Can ‘Brand CEO’ Julian Dunkerton supercharge Superdry?

Julian Dunkerton of Superdry is the latest ‘Brand CEO’ that I’m backing with cold, hard cash. Brand CEOs are leaders who are the living, breathing embodiment of their brands. I first posted on Brand CEOs back in 2008, when I began investing in them at critical points in the life of their companies. For example, I invested in Starbucks when founder Howard Shultz returned as CEO in May 2008, and in Tesco when Dave Lewis joined the then troubled retailer from Unilever in 2014. The ‘Brand CEO portfolio’ has done well so far, generating a return of 147% over 11 years since inception, versus 40% for the Dow Jones index. 

Like Shultz at Starbucks, Dunkerton is returning to the company he founded as CEO at a time of brand and business crisis. He stepped down as CEO in 2014, with Euan Sutherland taking over, but stayed on the board and remained the biggest shareholder. However, he left the board altogether in March 2018 over a disagreement on strategy. In the year that followed, the business went into freefall, with two profit warnings and a 70% drop in share price destroying £1.2 billion of shareholder value. In March 2019 Dunkerton instigated a boardroom battle to take back control of Superdry, narrowly winning the vote. Sutherland and most of his management left soon after.

Below I outline why I hope and believe Julian will make Superdry super again.

Image Credit: Wendy Gage [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

1.Brand passion

Brand CEOs, especially founders like Dunkerton, bring true passion to a business that creates emotional connection for employees and shareholders. ”His enthusiasm for the brand, even if you weren’t already a fan, is infectious,” explained an FT reporter in a recent article (1). In particular, Brand CEOs have a passion for the product that shows up in the marketplance. “There should be a real joy of product. When you walk around, you should have a little flutter… (he taps his heart],” said Dunkerton in the FT piece.

2. Re-connect with your roots

Superdry’s success was built on being a ‘design-led’ brand, with innovative creative input from co-founder James Holder based on an intuitive understanding of the consumer. The brand had a distinctive look, combining vintage American styling with Japanese inspired graphics.

However, the company forgot what made it famous under Sutherland’s watch, focussing on cost efficiency rather than innovation and quality, as outlined in Dunkerton’s Save Superdry investor prospectus (2):

  • Trying to follow fashion trends, rather than leading them (e.g. using colour chart books, as opposed to a strong in-house direction)
  • Over-simplification reducing individual feeling (e.g. using one logo design to save 10p)
  • Removal of the most fashion-forward designs created by the Superdry DesignLab 
  • Lengthening lead-times from production to store, defeating the purpose of a ‘fast fashion’ strategy 
  • Up to 70% reduction of stock in store, offering the customer reduced options
  • Continuous discounting – on sale in 48 of  52 weeks to March 19 – resulting in gross margin and brand equity destruction 
  • Dismantling of the Visual Merchandising Team, resulting in no guidelines in store

The duo of Dunkerton and Holder are now back and seeking to re-connect the brand with its roots:

  • Reverse the ‘buyer-led’ approach to return to a design-led business 
  • Re-engage DesignLab and creative teams 
  • Return to the quality of product that the brand became famous for 
  • Work on expanding innovation and SKU count 

3. Focus on the core

One of the first and most urgent jobs for a Brand CEO is to re-focus the company on its core business. Dave Lewis did this at Tesco, selling off a raft of businesses that the previous leadership team had bought, including Giraffe restaurants and Harris & Hoole coffee shops. Dunkerton has followed the same strategy, making the decision to ditch the move into children’s clothing on day 1. He was concerned that this would further undermine the street cred of an already damaged brand and also distract time, talent and money from fixing the problems on the core.

4. Relentless renovation

James Holder and his DesignLab are back and busy again working to energise and innovate the product offer. Importantly, this is a never-ending process of relentless renovation. Small items of new lines are now being trialled ‘test and learn’ in real time, both in store and especially online via internet exclusive products.

‘Core Classics’ true to the DNA of the brand are being reinvigorated, such as a Steve McQueen-inspired leather jacket. DesignLab products will be more adventurous than the core collection and produced in limited numbers with a premium price point to reflect scarcity and level of detail.

Crucial to success is also cutting production lead times, with a plan to return to using Turkey for sourcing, versus the previous managements shifting of production to China. This resulted in a longer lead times, and prevented the creation of ‘mid-season drops’ and responsive designs.

5.Short-term pain for long-term gain
In addition to re-investing time, talent and money in the product and brand, Dunkerton is also putting Superdry in ‘promotional rehab’, to break its addiction to price promotion. Full-price sales were c.70% of the sales mix in the 26 weeks to October 31, compared to 51% in the same period of 2018 (3). This is a brave and bold move, as the immediate results are negative, with  group revenue falling 11%. However, the hope and belief is that this short term pain will deliver a long term gain. “I’ve got to do a reset. I’m not prepared to sacrifice the brand for short-term gain. It will only work if I protect the brand,” observed Dunkerton (1). 

In conclusion, Julian Dunkerton is a great example of a Brand CEO who brings passion, brand vision and commitment to quality to a business. The share price so far remains below where I bought it, but its early days. He says he is “confident of returning Superdry to sustainable long-term growth,” and I hope he’s right! We’ll check back in a couple of years to see how he and the team have got on. 

Sources:

(1) https://apple.news/AQmNwIuQwThilD0ETAKBbow

(2) https://www.savesuperdry.com/media/1013/julian-dunkerton-investor-presentation-14-march-2019.pdf

(3) https://www.retailgazette.co.uk/blog/2019/11/superdry-revenue-slumps-11-thanks-heavy-discounting/

Featured image credit: Tdorante10 [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

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