Chief executive officer Jonathan Akeroyd laid out his strategy during the first half results presentation on Thursday, and while it builds on the foundation laid by his predecessor Marco Gobbetti, Akeroyd’s Burberry is going to be far different.
He wants the brand to be “desirable and relatable,” with product sitting front and center, a renewed focus on “femininity” and on underdeveloped categories such as footwear.
He laid out his strategy as Burberry released its results for the first half ended Oct. 1. Revenue rose 11 percent to 1.35 billion pounds at reported exchange, fueled by the weaker British currency. At constant exchange, revenue rose 5 percent year-on-year.
Adjusted operating profit was up 21 percent to 238 million pounds at reported exchange, and 6 percent at constant rates. Profit for the six-month period rose 33 percent to 193 million pounds at reported exchange.
Stripping out the negative impact from China, Burberry said revenue rose 16 percent in the first quarter and 15 percent in the second quarter at constant exchange.
There’s no doubt that Akeroyd is a product man, a merchandiser and a marketer. He wants his Burberry to be visually appealing and engaging from the ad campaigns — which he plans to make “more relevant, coherent and more about who we are” — to the smallest of leather accessories on offer at Burberry’s newly refurbished stores worldwide.
Burberry is in the thick of updating its stores with a new and more streamlined design conceived by the Italian architect Vincenzo de Cotiis when Gobbetti and Riccardo Tisci were still steering the brand. Around 35 percent of the estate will be fully refurbished by next spring, with everything set to be finished by 2026.
It was telling that Akeroyd, who spent the early part of his career at Harrods before moving to helm Alexander McQueen and later Versace, chose the shop floor of Burberry’s vast Regent Street flagship as the venue for his first major address to analysts as CEO.
Before he laid out his strategy, he made a few remarks to the audience.
“I’ve brought you all here for a tactical reason,” said Akeroyd. He noted that the holiday season was coming and he urged the analysts and other guests to take a look at all the silk scarves on display. “They’re great for gifting — and I’m expecting a high level of sales this morning,” he said.
His plans for the company include a 4 billion pound revenue target in the medium term, or three to five years’ time, and 5 billion pounds in the long term, at constant exchange rates, and with “good” margin progression.
Burberry plans to get there by progressively raising prices for certain products and categories, and by boosting sales per square meter to 25,000 pounds, on average. The company has been progressively raising prices in the mid-single digits to keep up with inflation and preserve margins and Akeroyd said there’s been little resistance from customers.
He also wants to build out Burberry’s offer to include items such as shoes, boots and outdoorsy footwear. There is also a plan to add more dresses to the women’s mix, accent “everyday luxury,” and appeal more to female customers.
In the medium term, the strategy is to more than double footwear and women’s ready to wear sales.
Leather goods will be a major driver of success going forward, Akeroyd said. He wants to double the leather goods business, one big reason why he hired Lee, the designer who lit a fire under Bottega Veneta with a string of Instagrammable bags, shoes and puffy leather creations.
Akeroyd referred multiple times to Lee as a “rare talent with an excellent track record of creating bestsellers” in the category, and an “exciting designer with a very strong 360 vision.”
Going forward, he said the focus will be on “stronger leather goods icons” that have a longer life cycle on the shop floor.
Lee will show his first collection, fall 2023, in February, but the public will get a taste of his Burberry aesthetic as early as January. The brand plans to release its first dedicated rainwear campaign, which Lee created with already-existing product.
Analysts were relieved that there were no major pivots in strategy, although some argued that Burberry will have a tough road to growth, given the macroeconomic uncertainty worldwide and the ferocious competition in the luxury market.
Shares on Thursday closed up 1.8 percent at 20.39 pounds.
Over the past few years, Burberry has been playing catch-up with many other luxury brands. It has been making strides by eliminating discounting; refurbishing and expanding stores; raising prices, and improving the quality of the merchandise. But there is still room for change.
Barclay’s described Akeroyd’s overall message as “reassuring,” and said it liked his focus on Britishness, “which we think represents Burberry’s differentiating factor versus its peers. The focus on growing accessories was also expected, and should help the brand expand its sales density level which is still low versus its peers.”
The bank added that leather goods is a “crowded category” and that Burberry “still needs to gain more credentials in this segment.”
Analysts were also upbeat about Burberry’s first-half performance, which beat consensus and was driven by leather goods sales and the weaker pound.
In the first half, sales of leather goods were up 11 percent, with the Lola bag now a bestseller. Outerwear rose 3 percent in the six-month period.
The company said it was maintaining its previously outlined, near-term guidance for the 2024 fiscal year, although it is mindful of the macroeconomic challenges that lay ahead including COVID-19-related disruption in mainland China, and “recessionary risks” in Europe and the Americas.
Burberry released its results just hours before Jeremy Hunt, Britain’s Chancellor of the Exchequer, unveiled the U.K. autumn budget, telling the country it must “face into the storm” as he outlined the biggest package of tax rises and spending cuts for more than a decade.
The government also stood by its decision to freeze the tax free shopping program, which is damaging tourists flows, and Burberry said its hope is that government and the private sector can come up with an alternative.
The brand is taking the longer view. Julie Brown, the company’s chief financial and operating officer, said COVID-19 measures are expected to ease further next year and that China remains a land of great potential.
“We still see China as a major market for luxury, and a major opportunity in the long term,” she said during a call earlier in the day.
The market remains volatile, however.
Underlying retail sales in mainland China were down 35 percent in the first quarter, and down 1 percent in the second quarter. In Asia Pacific overall, retail sales were down 16 percent in the first quarter and up 11 percent in the second quarter.
In the U.S., retail sales in the first half edged down 3 percent against tough comparisons with last year and a slowdown in demand among entry price customers.
Brown pointed out that Burberry has been seeing “greater traction at higher price points” in the Americas region, and that many of its U.S. customers have been spending abroad, in Continental Europe in particular.
In the first half, chief creative officer Riccardo Tisci showed his final collection for the brand at the end of September, while Burberry immediately named Lee to the top creative post.
Europe saw the strongest growth, with retail sales up 34 percent in the half, benefiting from higher tourists flows, and a return to physical store shopping.