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October 20, 2017
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Christopher Bailey and Angela Ahrendts. Source: fastcodesign.com

It was announced last Tuesday that Angela Ahrendts would step down from her highly acclaimed helm as chief executive officer of Burberry to assume the role of senior vice president for retail and online stores with technology giant, Apple. Christopher Bailey, chief creative officer since 2006, will continue his current role while also filling the substantial gap left in the company by Ahrendts.

"Burberry is in brilliant shape, having built the industry's most powerful management team, converted the business to a dynamic digital global retailer, created a world class supply chain, state of the art technology infrastructure, sensational brand momentum and one of the most closely connected creative cultures in the world today," Ahrendts explained in a video released by the 157-year-old fashion house to explain the impending company changes.

However, despite this assurance from Ahrendts, the widely unanticipated job swap caused stock turmoil almost as soon as the change was announced. By mid-morning, shares were down at Burberry by 75p - shaving £330 million off the company's value in a matter of hours. By the close of trading in London that same day, share prices had dropped significantly by more than seven percent - despite, as The Business of Fashion noted, the fact that Burberry had reported 17 percent growth in revenues in the six months to the end of September, ahead of expectations put in place by consensus analysts.

With this sharp drop in share value for Burberry, the question ought to be raised as to who or what consumers and shareholders trust the most – the boss or the business. Furthermore, once such dramatic changes have occurred, how quickly can a company recover and regain the trust they once had, or do such events have a more long-term impact?

At Ahrendts' helm the Burberry flagship store
was transformed into an enviable emporium.
Source: retail-week.com

There is a lot to be said for the influence that a notable boss has when it comes to a company's stock market security. Investors tend to panic at the first sign of change, causing a ripple effect as others follow. When Stacey Cartwright, Burberry's group finance director, announced that she would be leaving in February this year, shares also saw a similar drop. Meanwhile, with Ahrendts latest move, investors and analysts have largely applauded Apple's bold move, with its shares rallying.

It comes as little surprise that investors trust the strength that Ahrendts brings to a company. Her highly successful track record speaks for itself; a once flailing company struggling to find its feet after their brand image had been tarnished by mass counterfeits flooding the British market now stands as a serious fashion power house and luxury retailer with names such as Anna Wintour, Sienna Miller and Harry Styles all sitting front row at fashion week.

However, as much as the drop in share prices is about Ahrendts departure, it is also influenced heavily by Bailey's appointment to the roles of both chief creative and chief executive officer. There has been much debate about whether he can feasibly perform both roles with the level of enthusiasm, direction and energy needed – or if this is simply superhuman expectations. Ultimately, Bailey is a fashion designer by trade. While many have credited him with helping to boost the FTSE 100 retailer's fortunes, Bailey does not have any direct experience of being in charge of a company - and more specifically, Burberry.

It is a company that he knows very well. Yet whether he can drive the business forward is ultimately about moving into unchartered territory and putting faith in his ability to prove others wrong - a risk that many are unwilling to take. This has been recognised by investors.

As a current shareholder and Portfolio Manager at a large Global Mutual Fund with over $150 billion in assets remarked confidentially, "very rarely, if ever, has a Chief Creative Director effectively managed day-to-day operations, and Burberry is in the thick of very significant strategic initiatives in fragrance, and beauty broadly, as well as pursuing independence in huge markets like Japan. Ahrendts and Bailey have entirely different skill sets as required by their respective roles."  Still, the concerned Fund Manager remains constructive on Burberry's business prospects as well as the fact that the Board will be pressured to seek other strategic alternatives should Bailey fail. "Burberry has generally been a well sought after asset in a consolidating industry."

However, while the departure and appointment of a boss can lead to stock market changes, there is no doubt that these are ultimately temporary. In the case of Cartwright, although Burberry's share prices dropped upon the announcement of her leaving, the company's plans to expand in Asia meant this decrease proved only fleeting. Shares steadily began to increase once again, reaching highs of GBP£16.67 by early September and continuing at similar heights until early October, despite an apparent slowdown in China's economy being reported to investors by rivals such as LVMH, owners of iconic luxury label, Louis Vuitton.

“very rarely, if ever, has a Chief Creative Director effectively managed day-to-day operations.

From looking at Burberry's share analysis over the last trading year, it would seem that fluctuations such as those seen this week often occur for the company's share prices - they are just far less reported on within the media. On 19 March, share prices at Burberry were at GBP£14.22 - a point that prices had been steadily pivoting around for several weeks. Yet by 5 April, these had dropped by £1.75 to £12.47 - a figure that is currently recorded as the company's lowest price for the year-to-date trading.

This price, which is significantly lower than that seen after Ahrendts announcement, came about at a time when her feet seemed firmly secured under the Burberry table.

Instead, the drop would seem to have come about as a result of the company's decision to launch its own beauty division in the same month. It would be far too short sighted to claim that such dips only occur when a key figure departs from the company. Trust wanes when change ensues - but this seems to be as much interwoven with the business as it is with the boss. It would appear, as such, that the company holds the greatest influence.

Imran Amed noted for The Business of Fashion that, if he was a shareholder of Burberry today, he would be "watching this space very closely, with my mouse very close to the sell button". Yet I wouldn't be so impetuous. The publicity surrounding the impact of Ahrendts departure can only be described as little other than scaremongering - and most certainly temporary. The drop in share prices has been far less dramatic than that seen in April - although perhaps sharper. 

However, over the past year, Burberry has seen many dips and rises - some abrupt, others gradual. It may have lost one of its key members, but it has gained enough security and direction under Ahrendts tenure to keep going at the same rate as before. Panic need not ensue. If Bailey cannot cope, it is unlikely the business will let the boss determine its fate.

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