Financial analysts opined on Burberry’s decision to consolidate its three clothing labels under a single Burberry banner — and were divided about just how successful the new strategy will be.
Luca Solca of Exane BNP Paribas and Thomas Chauvet of Citi both issued reports on Wednesday, following Burberry’s announcement that it plans to erase the Prorsum, Brit and London names, and to invest 50 million pounds, or $76.9 million at current exchange, in a new textile mill and clothing manufacturer.
Chauvet said the label merger is a good move — and logical — for the brand, which will now focus on a single label, Burberry. “Segmenting the offering into several labels had been primarily done to support greater brand penetration in the wholesale channel — in particular department stores,” Chauvet wrote.
“With Burberry having become a more mature and much stronger brand over the past decade, this segmentation is probably no longer relevant; we believe that what resonates most to luxury consumers today is the Burberry brand name rather than the individual labels. We would expect the merger of the three labels to drive a simplification of the commercial message, a reduction in [stockkeeping units] over time, and possibly an increase in average selling price.”
Solca, meanwhile, said he prefers to wait and see how the decision to unify the three labels develops, and whether it will translate into a move upmarket for Burberry.
He pointed to similar decisions by Marc Jacobs and Dolce & Gabbana to consolidate their secondary collections into the main lines. Donna Karan International went in the other direction, however, putting the main Donna Karan Collection on hold to push forward with the DKNY brand.
“Both moves have been tantamount to a withdrawal from the lower end of the price pyramid, and a de facto upmarket move,” Solca wrote of Marc Jacobs and Dolce & Gabbana. “The benefit in terms of brand equity preservation long term is to be assessed — the financial sacrifice from lower volumes and revenues is a fact.”
He added it remains to be seen what, exactly, line consolidation will mean at Burberry. “Just as a reminder, 55 percent of Burberry’s revenue is in apparel. We reckon that a small portion of that is Prorsum, while the bulk is Brit and London.”
Solca also added that, in general, line consolidation is intended as a safeguard against the risk of brand trivialization. “The move seems appropriate for Burberry in this light, as we measure a higher potential brand trivialization risk for Burberry in comparison to its peers.”
On the positive, he said, fewer lines will reduce the cost burden — both in terms of lower product complexity and lower selling, general and administrative expenses support.
On Tuesday, Burberry’s chief executive officer and chief creative officer Christopher Bailey revealed the labels’ consolidation, which is due to be completed by the end of 2016. The new Burberry label will begin landing in stores next summer.
Bailey said that by unifying the three lines, Burberry can offer a more consistent experience of the collections. “Those categories were created when Burberry sales were 70 percent wholesale and 30 percent retail. Now it’s the opposite. The key is to present a cohesive brand experience.”
He said the change would drive productivity and create a simple, more intuitive experience for the customer, he added.