25 Jan 2007
By Andrew Sawers
“History. History!” We had to ask. Stacey Cartwright is much more interested in Americans in Kansas City, Missouri, than she is in chavs in England. For the chief financial officer of Burberry, the company whose black, beige and red check trademark became an emblem of the Little Britain/Vicky Pollard generation, it’s the high-spending Americans who are more critical to the future of the company.
Moreover, Cartwright insists that the ‘chav problem’ – which some people had suggested was turning the English upper classes off the brand – was never very serious and, in any event, is now safely in the past – “History,” as she puts it. The recent UK double-digit growth figures show that she’s probably right. So does the fact that the company has completely sold out of its new ‘Manor’ handbag – at eight hundred quid a pop.
But back to Missouri and the story that’s unfolding there and in countless other cities around the world – a story of how new life has been injected into a familiar brand, and the role of finance in making that happen.
Burberry went through a transformation from the turn of the millennium onwards under the leadership of chief executive Rose Marie Bravo, an American who joined the group after serving as president of US department store Saks Fifth Avenue. During Bravo’s tenure, group turnover more than trebled and, in 2002, the company IPO’d in London as a first step in a process that would lead to the complete separation from its long-standing parent, Great Universal Stores.
By 2006, Bravo had handpicked her own successor. Angela Ahrendts, who came to Burberry from American fashion house Liz Claiborne, joined in January 2006 then spent the first half of the year “under the radar”, as Cartwright puts it, trying to work out what the next stage of Burberry’s strategy should be. When Ahrendts formally succeeded Bravo last July, she set off “all guns blazing” straight away.
As for Cartwright, she had joined Burberry in March 2004 having left Prudential’s internet bank, egg plc, the previous autumn. And so this is where the finance story starts to kick in.
By the time of Cartwright’s arrival, Burberry had been through rapid growth, store expansion and the demands of the IPO; the finance department was struggling to match the pace.
“The only way we could keep up was to bolt on solutions,” Cartwright says. “I could be here forever listing the number of systems we had that didn’t talk to each other, and relied on someone to download a spreadsheet and convert it.”
Obviously, that sort of chaos creates problems for the management “When you’re asking what feel like basic questions about profitability by [wholesale] customer or profitability by regions – and true flow-through profitability as well – you can’t get a clear picture. Everything can be done, but it takes a long time. But it works because there’s a huge amount of commitment and dedication on the part of the people here to hold it all together at the various stages.”
Cartwright’s solution was a radical initiative to overhaul the systems, to “replatform the business”. Project Atlas, as she dubbed it, was a year in the planning and is now half-way through a two-year delivery schedules, which includes implementation of SAP worldwide.
Cartwright adds that, while efficiencies may have been part of the reason for initiating the programme, the more fundamental need was to remove the constraint on growth: “People can’t work any harder; they can’t peddle any harder to keep things held together.”
Project Atlas isn’t coming cheap. It’s a £50m rollout. But she also spells out the hard, p&l benefits that will come out of it: £6m this year, a further £14m next year, making £20m a year on an ongoing basis. Not a bad return on investment. “A chunk of that is eliminating wastage, a chunk of it is around greater visibility which enables better decision-making, and part of it is around being4 able to leverage within our supply chain,” she explains. “A lot of the benefits we will get simply by having visibility completely through our supply chain.” It will be easier, for example, to see what the company’s position is in raw materials and work-in-progress, and to see where the money is being spent and perhaps to source certain products from two suppliers, not six.
Over the past couple of years, Cartwright has been trying to get the department back to “first principles”, to “lay in the good foundations: the solid reporting mechanisms, the disciplines of monthly reviews with each of our businesses. Angela will sit with each of our businesses every month and go through detailed operational reviews with them. That didn’t happen two or three years ago.” Project Atlas is helping in this regard: “For the people in the organisation they’ll be able to turn their time to value-add activities rather than processing activities.”
When Ahrendts formally took up the reins as chief exec last July, she unveiled her five key strategic themes for the business. “Phew!” Cartwright feigns great relief that Project Atlas, her “baby”, is embedded as the most significant embodiment of one of the five, branded ‘Operational excellence’.
But Cartwright’s role extends to “partnering” her chief exec on the other four strategic themes as well. And while each of them has interesting lessons in how Burberry is transforming as a brand and as a consumer goods business, there have also been significant implications for the finance department.
