CEO Talk | Angela Ahrendts on Burberry's Connected Culture

LONDON, United Kingdom — With Angela Ahrendts at the helm, Burberry has developed a global reputation for excellence, not just in the financial markets (where its stock price has surged by more than 250 percent since her arrival in July 2006) and the luxury industry (Burberry is now one of the sector's undisputed mega brands with over 530 stores around the world and annual revenues of over $3 billion), but in Silicon Valley as well, where the company is held up as a shining example by companies like Facebook and Twitter for its forward-thinking, savvy approach to digital marketing, commerce and community-building.

The stature of the brand is evident as soon as you walk into Horseferry House, Burberry’s 160,000 square foot global headquarters in London. There, projected on massive screens in the building's lobby, is a highly-stylised, larger-than-life video of Sienna Miller and Tom Sturridge cavorting and kissing while dressed head-to-toe in Burberry. There, in the huge glass atrium — itself designed to showcase the elements outside for a brand whose heritage in Britishness and trenchcoats is intimately linked to "weather" — are stairwells designed to mimic the famous Burberry check. And, scurrying around, everywhere in sight, are employees, all of whom appear to be perfectly “on brand,” clad in clothing that's in line with the Burberry aesthetic.

The company's tightly controlled message has its detractors — and is probably a direct result of the fact that, for many years, Burberry had lost control of its brand, creating damage that was not easy to repair. But even the most-hardened cynics could not help but be impressed by Ms Ahrendts who, along with chief creative officer Christopher Bailey, has masterminded the company's spectacular ascent over the past seven years.

“She has a brilliant commercial mind, but she also genuinely loves design and admires innovation,” says Mr Bailey. “We work hand in glove — an organic partnership based on trust and understanding, which enables us to balance creativity, commerce and culture."

Indeed, rather than being “on-brand,” Ms Ahrendts would describe the startling cohesiveness of the scene in Burberry's lobby as a sign of a company with a clearly defined culture, a word that comes up repeatedly in our conversation and which lies at the heart of her business strategy.

After cleaning up the company’s licenses, taking ownership of its retail network from Asian franchisees, restructuring the brand hierarchy and, of course, pioneering the frontier of digital media, Ms Ahrendts has been preparing Burberry for its next big move: the debut of its first in-house fragrance since the company ended its twenty year-old beauty license with Interparfums earlier this year.

Burberry Brit Rhythm | Source: Burberry

Brit Rhythm, a new menswear scent launching today, is built around music — another pillar of the brand — and will roll out with a slew of major marketing initiatives, including an Instagram campaign which will appear in outdoor digital advertising, along with video from live music gigs to be staged in London, New York and Singapore. In sum, the brand has allocated 30 percent of its total marketing spend to digital channels, compared with an average of just four percent for the beauty industry.

But why would Burberry bring beauty in-house in the first place, giving up guaranteed royalty income that goes straight to the bottom line, in a move that immediately cost the company €181 million (about $240 million) in termination fees? This and many other questions were on my mind as I sat down with Ms Ahrendts in her top-floor office to discuss the next phase of the Burberry revolution.

BoF: As an American transplant to London, what was it that attracted you to Burberry in the first place?

AA: Big question. It was a big move for me; two homes, three kids, two dogs, a husband.

So first, Christopher was already here, and we knew each other because we used to work together [at Donna Karan]. He was a huge part of the attraction initially, knowing him, trusting him. Two, the [luxury] sector was up 13 percent when I started. I'm a businesswoman, so from a business standpoint the opportunities were glaring.

[Christopher and I] talked a lot about how we would do this together, because I was insecure. I’d never done this before. He was young and it was going to put him the spotlight. We relied heavily on each other, and said ‘OK, together, can we create the kind of brand, the kind of company we always dreamed of working for?’ He was very clear on his brand vision. I was very clear on the company vision, not just the business, but the culture and the people.

That’s probably one of the things I’ve never left behind from the Midwest. It always begins and ends with people.

BoF: Burberry is a 157-year-old British brand with a heritage in trenchcoats. But today, the company is also widely known as a digital pioneer. When did the idea of integrating digital into the brand's fundamental culture, its DNA, first come about?

AA: From day one. It’s kind of like David and Goliath. There are big Goliaths out there in the sector. Huge! And we were this small, underperforming British brand. We spent a lot of time together, asking ourselves, ‘Where is our white space? What do we have that they do not?’

We are British, everything we do has got to be quintessentially British. The music, the models, everything… and that was going to be a huge differentiator, and the outerwear. We were born from a coat. It’s what we are, it’s our DNA.

