LONDON — Burberry is moving on, and up.
With a recovery coming into sight, the British brand is taking the longer view and refocusing its attention on luxury, cracking down on seasonal discounting, and welcoming a wave of young — and flush — urban customers.
Comparable store sales returned to growth in October, after falling 45 percent in the first quarter, and 6 percent in the second quarter due to COVID-19-related lockdowns and a freeze on international tourism. That second-quarter figure beat market projections of a 12 percent decrease in comparable store sales in the three months to Sept. 26.
Overall revenue in the first half of the year was down 31 percent to 878 million pounds, with regions including the U.S., mainland China and South Korea delivering double-digit results, while EMEIA, Japan, South Asia-Pacific continued to struggle from the tourism downturn.
It wasn’t enough to lift the share price, which was down 2.3 percent to 15.90 pounds at the close of trading on Thursday.
Chief executive officer Marco Gobbetti said during a call with analysts that Burberry’s quick pivots during the pandemic had paid off, and that leather goods, including a host of new handbag styles, were resonating with customers worldwide, while Burberry’s dot-com business almost doubled in the half.
As it focused on “rebounding” economies, Burberry said it also picked up new — and younger — customers.
Looking ahead, Gobbetti said the plan was to “anchor Burberry further in luxury, strengthen its foundations and constantly adapt our business. We are in a very strong position to accelerate and grow in the next 12 to 18 months.”
In the second quarter, leather goods increased in the low-single digits, with Burberry’s four main bag families accounting for more than 60 percent of women’s bag sales.
The company saw “considerable traction” in leather goods in general, which outperformed overall retail in the quarter. Burberry has certainly been pushing those pouches and bags: In the first half alone, the brand said it hosted more than 40 leather goods activations and pop-ups.
Leather goods now account for 20 percent of sales, and that number should continue to rise as part of Gobbetti’s plan to build more high-margin accessories into the merchandise mix.
Kendall Jenner and Bella Hadid undoubtedly fueled that surge in accessories sales.
In July, Jenner featured in the brand’s TB monogram campaign. Clad in a bodysuit plastered with an oversize TB print, she photographed herself, at home, on her computer, and as part of the project, Nick Knight shot a CGI video that conjured a spare, surreal world, inspired by skate parks and swimming pools.
A month later, a semi-naked Hadid became the face of Burberry’s first dedicated accessories campaign to promote the Pocket Bag, which became a big seller in the second quarter, along with styles including the Lola, T B Pocket, Title and Olympia.
Gobbetti said Burberry had been “quick to adapt,” through the COVID-19 crisis while never losing sight of its ambitions to compete in the luxury space alongside Prada, and the brands owned by Kering and LVMH Moët Hennessy Louis Vuitton.
He also squelched speculation, which was rife over the summer and into the fall, that Burberry’s chief creative officer, Riccardo Tisci, was planning to leave the company. Responding to an analyst’s question about Tisci’s intentions, the ceo said, “I can only say that Riccardo is very committed, he’s very happy and he’s staying with the brand.”
Burberry won kudos from analysts for its decision to crack down on markdowns, a move in line with its luxury aspirations. Gobbetti said that, given the brand’s “resonance,” especially with new, young customers, it will reduce markdown periods, starting next month. While that decision will cut into revenue growth in the second half of fiscal 2020-21, Burberry said the move “will serve the long-term interest of the brand.”
During a call earlier in the day, Burberry’s chief operating and financial officer Julie Brown said markdown periods would be “shorter, shallower and later.” This year, the company will begin marking down seasonal product at the end of December, after Christmas, rather than at the end of November,
“We’re going to keep putting pressure on the markdowns business,” Brown said.
This is not a new strategy for Burberry. Years ago, the company had moved to delay and reduce markdown periods at U.S. department stores, and had already been moving in that direction in other regions, even before COVID-19 struck.
Analysts gave the move a thumbs up.
