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Burberry is the latest company to be impacted by the global downturn in luxury spending, warning it may not be able to meet its original forecast of low double-digit revenue growth for the 2024 fiscal year.
The British luxury company reported sales of £1.4 billion for the 26 weeks ended 30 September 2023, up 7 per cent from the previous year, but saw a deceleration in comparable store sales growth in the second quarter to 1 per cent, compared with 18 per cent in the previous three months.
First-quarter trading had been boosted by China, still Burberry’s largest market — accounting for as much as 30 per cent of sales, according to the brand — as shoppers returned to stores after pandemic-related lockdowns lifted. However, this eased in the second quarter, and the global pullback in luxury spending hit the business. In a statement, chief executive Jonathan Akeroyd acknowledged that “the macroeconomic environment has become more challenging recently” but said the brand was making “good progress against its strategic goals” and was “executing its priorities at pace”.
The post-lockdown luxury spending boom has been running out of steam, with LVMH, the world’s biggest luxury group and owner of Louis Vuitton and Dior, and Kering, owner of Gucci, Saint Laurent and Bottega Veneta, both reporting a slowdown in quarterly sales in October. Burberry’s profits will likely be at the lower end of its previous guidance of £552 million to £668 million, the brand said. However, Akeroyd said he remains confident that the brand can achieve its mid-term target of £4 billion in revenues.
Challenges are coming from all regions, Akeroyd said on a media call Thursday morning. “This is quite unique, because historically, if you get softness in one region, you’ll be able to pick up [sales] in another,” he explained. “The external environment has become a little challenging, whether it’s inflationary pressures, slowing economic growth or geopolitics — it’s a little bit everywhere,” added new CFO Kate Ferry.
EMEA, Burberry’s home market, was up 14 per cent in the first half, benefitting from the 10 per cent lift in Q2 and 17 per cent uptick in Q1. Sales were driven by the return of tourists, with the local customer “a bit softer”, Akeroyd said, “which is clearly related to the inflationary challenges and cost of living issues”. The decision to scrap tax-free shopping in the UK also remains an ongoing hurdle, said Akeroyd, but he also noted that “Burberry benefits from being a global business, so we pick up traffic elsewhere. At the moment, tourists are [driving] considerably greater sales in Europe versus the UK.”
Elsewhere, comparable store sales for Asia Pacific grew 18 per cent in the first half, but only 2 per cent in the second quarter compared to 36 per cent in the first. Mainland China increased 15 per cent in the half, but saw a dip of 8 per cent in Q2 as spending shifted offshore, to neighbouring countries like Japan, which saw growth of 43 per cent in the half, and South Asia Pacific, which rose 30 per cent in the half. “As we look ahead into next year, we’ll probably get a higher level of Chinese customers shopping in Europe. I think this could give us an upside,” said Akeroyd.
Meanwhile, South Korea fell 1 per cent in the half, as the 6 per cent growth in Q1 was offset by a 7 per cent decline in Q2. US customer demand also remains weak, declining by 9 per cent in the half.
Daniel Lee: Positive early signs
Speaking to press, Ferry said early indicators of demand for its Autumn/Winter 2023 collection — the first by creative director Daniel Lee, which began retailing in September — were “very encouraging” but it was “still too soon to have an in-depth read on commercial performance”. Ferry explained: “The response has been highly positive, with strong engagement on social channels and global press more than doubling, season-on-season.”
Outerwear sales increased 21 per cent in the first half, and 10 per cent in the second quarter, driven by the continued strong performance of heritage rainwear across both men’s and women’s, said Ferry. Leather goods also grew 8 per cent in the first half and 3 per cent in the second quarter, led by ongoing momentum with bags — seen in both its iconic lines such as the vintage check, as well as the new shapes, like its Night bag and Trench tote, introduced by Lee, she said.
Lee’s new designs were supported by “a higher level of investment” than in previous seasons, with costs up 10 per cent in the first half, said Ferry. She highlighted the importance of continuing to invest in “high impact activations that were distinctly Burberry”, such as Burberry Streets, a series of city takeovers. Akeroyd said he was “very impressed” with the response towards Burberry’s new marketing activations, which only began ramping up in September and has been well received. In Seoul, the pop-up was fully booked within a week, he said.
“The first half of the year was a moment where we were really setting things up,” Akeroyd explained. He did not provide more granular details on the performance of Lee’s products, as they are “only six weeks in”, but said that there were already “really positive responses, even from existing customers” towards the new designs. Akeroyd complimented Lee’s ability to “create newness and [drive] trends”. He added: “We’re [feeling] positive with the strategy and everything that we’ve done in terms of execution.”
Already, new bag styles like the Knight bag have become “one of the best selling styles of the newness that we’ve put in” — and it’s priced similarly in line with Burberry’s peers, Akeroyd said. (A medium Knight style costs £2,890). “It’s not just a price hike. It’s really improved elevation in terms of quality of the product and leather.” Akeroyd also pointed to the new Shield and Trench bag styles, both priced around £1,500, as examples of products that were “a little bit lighter than the older core offer” that have also been resonating with consumers. The brand has already been receiving re-orders of the products, having witnessed strong reception in China.
Investment priorities
Asked about Burberry’s pricing strategy, Akeroyd says it remains “in line” with the vision laid out last year. “Our previous pricing structure was skewed a little bit disproportionally towards the lower price bracket versus our peers,” he acknowledges. While the current products in store leans towards a higher price point (typical of a show collection), having a core offer remains a focus for the brand, and a refreshed assortment will be introduced across its stores in January, he said.
Rising brand heat is a sign that Burberry is on the right track, said Akeroyd, pointing to Burberry’s placement in the latest Vogue Business Index, and Lee’s nomination as designer of the year at the annual Fashion Awards in December. The brand’s social media engagement doubled in 2023, he said.
While Lee has been focused on re-energising the core brand codes and offering, Burberry has continued to invest in transforming its stores globally, with a further 33 refurbished stores opened in the half, including in New Bond Street in London, Rodeo Drive in Los Angeles and Omotesando in Tokyo. “We’re in the early days, but we’re adapting and adjusting, and we’re confident that we’re going to make all of the changes that need to be done,” said Akeroyd.
Despite rising costs, Burberry says it remains committed to protecting all of its consumer facing areas, such as stores and marketing. “As we’re now going into a new era with Daniel’s collections and executing the new strategy, we geared our marketing spend towards the second half of last year. We’re aware that this needs to be continued, but we’re also being very mindful of the overall cost base as well,” said Akeroyd. “In terms of communicating and having clienteling events, it’s important to keep doing that and interacting with our customers in a dynamic way.”
Burberry’s longer-term £5 billion revenue goal is still in sight, said Akeroyd. “We’ve been really moving at speed in terms of the execution. The opportunity for a brand like ours, with the heritage that we have, with the unique position that we have in terms of being the strongest and [having] the best legacy in terms of British luxury brands gives us a very strong potential. We remain very confident in the brand.”
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