We did a lot of studying around the world, with all the new markets coming into play. India, Latin America, China. Some of the firms that we worked with said this new luxury consumer will be 25 years younger than the traditional Western luxury customer. So we made the decision, very early on, that we were going to target a millennial consumer.

This whole ecosystem was being built and we just knew we had to go digital, but we also knew we didn’t have the money to play in traditional media. We knew every pound we spent digitally, we could potentially get ten times the reach that we could get physically.

BoF: How did you know that?

AA: It was all out there. The numbers were all out there.

There’s also a ten year age difference between Christopher and I, and I’ve always said he’s been a bridge into the next generation, so I have him on one side, and three teens that are much younger than he is on the other side. So we knew — watching my kids and what they were demanding and wanting, and how they were communicating. We had nothing to lose.

That first six to twelve months, you can do a lot of testing, playing, dreaming and that’s really what we did and we had a lot of quick wins. It was like ‘that worked, let’s do more!’

BoF: Looking back, now, over this seven year period, how would you quantify the impact that digital innovation has had on the business?

AA: Now you sound like an investor! It's really tricky and what I typically tell investors is, all that money we were spending in newspapers and magazines, how did we ever really measure that return? How did we measure the impact on traffic, how did we measure the impact on conversion? You could never really measure traditional media.

So if I didn’t know then, I know a lot more now. Now I have traffic counters in every store in the world, so when we do something, we can [understand] the cause and effect. We’ve got all the systems in place, so we can look at the conversion. We are also driving them to Burberry.com, the minute they go into that, we can capture a lot of data.

So, what I tell investors is, we’ve nearly tripled the business in seven years. Other than 2008, every metric, revenue, gross margin, everything, has been on the right trajectory, and the share price is simply the outcome of all of that.

We only do one or two big things a year, that’s it, but we unite everybody around those one or two big things. This is the most connected culture that you will ever find, I believe, in any industry in the world.

BoF: What do you mean by connected culture?

AA: [Here’s one] little example. I am probably the only person in the company that got to watch the Teen Choice awards last week, because I have a 12 year old and we had to be home to see One Direction.

So I'm sitting there watching the Teen Choice awards and I see Ashton Kutcher come up and I was blown away [by his speech]. We have a platform called Burberry Chat, in house, where I can communicate to [all of our] 11,200 people. I wrote: 'One of the most inspiring things I saw over the holidays was this link. Please watch and spread'.

In one hour, I got over 150 associates from around the world sending chats back saying they had spread it on.

When Christopher does the new ad campaign, he puts it up on Burberry Chat, before it goes outside. He does a big 3-4 minute chat every single month, I do a big 3-4 minute chat every single month, and we take some of our younger, inspirational talent and we interview them. It makes [our associates] proud of where they belong and it gives them hope that that can be them. Isn’t that how you build a connected culture?

BoF: I was intrigued by the decision to bring the fragrance and beauty business in house. It’s a bold move. Most luxury companies prefer to run this as a licensing business. What was the strategic rationale?

AA: The beauty sector was ripe. You had a couple of big guys in luxury — Chanel and Dior — that have dominated that space for a long time. And you had the big conglomerates like P&G starting to make big announcements. Armani had gone in a little, P&G just launched Dolce.

We hadn’t launched a new category for three years. The team was ready, the culture was ready, so we bought it back, [but] not to set it up as a separate business. We called it the fifth product division. We have women’s, men’s, accessories, children’s wear and now we have beauty.

BoF: So what’s the plan for beauty?

I told the board, we are not going to do it the traditional way. There are guys out there doing $30 billion. There are huge French and American players in this category. We have to do it differently. We have to be more innovative [and] leverage this amazing marketing talent, this amazing digital talent, the video, photographers and the way we shoot things and forget what’s out there.

So, we felt we could be a little disruptive [with beauty]. It’s something you wear, something you put on, and we said how can we leverage the best of fashion with beauty?

If you’re coming to the show to see all of this, why shouldn’t [beauty] be ours too? If you’re going to click to buy those clothes, why can’t you click to buy the lipstick, or click to buy the nail polish? How cool would it be if we actually took these categories and put them on a fashion cycle? What if it actually all matched the clothes, every month? If we do it our way, maybe people will think that is different and unique.

BoF: How exactly do you see the fashion and beauty businesses working more closely together?

AA: We did a little test when we launched Burberry Body a year ago. We took over 16 of the flagship markets around the world and tested a lot of new things that we hadn’t done before, like interactive outdoor [advertising].

