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| Burberry to reinvent itself as a super luxury British brand | Burberry to reinvent itself as a super luxury British brand |
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| Burberry’s new chief executive Marco Gobbetti has revealed plans to take the British luxury brand more upmarket as the firm reported better-than-expected results. | Burberry’s new chief executive Marco Gobbetti has revealed plans to take the British luxury brand more upmarket as the firm reported better-than-expected results. |
| However, the shares tumbled about 9% in early trading as investors took fright at the move, predicting short-term pain. | However, the shares tumbled about 9% in early trading as investors took fright at the move, predicting short-term pain. |
| Gobbetti spelled out his plan for the future just nine days after Christopher Bailey, the group’s president and design chief, unexpectedly announced his departure after 17 years with the brand. Bailey transformed Burberry from a small UK company into a global fashion brand, building its digital presence by streaming its fashion shows live and redesigning its flagship stores. | Gobbetti spelled out his plan for the future just nine days after Christopher Bailey, the group’s president and design chief, unexpectedly announced his departure after 17 years with the brand. Bailey transformed Burberry from a small UK company into a global fashion brand, building its digital presence by streaming its fashion shows live and redesigning its flagship stores. |
| Bailey became chief executive in 2014 but luxury goods veteran Gobbetti was hired as a co-chief executive two years later after investors became anxious about the design supremo also running the business. In July Gobbetti replaced Christopher Bailey and became sole chief executive. Bailey was named president instead and his sudden decision to quit was a surprise to most fashion-watchers. | Bailey became chief executive in 2014 but luxury goods veteran Gobbetti was hired as a co-chief executive two years later after investors became anxious about the design supremo also running the business. In July Gobbetti replaced Christopher Bailey and became sole chief executive. Bailey was named president instead and his sudden decision to quit was a surprise to most fashion-watchers. |
| In Thursday’s strategy update Gobetti, who previously ran Celine, said he would close some outlets in department stores, starting in the US, before reviewing Europe. He said Burberry needed to “sharpen brand positioning”, which would require changes to product and customer experience. He pinpointed fashion and leather goods. “We will establish our position firmly in luxury,” Gobbetti said. | In Thursday’s strategy update Gobetti, who previously ran Celine, said he would close some outlets in department stores, starting in the US, before reviewing Europe. He said Burberry needed to “sharpen brand positioning”, which would require changes to product and customer experience. He pinpointed fashion and leather goods. “We will establish our position firmly in luxury,” Gobbetti said. |
| The plan appears to be an attempt to reinvent Burberry as a super-luxe brand, like Hermes and Dior, which have higher prices and margins than Burberry. Currently, Burberry handbags start at aabout £1,000, while Hermes starts at three times that price. | |
| The company said it was too early to give numbers for affected outlets and jobs. | The company said it was too early to give numbers for affected outlets and jobs. |
| Gobbetti’s plan was unveiled as Burberry posted half-year profits. Like-for-like retail sales were up 4% in the six months to September, ahead of the analysts’ forecast of 3% growth, with the UK growing in double digits. Pre-tax profits also came in ahead of expectations at £128m. Overall revenues rose 9% to £1.3bn. Rainwear has boosted sales in the past six months, with the car coat and the tropical gabardine particularly popular. | Gobbetti’s plan was unveiled as Burberry posted half-year profits. Like-for-like retail sales were up 4% in the six months to September, ahead of the analysts’ forecast of 3% growth, with the UK growing in double digits. Pre-tax profits also came in ahead of expectations at £128m. Overall revenues rose 9% to £1.3bn. Rainwear has boosted sales in the past six months, with the car coat and the tropical gabardine particularly popular. |
| A spokesman said the “strong growth in the UK and mainland China with the Chinese luxury consumer travelling, has continued”. | |
| China posted mid teens sales growth while Japan and Hong Kong returned to growth, boosted by Chinese tourists. | China posted mid teens sales growth while Japan and Hong Kong returned to growth, boosted by Chinese tourists. |
| However, in the UK sales slowed in the latest quarter compared with last year. Following the Brexit vote in June 2016, sterling fell sharply and there was an influx of tourists who bought Burberry coats and bags. | However, in the UK sales slowed in the latest quarter compared with last year. Following the Brexit vote in June 2016, sterling fell sharply and there was an influx of tourists who bought Burberry coats and bags. |
| Steve Clayton, manager of a Hargreaves Lansdown fund that holds a 3.8% stake in Burberry, said: “Mr Gobbetti wants to take Burberry out of all but the most exclusive stores, starting in the US wholesale channel, and then more widely. It’s a textbook luxury brand repositioning exercise, which should leave Burberry jostling up against the world’s most exclusive names, with the margins to match. But this will take time and in the near term, sales growth will be held back and the group must invest more to achieve its goals.” | |
| Clayton thinks the move upmarket makes sense. “True luxury brands command immense pricing power and generate fabulous margins and cash flows. They sell to wealthy consumers and just like their customers, are more resistant to downturns. As Mr Gobbetti puts it ‘we will play in the most rewarding, enduring segment of the market’. That’s a prize worth paying for.” | Clayton thinks the move upmarket makes sense. “True luxury brands command immense pricing power and generate fabulous margins and cash flows. They sell to wealthy consumers and just like their customers, are more resistant to downturns. As Mr Gobbetti puts it ‘we will play in the most rewarding, enduring segment of the market’. That’s a prize worth paying for.” |
| The strategy does not always work, however. Rival British label Mulberry’s attempt to raise prices and move upmarket backfired spectacularly. Sales collapsed as regular customers went elsewhere and Mulberry failed to lure more upmarket shoppers. The company was eventually forced into an about turn and had to reduce its prices. | The strategy does not always work, however. Rival British label Mulberry’s attempt to raise prices and move upmarket backfired spectacularly. Sales collapsed as regular customers went elsewhere and Mulberry failed to lure more upmarket shoppers. The company was eventually forced into an about turn and had to reduce its prices. |