Burberry could not be in a worse position as the luxury market slows down after a post-pandemic boom, with designer Daniel Lee's first collections for the British brand beginning to appear in recently renovated stores.
Executives issued a warning on Thursday, citing a deteriorating global macroeconomic environment and capping off a turbulent report season for the industry, that they would find it difficult to fulfill Burberry's yearly revenue projection.
Due to rising living expenses, consumers in the US and Europe are becoming more frugal when making luxury purchases, while China's hunger has been dampened by a real estate crisis and historically high rates of youth unemployment.
Analysts of JPMorgan stated that Burberry is in an especially difficult position in comparison to its peers since it is challenging to elevate the brand's image at a time when consumers may be more choosy about what they purchase.
Since fewer people are visiting Burberry stores, closing a deal will be crucial. In a conference call with investors, CEO Jonathan Akeroyd stated that the difficulty at hand is conversion. He further stated that the company will need to put in extra effort to boost the proportion of customers who make a purchase, given the industry's struggles with declining foot traffic.
For Burberry, the difficulty has increased.
The company is revamping its look in an effort to increase consumer interest in the brand by offering higher-end, higher-quality items like the medium-sized "Knight" bag, which weighs 2,890 pounds ($3,582).
With an investment of around 89 million pounds, it has been renovating stores at a dizzying pace, launching over one every week, or 33 in the first six months of the year, in locations including Los Angeles, Houston, Dallas, Omotesando in Tokyo, and Bond Street in London.
In an effort to concentrate on higher-end shops, executives have also lowered the number of department stores in which the brand is offered. They collaborate with these merchants to control inventory in order to prevent a rush of discounts, which could damage the brand's reputation.
The brand has stocked its stores with new models that span a larger price range, including a greater emphasis on its core outerwear.
As for accessories, Akeroyd noted that there has already been a "nice shift" toward bags and shoes.
British roots
Lee's styles and an emphasis on the brand's British roots indicate a departure from earlier recovery attempts directed by designer Riccardo Tisci, who left the company in 2022 after less than five years.
Lee is recognized for introducing younger consumers to Bottega Veneta, an Italian brand owned by Kering, with trends like quilted leather mules and soft clutch handbags. He has used soft ducklings in advertising ads and vibrant dandelion patterns on clothing at Burberry.
The fresh font and monogram of his predecessor have vanished, but the brilliant blue Equestrian Knight logo that Tisci expelled has returned.
Marco Gobbetti, the former CEO of Burberry, prioritized cost control. However, with rivals like Gucci owner Kering and industry titan LVMH indicating they plan to keep investing heavily in building brand heat, Burberry's present leadership has decided to increase investment.
Nicolas Ghesquiere, the womenswear designer for Louis Vuitton, has been with the company for ten years, and LVMH just renewed his contract.
According to Kate Ferry, chief financial officer of Burberry, the company is fully committed to safeguarding all areas that are related to customers.
She continued that they are highly dedicated to marketing spending, in particular.
Executives stated that Burberry's expenses grew by 10% in the first half and will climb further in the second half.
The price of its shares, which is half what it was two years ago and the lowest since 2009, is slightly less than 14 times projected earnings for the upcoming 12 months. Its PE ratio, a commonly used metric in financial markets to assess the relative worth of stocks, is the lowest in the luxury industry.
Even for bigger names like LVMH, who are thought to be better-equipped to endure the downturn, investors have lowered their estimates due to the end of the post-pandemic spending that drove the sector's skyrocketing growth over the last three years.
According to investment bank Citi, for the next six to twelve months, there will probably be a negative attitude about luxury comeback stories.