Burberry replaced its CEO and reshuffled its top management
Burberry also hired Julie Brown from Smith and Nephew to replace Carol Fairweather as chief financial officer.
Bailey will "take on the new role of President and Chief Creative Officer overseeing all elements of brand and design working in partnership with the newly appointed Chief Executive Officer, Marco Gobbetti, on company strategy and culture," the company said in a statement.
The changes will take effect early next year.
"I am very pleased to be announcing the appointment of Julie Brown as Chief Operating and Financial Officer. This is an important new role combining a number of functions together with oversight of our ways of working efficiencies," Bailey said in the statement.
Shares in Burberry spiked on the news:
Burberry announced a big overhaul earlier this year in an effort to try and "outperform" the struggling luxury market.
The iconic British luxury brand cut £100 million ($144 million) of annualised costs by "reducing complexity, simplifying processes and eliminating duplication," it said in May.
At the same time, it will invest £10 million this year and £25 million each year after that in "retail, digital and enhancing critical capabilities."
Burberry's latest full-year results, also released in May, showed revenue down 1%, and pre-tax profit down 7%.
The company said the figures "reflected a difficult period for the luxury sector as a whole as demand slowed in many markets for both cyclical and structural reasons."