Burberry Results comments from Contactlab

Burberry results confirm expectations for a company in the middle of a major turnaround and repositioning

18 May 2017

Britain’s Burberry reported a 21 percent underlying drop in full-year pretax profit due to weak demand in the United States, underlining the challenge facing Marco Gobbetti when he takes over the top job in July. For the full year, its adjusted pretax profit came in at 462 million pounds, in line with expectations and up 10 percent on a reported basis but down 21 percent when the impact of currency is stripped out. Revenue for the year to end-March fell 2 percent on an underlying basis to 2.8 billion pounds, the company said today.

Burberry’s full year results published today reflect the difficult period of slow growth, despite the profit boost generated by the fall in the pound. The company is suffering from a general market decline in the US, with the addition that American department stores, historically an important channel for Burberry, continue to drag. Left alone the company’s digital leadership, widely recognised in the luxury market, is not sufficient to trigger the turnaround of the company.

Burberry’s challenge to rebuild exclusivity
In my opinion, Burberry is treading a difficult path between broadening its customer base and regaining an exclusive feel. For too long they remained wedded to the idea of aspirational prices, and still have overall lower pricing across most product categories compared to luxury players such as Gucci and Prada (noticeable exception in Soft Accessories, where Burberry can maintain prices above Hermes and Gucci). Consequently, Burberry positioning has been dangerously slipping towards Premium brands, a market segment where growth and profitability are more difficult to achieve due to product commoditization (eg. production in Asia, North Africa) and continuous thread from Fast Luxury brands moving upwards.

Going in the right direction to rebuild exclusivity, Burberry has consolidated secondary lower priced labels like Brit, a bold action successfully undertaken by Dolce & Gabbana in the recent past too. Therefore, the brand catalogue available for online shopping has decreased in size by 18 per cent over the last year.

“Is this enough for Burberry to reposition upward, moving away from Premium brands like Coach, Ralph Lauren and Hugo Boss and trying to re-enter the Luxury league? Probably not, because the company still has to work on the fundamentals of the product offer, improving quality and desirability”.

“Indeed two actions are very promising for the future of Burberry: the much-announced production re-shoring in the UK, or at least in luxury heritage countries like Italy, a must for real luxury brands, and the new CEO Marco Gobbetti with embedded real luxury experience in his DNA”.

At Contactlab we research the brand’s digital and in-store strategies around the world.

Recently we published the 3rd edition of Online Offer Dive & Pricing Landscape FW16/17, that looks at 32 luxury brands comparing and evaluating the depth of the online offer as well as price positioning. The data from this year is also compared to that from the three previous editions of the report: it is an interesting point of view to analyze Burberry’s actual positioning and future plans.

18 May 2017
Author Marco Pozzi Senior Advisor
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