What we learned is that not only did the Body fragrance jump into the top ten, which we’ve never had in the history of the company, there [was also a huge] impact on our entire business.

So, we did the same thing with Brit Rhythm. It wasn't a coincidence that Cara Delevingne showed up at the Met Ball in New York wearing a studded leather jacket that happens to look very similar to the ones in all the Brit ads.

BoF: That makes sense. Fragrance licensing deals come with big, guaranteed advertising budgets, but sometimes those ads feel disconnected from the brand’s core fashion message. What do you expect will be the impact on the business of the beauty integration?

AA: We committed to deliver £25 million in profit this year (about $38 million) on £140 million in revenue. This was neutral on a profit and loss basis. We guaranteed we would offset that full royalty.

BoF: You spoke earlier about going after millennials. How important was the millennial consumer in deciding to bring beauty in house? They might not have the disposable income to buy into the runway collections, but they can probably buy a fragrance.

AA: It wasn’t driven by it, but it was absolutely taken into consideration, as was [the fact that] Asia is still coming on strong, and these markets also have a voracious appetite for beauty and skincare products. So all the traditional business things were taken into consideration, but the most important one of all is that the brand was ready.

BoF: Are millennials the customers of the future?

AA: It’s a great question. Eight years ago we targeted the millennial consumer, because that was the white space we needed to play in because our peers didn’t. We knew that was the customer coming out of these high-growth emerging markets.

There are going to be seven billion smartphones in everybody's hands in the next five years. Now, everybody is a digital customer, so doing things digitally is no longer a niche [play]. Doing things digitally is how the entire world communicates.

That’s our language today. Digital is not an afterthought. Our design teams design for a landing page and the landing page dictates what the store windows will look like, not the other way round. In creative media, they’re shooting for digital, then we are turning it back to physical.

I talk to these outdoor companies and we get some amazing deals. They’ve invested in thousands of digital screens but everybody is still giving them still images. It drives them crazy.

Great companies need to move as fast as the consumers are moving. Look at Samsung. Look at Apple. Look at what is happening in this whole world. The brand has to look cool on every device.

BoF: How are smartphones driving your strategy?

AA: None of us go anywhere without them and organisations have to keep evolving. Sometimes what [investors] don’t like is the expense structure. Look at the number of new departments that we have had to create in the last three years alone. You can farm a lot of it out, but you’re going to pay three times the amount, or it’s going to take you three times longer.

So, if we all agree none of us are getting rid of [mobile] and it’s only going to get better and better, how do I make sure there is a team in house that can take every bit of our content and make sure it’s perfect and relevant and for where mobile is going. There are companies that still do everything for print. We were doing everything for desktop, but now let’s do everything for mobile and then take it back to desktop.

BoF: Is that is what’s happening now?

AA: That’s what is happening right now. We have a huge team, we have a mobile director, we have a mobile team in the creative department, a whole mobile team in the tech department, because we know this is where it’s going.

All you have to do is look at your own behavior and how you want to shop. How many times do you go on Google? So what’s our Google strategy? What’s our YouTube strategy? What’s our Facebook strategy? Wherever the consumer is going, we have to have a strategy, for every consumer across every one of those devices, platforms and channels.

BoF: There is so much that we know about Burberry, especially with regards to digital innovation. But what don’t I know that I should know?

AA: You might think this is an odd way to answer, but I also think pretty strongly that great fashion brands and companies, if they really want to be great, can do a lot more in their communities.

What we don’t talk about a lot is all the great things the company does in every community where we have offices and we work. We put one percent of our profits into the Burberry Foundation. That’s a big number. We don’t open a flagship store without gifting a £1 million to a local organisation that helps disadvantaged youth — especially the ones that are creative thinkers, that are falling out of the system.

When we opened Regent Street, we partnered with Ark [Schools] here. When we did New York, we partnered with Robin Hood. These are huge organisations that are ongoing partners. I think this is what makes great companies and what creates great cultures and keeps everyone loyal and connected.

You know, I had a cultural anthropologist come in and study the culture of the company to tell us what we had created. I wanted to capture it for the next generation so they could understand how we did this and how we work.

This interview has been edited and condensed.

A version of this article first appeared in a special print edition of The Business of Fashion, published to accompany the launch of the BoF 500. To get your copy, click here or visit Colette in Paris, Opening Ceremony in New York, London and Los Angeles, Le Mill in Mumbai and Sneakerboy in Melbourne.