Will Christopher Bailey's departure cause Burberry Group plc to stutter?
A great investor once said we should only buy stock in businesses so wonderful an idiot could run them. Because sooner or later, one will. In practice, this can be a pretty demanding piece of advice to follow, because more often than not it takes an exceptional manager or management team to build an exceptional business.
Fashion powerhouse Burberry (LSE: BRBY) has been around for over 150 years, so you might presume that it could thrive under any management team. Of course you'd be wrong, because since 2009 the brand has been reforged and dominated by its visionary head of design Christopher Bailey.
Shares in the company have smashed the market under his tenure, increasing 207% compared to the FTSE 100's 12.5% over the last 10 years. This morning, Burberry announced that Mr Bailey will leave his role next March and the entire company at the end of 2018 to pursue new creative projects.
He will remain President and Chief Creative Officer until 31 March, when he will step down from the board, although has agreed to continue in an advisory capacity until 2019.
The question on everybody's lips is "can Burberry thrive without Christopher Bailey?"
A business issue
When Angela Ahrednts became Burberry CEO in 2006, she quickly realised that the issues plaguing Burberry's brand were caused as much by the business model as by design flaws.
The company's faltering license model meant 23 different organisations around the world were creating Burberry products. The slack central design controls had left the Burberry range widespread and unfocused. In an interview with the Harvard Business Review, Ahrendts said: "In luxury, ubiquity will kill you--it means you're not really luxury anymore. And we were becoming ubiquitous."
To reverse the damage, she appointed Bailey as head of design and he has been in charge of approving every single Burberry product and fashion show since. Bailey reinstalled a sense of exclusivity to the famous check and the company's fortunes have since turned around.
Should you back Burberry?
There's no doubting Bailey's importance to Burberry, but his ascension was supported by sensible changes to the business model combined with a sound strategic approach which cut out licensing issues, targeted millennials and propelled the brand back into the luxury strata.
In all then, I have mixed feelings regarding the company's prospects sans Bailey.
The quintessentially British check is nearly 100 years old and will be a wonderful building block for a new head designer, but the Burberry brand has waxed and waned in popularity over time and is certainly not immune to the fickle tastes of the fashion industry.
Importantly, new CEO Marco Gobbetti has experience managing luxury brands and has a lengthy transition period where he can work alongside Bailey to secure Burberry's future.
Investors would be wise to keep a close eye on strategy going forward, but macro conditions look good for the business in the long term. I believe luxury spending will continue to increase as emerging classes across Asia seek out luxury goods as status symbols. If the company sticks to its roots, such as the British-made trench coats that earned it a royal charter, then I believe it has every chance to continue its expansion.
If you're not sold on the prospects of a post-Bailey Burberry, then perhaps you'd be interested in investing in another quintisentially British growth story that is still driven by its inspirational founder-owner.
Our top analyst reckons this company's international sales could explode in a similar fashion to Burberry's, which grew from £124m in 2002 to £2bn today. If the stars align for this promising growth company, we believe it could be worth nearly four times its current valuation.
To read the investment thesis behind this wonderful company, click here.
Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.