The first of these is ‘Leveraging the franchise: one company, one brand’. Having grown over the years in a rather haphazard way, Burberry found itself with “a federation of individual companies” – though that sounds like a polite phrase for what was really lots of offshoots around the world that didn’t talk to each other, in some cases competed against each other, and which often designed their own products for their own markets and wouldn’t sell them to other parts of the business. “Life’s complicated enough in that outside world,” Cartwright says. “Eliminate the complexity internally and you can focus all your attentions on how to deal with the outside world.”
The second key strategic theme is ‘Retail-led growth’. Traditionally, Burberry has described itself as a wholesaler, supplying the major department stores twice a year with huge runs of the two big seasonal offerings. There was some company-owned retail presence, but even its own shops were seemingly treated as little more than just another customer. The problem with this model is that if you have a bad season, you have to live with it for six months before the next season can come to your rescue. Even a sell-out season causes problems because you simply can’t restock quickly enough.
Now the company has an aggressive worldwide store opening programme – we’re back in Kansas City, Missouri – and has moved to a ‘five market’ structure throughout the calendar year rather than just the two main ‘seasons’. This has several implications, as Cartwright points out.
“If you are a retailer you have to be much more dynamic and responsive, and react to consumer needs,” she says – and every department feels the effect, even finance. “Have that retail mentality and all of a sudden everything is done a lot faster. There are more demands on the team: ‘What does this look like? Let me see what the numbers look like. Let me run the analysis now.’ You’re seeing that retail momentum in the support functions.”
Clear supply chain
Such a retail-led strategy also “gives an opportunity to smooth out your supply chain rather than these two big slugs that everybody gears up to and then collapses exhausted in the corner once the peak is over.” And some of the basics, especially the non-seasonal items shouldn’t go out of stock. And, of course, you get the whole of the flow-through margin, so each extra £800 handb ag will make a lot more profit if sold via the retail outlets than through, say, Harrods.
The third strategic plank is to drive the growth of ‘non-apparel’ items. Apparently, there’s more margin in accessories than in clothing, and they are less prone to seasonal or ‘fashion’ fluctuations. They also help fill the middle of the company’s ‘product pyramid’: there are plenty of lower-priced items at the base of the pyramid, Cartwright explains, and some at the top, but not much in the middle. Accessories help fill that gap.
More to the point, accessories are “the epitome of what a luxury player is about,” she says. The £800 ‘Manor’ handbag, for example, was “a little test”; it was phenomenally successful. The company sounded out its customers and its own retail units to gauge demand. “Angela [Ahrendts] and I then took the position internally that we would basically double the orders that our divisions had come up with – and we still blew out,” Cartwright says.
“This is where the vagaries of our supply chain come into play,” she admits. “We don’t have the slickest supply chain so we were scrabbling around for reorders to see how much of the missing business we could pick up before Christmas.” Project Atlas will help manage the supply chain better, as well as improving forecasting. In future, Cartwright and her colleagues will be able to predict likely sales around the world based on the immediate impact of certain products in the New York or Bond Street stores, for example.
The fourth strategic plank is to go for ‘under-penetrated markets’. The knee-jerk reaction is to think of China and Russia, but the US, too, is a hugely under-exploited market. The US also has the advantage of huge shopping malls, whose landlords are keen to entice crowd-pulling luxury goods retailers by sharing fit-out costs and offering attractive rent-free periods. Even in Kansas City, Missouri. “All of these markets are opening up step by step,” Cartwright says. “Timing is everything. We don’t like to be the first entrant in these marketplaces. We like to go there with our friends, if you like. We check, we’ve done all our benchmarking as to where the big department stores are [as well as] Tiffany’s, Gucci, Vuitton. Once you’ve got a few of those players making headway then we like to follow on. There’s no disadvantage in waiting a bit longer.”
Waiting? A rare note of caution from an FD whose business seems to be craving change and hungering for more growth, whatever it takes. “A number external consultants said they’ve never seen an organisation like Burberry where the appetite for change is like, ‘Please, please, when can I have it?’” she says. “People recognise that they haven’t got the right tools today to do their jobs properly, and they know it’s going to be painful to go through the conversion, but they still want it because they know it’s going to be so much better once we’re through it.”
Then, the old bottle-necks and confusion and attitudes will be history, too.
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