October 16, 2013 7:01 pm
By John Gapper
©Ingram PinnTo tour the Burberry flagship store on London’s Regent Street – with its beautifully stacked clothes, its “magic mirrors” that illuminate with runway images, its signs in Arabic for Gulf tourists and its “VVIP” room on the top floor – is to enter as sweet a world as Willy Wonka’s chocolate factory.
Its Wonka is Christopher Bailey, Burberry’s chief creative officer, and designer of all the contents, including a £70,000 “limited edition” white alligator skin jacket. His theatre of luxury is a few notches up the price scale from the nearby Apple store, outside which a queue formed on Wednesday for the iPhone 5s, but they are related.
The appointment of Angela Ahrendts, Burberry’s chief executive, as the head of Apple’s online and retail stores, is proof of that. Ron Johnson, the man who created Apple’s highly successful shops, failed spectacularly when he moved from computers to clothing, trying to work Apple’s magic on JC Penney, the US department store. She is moving the other way.
I rate her chances of success higher than Mr Johnson’s because Burberry and Apple have more in common. Ms Ahrendts and Mr Bailey are equals to the late Steve Jobs and Sir Jonathan Ive, Apple’s designer, as control freaks. From early in their joint tenure, they realised the need to hold authority over everything, both online and off.
Expensive and risky as that is – it requires heavy capital investment and sufficient scale to reap the right returns – control is becoming vital as online retailing cannibalises physical distribution. The French parliament passed a law to try to stop Amazon undermining the country’s book shops through discounting and free delivery. The world’s other retailers must fend for themselves.
When Ms Ahrendts took over in 2006, Burberry had expanded rapidly under Rose Marie Bravo, her predecessor, but at a price. It had licensed the brand widely, allowing designs to proliferate, and its tartan check had been cheapened by being worn by football fans, among others. Ms Ahrendts invested many millions to buy back the licences and regain its brand authority.
She now wields at least as much power as Tim Cook, Apple’s chief executive. Burberry customers are served by assistants with iPads that can store their shopping history, and it makes no difference if they leave the store and buy the same item at home. Online and offline displays change monthly in lockstep and prices are identical.
Indeed, Mr Cook has been making Apple as integrated as Burberry. He put Sir Jonathan in charge of software as well as hardware, and Ms Ahrendts will run both online and retail stores, unlike Mr Johnson. At least Mr Cook is keeping his job. On her departure, Mr Bailey will become Burberry’s chief executive as well as its chief designer, which is taking control freakery too far.
Ms Ahrendts is not a genius, as Jobs was. Other luxury goods companies have pursued similar strategies, and luxury as a whole has expanded faster than other segments of retailing. Investing in smart stores and websites comes more naturally to premium and luxury brands than discounters, or middle-market chains such as JC Penney.
But retailers such as Inditex, Arcadia and Uniqlo have also gained from the integration of design, manufacturing and retailing, while the unintegrated, such as Best Buy and Barnes & Noble, suffer from exposure to Amazon. “If you don’t control the brand, you’re in trouble,” says one chief executive.
“These companies operate in a closed environment. That’s critical,” says David Marcotte, retail director at Wipro Technologies, of luxury goods companies such as Burberry. It is also easy to underestimate, as Mr Johnson did at JC Penney when he joined in 2011. He tried to make it more Apple-like by reducing the number of brands, cutting discounts and rewarding staff for customer service rather than sales.
The problem was JC Penney’s customer could shop elsewhere for similar things and, if they checked prices online, they could find the bargains beyond his reach. He oversaw the prices and displays in his own shops, but there was another world outside.
Apple and Burberry are more tightly sealed – 68 per cent of Burberry’s sales are made in its own shops, and its products are difficult to buy cheaper in department stores. Although Walmart is discounting the iPhone 5, Apple largely retains control of retail prices.
Having worked to prevent any alternative being more attractive, the two reward customers for making a journey to their stores. The architecture is pleasing – Burberry’s Regent Street store incorporates an old cinema – the staff are friendly and bands sometimes play, to add to the immersive entertainment of trying (on) the products.
It is difficult to cast this spell, as Mr Johnson and others have discovered. Other retailers that sell their own products and run their own digital stores find shops being drained of revenue. “The increase in online sales has outpaced industry growth and led to cannibalisation,” says Marc-André Kamel, a partner at Bain & Co, the consultancy.
Making the whole add up to more than the sum of its parts is thus vital. Burberry is still a way from achieving this – it does not report digital and physical sales separately and some analysts think it has spent a lot on digital for relatively meagre returns. Yet Ms Ahrendts and Mr Bailey have extended their world’s boundaries beyond the store.
Ms Ahrendts’ reward is a job at Apple and Mr Bailey is to become Burberry’s big chief. Willy Wonka could not ask for more.
john.gapper@ft.com
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