Burberry: in the trenches
The luxury retailer is reducing markdowns and banking on ‘new and younger consumers’ to pay full price
Burberry, purveyor of trench coats and pricey handbags, is taking the counterintuitive step of reducing markdowns. This is an odd response to straitened times. The UK-listed luxury retailer reported a one-third fall in revenues to £878m at constant exchange rates for the half year. Adjusted operating profit of £51m fell three-quarters year on year.
Minimising the discount racks is easier for lower-ticket stores — think ABF’s Primark — but Burberry may be on to something. The numbers hide vastly different performances. Second-quarter sales rose 10 per cent in Asia, led by double digit jumps in South Korea and China. Europe slumped 39 per cent.
Some of this is simply shopper reshoring. Chinese tourists who might have picked up their purchases in Paris or London are now doing so at home. But Burberry also continues to reduce its reliance on wholesalers, who have a nasty habit of discounting, giving it more control over pricing.
Most cheeringly, Burberry sees recovery under way. Comparable store sales fell just 6 per cent in the second quarter — after a 45 per cent slide in the first three months of the financial year — and posted growth in October.
Burberry is banking on “new and younger consumers” to pay full price. It is going all out to woo them with celebrity ambassadors from UK footballer-turned-welfare-champion Marcus Rashford to model Kendall Jenner. It has also availed itself of the myriad online channels to Chinese customers, still responsible for 40 per cent of sales. Backing a store in Shenzhen Bay, a pet project of the Chinese government, looks politically astute.
Is it enough to woo back investors as well as fashionistas? Burberry shares trade at a discount to most of its peers, on a forward price/earnings multiple of 33 times, according to S&P capital numbers. Shares have bounced back from the Covid-19 lows but remain roughly two-thirds of their January peak. Burberry is still in turnround mode. Further markdowns in the share price would make it worth stocking up.