Burberry's Reset Begins to Click
LONDON — 'Be yourself; everyone else is taken.' Whether Oscar Wilde ever actually said that is a matter of debate, but the strategy appears to be working for Burberry, which has seen confidence in its turnaround prospects steadily build since announcing a 'back to basics' action plan last fall.
Shares in the company rose 15 percent Wednesday even as the British trench coat maker reported quarterly sales down 6 percent and full-year profits that swung to a loss. (Net results sank to negative £66 million [$88 million], compared to positive £385 million the previous year.) The decline in sales was somewhat steeper than the previous quarter, but roughly in line with the recent performance of larger rivals like luxury juggernaut LVMH. Last week, Citi analysts issued their first 'Buy' rating for Burberry stock in 17 years.
Underpinning investor optimism is the sense that Burberry's decision to finally break free from its Sisyphean 'brand elevation' strategy will quickly pay off as soon as the broader luxury market improves. The brand had spent a decade pushing its product offer and brand image upmarket in line with French and Italian accessories juggernauts, with limited success.
Under new CEO Joshua Schulman, who joined from Coach last year, Burberry will largely abandon its focus on top-priced leather goods — rebalancing its assortment to favour more accessibly-priced bags with easy-to-sell brand signifiers — as well as refocussing its marketing on the core outerwear category where it's most credible.
The brand's design and marketing message is evolving from 'modern British style' to 'timeless British style' in line with the prep-inflected, commercial aesthetic retailers and customers still expect from the brand. 'There were big voids in our assortment, things like checked trim, things like newness in bags with familiar brand signifiers. … There is pent up demand for a Burberry that is recognisable, that people love, that still gives them elements of surprise and delight,' Schulman told investors.
In a difficult luxury market that was already depressed before a radical shift in US trade policy piled on additional uncertainty, 'traffic has been tough, but conversion is good,' he said.
Schulman endorsed chief creative officer Daniel Lee, whose future at Burberry once seemed in question amid the brand's strategic reset and market reports earlier this year that the designer would take over OTB's Jil Sander label. (Jil Sander ultimately named Simone Bellotti its new creative director.)
'I couldn't be more delighted with the progress our team is making on moving the brand expression forward,' Schulman said. 'Myself, Daniel, recent hires like chief marketing officer Jonathan Kiman and chief product officer Paul Price — everyone is aligned, everyone is working toward the same goal.'
Lee's winter 2025 show was 'an extraordinary expression of timeless British luxury' while recent campaigns featuring the likes of Kate Winslet and Olivia Coleman wearing trench coats 'have initiated a positive shift in consumer sentiment,' Schulman added.
Previous seasons' products and marketing had focussed too much on competing for wealthy, fashion-forward clients, he said: 'We had been overindexing on opinionated customers, the kind of niche buyers who might also shop at Phoebe Philo. That type of marketing wasn't enough to sustain this type of business.'
Rainwear-focussed, more obviously British campaigns and revamped merchandising with more of the check-trimmed polos and T-shirts that used to power the brand are among the 'quick wins' the team has made in recent months. But 'it will take time to turn quick wins into sustained business,' Schulman said.
The turnaround won't be painless. The company plans to cut 1,700 jobs as part of a £100-million-pound cost-cutting push. The brand will cut office roles, reduce store staffing during off-peak hours and eliminate the night shift at its Castleford trench coat plant, a move Schulman called 'essential for protecting the long-term viability of [Burberry's] UK production.'
Investors are embracing Schulman's vision despite the continued pressure on top-line sales and profitability.
'Today's earnings results showed improving trends in the [fiscal] second half, closing 2024 on a stronger footing,' Morningstar analyst Jelena Sokolova said. 'Operational cost cuts, such as headcount, will be implemented to reinvest in the brand marketing.'
'Retail like-for-likes down 6 percent held up sequentially and relatively better than peers,' Citi analyst Thomas Chauvet wrote in a note to clients. 'Burberry's strategic plan is robust and should unlock value in the medium-term. Whilst patience is needed, potential rewards now outweigh the risks.'
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