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LONDON — The latest trend in luxury has nothing to do with leather bags, logos or exotic skins. Today, it’s all about scaling back, trimming the workforce and finding ways to reduce costs.
This story first appeared in the January 21, 2009 issue of WWD. Subscribe Today.
On Tuesday, Burberry became the latest luxury player to unveil cost-saving measures and planned layoffs, following news of job cuts at Cartier earlier this week and Chanel last month.
Despite a 30 percent rise in third-quarter revenues, Burberry is planning to terminate its Thomas Burberry line, close a sewing factory in South Yorkshire and make more than 500 layoffs in Spain and the U.K.
Starting with the 2009-2010 fiscal year, the company hopes to save 50 million pounds, or $74 million at current exchange, annually, which also takes into account savings from Burberry’s newly streamlined supply chain, information technology and infrastructure.
“All of these actions are examples of the self-help levers that we have,” said Burberry chief financial officer Stacey Cartwright during a conference call Tuesday morning.
“What these cost efficiencies enable us to do is focus on, and invest in, our key strategies: putting our marketing force behind our core apparel and innovative check bag, driving children’s wear and investing in high-demographic markets including London,” she said.
Less than 24 hours before Burberry’s announcement, Cartier said it planned to scale back investment at its Villars-sur-Glâne factory in western Switzerland, which produces watch boxes. The jewelry and watch company will put 180 of the 200-strong staff on part-time contracts at 80 percent of their salaries. A spokesman for Cartier, which suffered a drop in third quarter sales, said the decision was made in the wake of a slowdown in demand.
In late December, Chanel said it would lay off 200 employees and pull the plug on its Mobile Art exhibition designed by architect Zaha Hadid.
“The chips are down, and this forces companies to root out the poor performers, the weaker parts of the portfolio — but not the jewels in the crown,” said George Wallace, chief executive of MHE Retail, a Europe-wide retail consultancy.
Wallace said second-tier brands, such as Thomas Burberry, a clothing collection made primarily for the Spanish market and aimed at men and women 16-30 years old, will be the first to go. Wallace said he expects the cost-cutting trend among luxury companies to gather momentum this year.
“Luxury is an expensive business, sales volumes are down and the trends are not going to change substantially in 2009. What we’re also going to see are companies cutting their variable costs, such as advertising and development,” he said.
A London-based analyst who asked not to be named said while news of layoffs and cost cutting is never good, he’s welcoming it.
“These companies are taking action. They don’t want to start the new fiscal year with heavy cost structures. I expect more of them to take action as the year goes on,” he said.
Meanwhile, Burberry said Tuesday that revenues in the three months to Dec. 31 rose to 329 million pounds, or $612 million, from 254 million pounds, or $472 million.
The engine behind that growth was strong sales of men’s and children’s wear and double-digit growth in Europe, Asia and emerging markets. Sales were also boosted by a stronger dollar, euro and Hong Kong dollar.
Stripping out the positive impact of those currencies, growth in the quarter was nine percent.
Cartwright said the U.S. market was particularly challenging in the quarter. U.S. sales in the period rose 29 percent, but fell by two percent after stripping out the currency impact.
“What was going on in that market was really unprecedented. Some of the department stores went on sale at the beginning of November. It made it very difficult for the luxury brands to hold the line. We ended up in sale about two weeks earlier, and that helped our U.S. business in the month of December,” she said.
Asked about U.S. wholesale guidance for the second half, Cartwright said Burberry is following the department stores’ lead: “We’ve heard from U.S. department stores that they’re planning their business to be down double-digits. We’re planning very prudently,” she said.
With regard to overall trends, Cartwright said customers are still spending — but they’re watching every penny.
“We’re not seeing people trading down. At all levels of the pyramid, people are spending a little bit less. There’s less footfall, and when people are coming into stores they’re holding back on buying that second item or third item,” she said.
“Men’s wear, children’s wear and the iconic check bag are our best performers. The consumer is looking for something that is very recognizably Burberry, albeit in a new format, such as the new megacheck or the new exploding check.
“They’re looking for the branding because they’re making an investment in this difficult environment and they want that to be overt.”