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LONDON — Burberry Group plc, which reported a double-digit rise in profits and sales for fiscal 2012, plans to court its customers more aggressively as its turns its focus from the back to the front-end of the business and continues to build high-profile flagships.
This story first appeared in the May 24, 2012 issue of WWD. Subscribe Today.
“Now we’ll let the retailers have fun — let the retail games begin,” said chief executive officer Angela Ahrendts, describing Burberry’s latest “customer-centric” strategies to financial analysts at a results presentation on Wednesday. “We will continue to invest in front-end opportunities within our brand, digital and retail strategies, to drive sustained, profitable growth and enduring customer engagement over the long term.”
For the past six years, Burberry had been focused on sorting out its supply chain, setting up SAP software systems and streamlining other back-office operations to keep up with its more technologically-advanced competitors.
In the year to March 31, profits rose 24.9 percent to 265.4 million pounds, or $424.6 million, on the back of double-digit sales gains across all product categories and regions.
Year-end sales rose 23.7 percent to 1.86 billion pounds, or $2.98 billion, with the Asia-Pacific region generating 37 percent of all revenue. Dollar figures have been calculated at average exchange rates for the 12-month period.
Nonapparel — and large leather goods in particular — accounted for 39 percent of revenues. Burberry said core outerwear and large leather goods made up half of all revenue in the period.
Not all accessories are gaining momentum, however. Burberry plans to terminate its Nova Check, one of the firm’s early iconic patterns with a khaki background and burgundy, black and white stripes. The company said the Asia-made Nova Check accessories line is still a big, highly profitable business, but is no longer right for the brand.
“When we started out, it represented one-third of our offering, but over the years we’ve been able to develop a richer and more innovative use of the Burberry check,” said Stacey Cartwright, executive vice president and chief financial officer. “We’ve outgrown it.”
The company also admitted it’s suffering from a slowdown in certain markets, Italy and Korea in particular. “It’s no secret Italy and Korea have softened,” said Ahrendts. “In Korea, Burberry hasn’t evolved at the pace of other markets and we’re looking to turn that around in the medium term. In Italy, it’s the flagships that are outperforming,” she said, despite the overall weak market.
The results were broadly in line with market expectations, and analysts were generally bullish on the company’s long-term prospects.
“Burberry has excellent strategic growth opportunities in a luxury market with strong long-term growth credentials,” said Freddie George at Seymour Pierce in London.
“There are significant geographical and product mix opportunities plus operational leverage still to come from infrastructure investment over recent years. The balance sheet is very strong and despite increased capex in 2012-13.”
Burberry said capital expenditure for the 2012-13 fiscal year will range between 180 million pounds and 200 million pounds, or $284.4 million and $316 million at current exchange.
That money will go toward building large format stores in flagship locations, such as Chicago, Regent Street in London and Pacific Place in Hong Kong.
The Regent Street store will be the largest Burberry flagship in the world, spanning 25,000 square feet. It is due to open in early autumn.
One of Burberry’s main aims has been to focus on large-format stores in flagship markets such as London that benefit from a high net worth local population and the traveling luxury consumer. In the 2011-12 fiscal year, stores in the flagship markets generated about 60 percent of mainline revenue.
China, which generated 12 percent of Burberry sales last year, is no exception. Ahrendts told analysts that the focus was on Burberry’s top 30 stores in the region, which the company sees as “30 Londons.”
“We’re closing some of the smaller stores that we inherited when we bought the China business, and are opening larger-format stores, and putting a new focus on Shanghai. We are not going to plaster stores everywhere in China,” she said.
The retail push is multifaceted, and applies to more than bricks-and-mortar. Burberry is working hard to help establish an “emotional connection between the brand and the customer,” said Reg Sindall, executive vice president Corporate Resources, during the analysts’ meeting.
He said the company is fine-tuning its remote customer service offer, with a 24-hour help line in 14 languages, a click-to-chat online option and a dedicated customer service handle on Twitter, @Burberryservice.
Burberry is fine-tuning its e-mail blasts to customers, tailoring content to shopping patterns and needs and personalizing its offer as much as possible.
It is also endeavoring to identify and cater to VICs — or “very important customers” worldwide and is teaching sales assistants in major markets to distinguish between the six different categories of Chinese shopper — among them the older male businessman, who tends to shop in groups, and the younger fashion customer. Later this year, the company will begin training assistants in how to connect with Brazilian shoppers.
In the licensing division, Burberry said it is having ongoing discussions with its fragrance licensee, Inter Parfums, regarding the potential establishment of a “new operating model” for the firm’s fragrance and beauty business.
Cartwright said that as part of its contract with Inter Parfums, Burberry has the option to take its beauty license in-house in July of this year. “They’ve done a great job for us so far, and we are in discussions with them about a different operating model,” Cartwright said, but gave no further details.