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How do you create a desirable high-end luxury brand? Clearly, yanking up prices in a deteriorating trading environment does not check the box. As Burberry has found, the risk is that it fails to attract the super wealthy while driving core customers out of the stores. Under new chief executive Joshua Schulman, the British group may find it advisable to shelve that particular look.
Schulman, who hails from more aspirational luxury brands Coach and Michael Kors, faces a daunting challenge at Burberry. His appointment was announced at the same time as yet another profit warning. Burberry — traditionally known for its iconic check-lined rainwear — has pursued a fashion-led, higher price strategy in an attempt to increase retail productivity, margins and returns on capital employed. But gunning for more sophisticated aesthetics has failed to deliver anything like the hoped-for results.
Comparable store sales were down 21 per cent in the quarter to the end of June 2024. The group now expects to post a loss in the first half of the year and has suspended its dividend. True, luxury spending has softened. But tougher trading conditions have not stopped upmarket Italian brand Brunello Cucinelli from posting a 12 per cent increase in sales in the same quarter.
This is no isolated stumble, either. The group’s latest turnaround has been struggling to gain traction. Indeed, Burberry has been trying to move itself upmarket for decades. Yet the shares, down more than 16 per cent on Monday, are now trading below their value in July 2010.
Burberry’s strategy has probably run out of runway. Brand elevation was never an easy sell for the company, which comes from a solid mid-market background and has no cachet in, say, high-margin leather goods. It has become even harder to pull off in the face of rapid price rises. Burberry’s new bag collection is, for example, on average 58 per cent more expensive than previous models, reckons Luca Solca at Bernstein. Heavy discounting has followed.
The company says it will tweak its strategy, rather than reverse out of it completely. The hope is that by balancing its offering and pricing, and giving customers more of the outerwear it is known for, it may reconnect with its traditional fans without abandoning its upmarket dreams entirely. Such cakeism is understandable. High-end luxury group LVMH trades on 23 times expected earnings for 2024. Coach parent Tapestry, aimed at slightly less affluent shoppers, is on less than half that.
Yet Burberry’s current predicament shows just how painful falling between two stools can be. Schulman may find that a sharper swerve is needed.
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