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Where is Apple Going with the Burberry Hire?

  +Follow October 15, 2013 12:11PM
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On Oct. 15, Apple Inc. (AAPL) announced they had hired away Burberry CEO Angela Ahrendts to head up their retail and online divisions. Ahrendts is credited with turning Burberry’s image around by once again making the upscale brand exclusive and cool. Coupled with the hiring earlier this year of Yves Saint Laurent CEO Paul Deneve, it is looking more and more like Apple is shifting away from the 5C “affordable products” strategy, and towards fully embracing their high-end status.

Why Ahrendts?

Apple’s retail division has been enormously profitable for Apple, yet they can’t seem to pick someone to head it up. Ron Johnson departed in 2011 to begin his disastrous run at JCPenney Company (JCP) . After Johnson left, Apple hired on John Browett as his replacement. Browett’s tenure was ill-received, and his plan to save money by laying off Apple store employees was met with widespread scorn. He was let go in 2012. The role had been left vacant since Browett’s departure.

Unlike Browett, who focused on the bottom line, Ahrendts has a reputation for re-establishing a brand’s fashionable reputation. She engineered a successful breach into the Chinese high-end market, and pushed her company to fully embrace social media. Burberry’s shares have more than quadrupled since 2008.

As a fashion maven, Ahrendts hire also could signify Apple is moving in that direction as well. The company has long been rumored to be developing wearable tech like a smartwatch, so it would make sense to hire a fashion person to oversee diversification into that arena.

But make no mistake: Burberry is not priced for the masses. The hiring of Ahrendts also indicates the market Apple is after.

Altering the Emerging Market Strategy?

Following Apple’s concomitant launch of the lower-end 5C with their standard upper-end 5S, analysts grumbled that the 5C wasn’t priced low enough to grab emerging market dollars. At just $100 cheaper than the 5S, the 5C seemed to split the difference between high and low, and in the end not succeed in either. A low priced 5C was essential to Apple breaking into the teenage and coveted Chinese markets, but at that high a price – coupled with a gaudy color scheme design – the 5C just wasn’t going to cut it.

But Ahrendts’ success in China with a high-end product signals that the key to China’s heart might not be to lower prices on Apple products, but to establish Apple as the tech brand for affluent Chinese. Ishaq Siddiqi of ETX Capital in London said, "Ahrendts knows the emerging market world far better than most executives... that's why (Apple CEO) Tim Cook has chosen her."

The Fashionable Apple

Ahrendts hire has fueled speculation that Apple’s next big product will be a smartwatch. But the question for a smartwatch shouldn’t be “What does it do?” but “How does it look?”

Most speculation concerning the future of Apple products looks at them from a utility point of view. What’s this iPhone’s new feature? How big is the new iPad? But perhaps the next step in the evolution in Apple as a brand (called the top brand in the world) is to worry less about product features and worry more about the brand perception in the high-end world.

 In other words: rather than try to make Apple products that end up appealing to a select few of the all, make products that appeal to all of the select few.

Burberry’s shares on the London Stock Exchange lost 6 percent of their value in response to Ahrendts’ plan to leave. Their loss was Apple’s gain, with shares of the tech giant gaining .82 percent to hit $500.12 a share.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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