Burberry’s endless luxury turnaround is a very British problem

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Burberry’s endless luxury : Despite its legendary past, the iconic British luxury label Burberry Group Plc—renowned for its famous trench coats—is currently navigating significant challenges. The company’s image, once lauded by previous CEOs as a paragon of British elegance, is now grappling to attract investors and high-end apparel customers. However, Burberry’s rich heritage and past successes serve as a testament to its resilience and potential for future growth.

 This week, Burberry revealed even more proof of its problems: a steep drop in revenue, capping off a fiscal year characterized by lacklustre demand in crucial areas like the US and China. Burberry and other labels owned by Kering SA, which includes Gucci, are seeing declines as Chinese customers grow more wary, in contrast to certain high fashion houses that are flourishing in the current quality boom.

 The company’s stock has plummeted by more than 50% in the past year, erasing over £5.5 billion ($6.9 billion) from its market valuation. This stark decline in value underscores the significant financial challenges Burberry is currently facing. With expectations of further substantial drops in wholesale sales this year, the outlook appears bleak. Despite 74% of analysts maintaining a pessimistic view of the stock’s near-term prospects, they are still categorizing it as ‘neutral.’

 “The Burberry brand doesn’t have, at the moment, the ability to resonate,” pointed out Bernstein Autonomous LLP senior analyst Luca Solca, highlighting a fundamental issue. Either something has to shift or something has to function.

 The task that CEO Jonathan Akeroyd and Creative Designer Daniel Lee are grappling with is to demonstrate the ongoing viability and, ultimately, the growth in sales and earnings, of their inherited strategy to elevate the brand, which was launched in 2022. The adverse economic conditions, according to Akeroyd, are the root cause of the current issues. This is particularly evident in China, where Burberry generates over 25% of its sales. He observed a general economic slowdown in China and significant drops in mall attendance.

 Prada SpA and other high-end labels with comparable prices and Chinese exposure are doing better, though. Last year, Prada’s net revenue increased by 17%, and Miu Miu, a subsidiary of Prada, saw a 42% spike in retail sales.

 Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, raised the question, “At what point do we say, this is Burberry specific?” in reference to Burberry’s problems, and questioned whether they are exclusive to the brand.

 The British aristocracy came to rely on Burberry, a brand that originated in the 1800s and became famous for its practical rainwear. Once upon a time, in the mid-1990s, Burberry was a British fashion house that produced one out of every five coats exported from the country. Paurav Shukla, a marketing lecturer at Southampton Business School, claims that Burberry lost some of its originality as it tried to cash in on the expanding middle class, especially in China. “For almost two decades, it has gone into this direction of democratization and now it wants to become exclusive, and that’s not going to happen overnight,” according to him.

 Burberry has also struggled with stability due to its frequent leadership changes. After only four years on the job, Christopher Bailey stepped down as CEO and director of creative. Marco Gobbetti, who succeeded him, recruited Riccardo Tisci as a designer but left in the middle of his strategy to rebrand Burberry as a super-luxury brand. Although Tisci’s streetwear-inspired style was popular with younger consumers, it did not make the most of Burberry’s history.

 Nick Train, a key stakeholder, voiced his displeasure with Burberry’s failure to capitalize on its iconic reputation in 2023 because to this inconsistency. “Burberry is not and never will be an LVMH or a Hermès, but it does have a genuine global luxury brand, particularly its iconic outerwear franchise,” said the CEO.

 The present Burberry leadership team of Akeroyd and Lee is making an effort to highlight the company’s British heritage. After languishing in the £2.5 billion to £3 billion area, Akeroyd plans to break through to £5 billion, drawing on his experience at Harrods, Alexander McQueen, and Versace. During his 19 months at the helm, Lee revived Burberry’s equestrian knight emblem and brought British celebrities like Skepta and Naomi Campbell into the brand’s advertising campaigns. But so far, there has been little progress.

 Professor of marketing at London Business School Nader Tavassoli said, “It is always a struggle to elevate a brand and it requires unique cultural relevance and consistency over time.” This highlights the difficulty of the mission. Consistency is key when it comes to luxury, which is all about desirability.

 Notwithstanding these endeavors, Burberry has lagged behind European powerhouses like Gucci, Prada, and Versace, averaging a 12th-place rating on the Lyst index since 2018.

 Pricing presents a major challenge. Some would-be customers are put off by Burberry’s recent designs because of the exorbitant prices. Consider the case of a Spanish customer who was hesitant to buy a trench coat from Burberry’s Regent Street store in London because of the unexpectedly high price tag.

 Sales of womenswear and leather products will be doubled, and demand for high-margin accessories will be boosted, according to Akeroyd. He is hoping Lee can achieve the same level of success that he had at Bottega Veneta, where his designs were instantly coveted.

 Burberry’s overdependence on certain product categories and geographic regions is a significant vulnerability that needs to be addressed. The company should explore opportunities to broaden its revenue streams. The decline in sales from Chinese customers, who previously accounted for about 40% of overall sales and saw a 19% decline in the most recent quarter, is a clear indication of this. Changes to tax-free shopping have also shifted tourist spending away from the UK to other European destinations like Milan and Paris.

 In light of the present economic climate, the subject of whether Burberry can reverse its fortunes persists. If you ask Sophie Lund-Yates, “There are more compelling names in the sector,” she will always be misled. Do we see Burberry as a company that has made a dramatic comeback? That horse might have bolted, in my opinion.

 While Burberry’s history and achievements do serve as a solid basis, the company nevertheless confronts formidable challenges in its quest to reclaim its position among the most illustrious names in high fashion. Get back on your feet by committing to a plan, sticking to it, and, most importantly, giving yourself time.

Emily Mitchell

Emily's passion for fashion journalism and her keen eye for runway trends make her the ultimate source for the latest fashion news and exclusive insights into the glamorous world of catwalks.

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