) with an operating profit of £189 million (€265 million). Marco Gobbetti said it was his desire to return to Italy after working out of the country for nearly 20 years. However, is he really after the large reward if Salvatore Ferragamo finds a buyer? Can Gobbetti do more than a partially successful brand turnaround?