Marguerite Le Rolland, apparel and footwear research manager at Euromonitor, said Burberry’s decision to move away from markdowns illustrates a strategy that other European luxury brands have also chosen to adopt, with Chanel and Vuitton increasing the prices of some of their handbags and small leather goods as early as May 2020.
“Scarcity and exclusivity are two fundamental values of luxury and by increasing their prices, Burberry elevates its status and ensures it stays relevant and appealing among luxury consumers. Luxury brands have also learnt that another key factor to succeed in our COVID-19 era is to build a solid online presence without posing a threat to their exclusivity status,” she said.
Luca Solca of Bernstein “commended” Burberry’s move to reduce and/or eliminate markdowns in its stores and online.
“Brands with a luxury ambition — and Burberry aims to upgrade its leather goods pricing to the level of Prada and Gucci — have all moved to relegating discounts in their off-price stores [factory outlets], while flagships only sell full-price. This seems to be another consistent step with Burberry’s overall strategy of a ‘brand upgrade,’ which has involved other sacrifices in the past, like giving up lucrative [but lower priced] licenses in Spain and in Japan years ago,” Solca wrote on Thursday.
During the calls, both Gobbetti and Brown stressed how important the new, younger consumers were to the brand. Burberry’s youthquake is taking place in cities across the Americas region, in China and in South Korea, and Gobbetti stressed that the young ones are buying fashion, classics and evergreen items.
Brown said the 21 percent uptick in second-quarter sales in the Americas region was driven by the U.S. market and a “new, young, urban consumer who’s buying casual wear, jersey and footwear.”
In China, that young consumer has helped to propel double-digit growth every month since June. Sales in Asia-Pacific overall were up 10 percent in the second quarter.
In a further show of its power in China, Burberry said a recent partnership with Tmall on a Super Brand event drove sales to a record high for a single day.
In step with those trends, Burberry earlier this week released its latest Christmas film “Singing in the Rain” featuring a diverse group of four young dancers — Kevin Bago, Robinson Cassarino, Chantel Foo and Zhané Samuels — spinning and leaping around the gritty British streets, and swimming in what looks like a freezing cold sea.
The accompanying still-life campaign features the British footballer Marcus Rashford, who’s surrounded by the dancers, and other models. The campaign is meant to “celebrate the community around Burberry, blurring boundaries, crossing divides, bringing people together.”
In the second quarter, the EMEIA region didn’t fare as well as the Americas or Asia-Pacific, with sales falling 39 percent due to store closures and the lack of international tourism.
Even if the trends pick up next year, Burberry could still be looking at a serious decline in its U.K. business due to the British government’s decision to wipe out VAT, or value added tax, rebates for non-EU shoppers.
Burberry — similar to other luxury brands and retailers here — has been lobbying Britain’s Chancellor of the Exchequer, Rishi Sunak, to overturn his department’s decision to cancel the perk, which has proved a major draw for U.S., Chinese, Middle Eastern and Indian tourists.
Brown said if Sunak, who is looking at a variety of ways to pay for Britain’s generous furlough scheme during lockdown, ends up canceling the VAT rebates, “we would expect customers from overseas to change their buying behavior. We could lose our home market advantage, and the U.K. will lose business.”
She said Burberry was engaged in “ongoing discussions” with the British government, and added that a “large proportion” of the brand’s non-EU customers here claimed back VAT.
Burberry’s adjusted and reported operating profit for the half, 51 million pounds, and 88 million pounds, respectively, were also ahead of expectations due to better gross margin outcome, according to RBC Capital Markets.
The positive second-quarter results came after a bitter nine months for Burberry, which had been notching double-digit sales gains at the start of 2020, only to see them wiped out by COVID-19.
The brand’s luxury strategy was put on hold as Burberry was forced to swivel its attention to new, COVID-19-related sales and marketing priorities. In July, the company said it was laying off 5 percent of its workforce as it tried to make economies.
During the crisis, Burberry also refused the British government’s furlough money, slashed manager’s salaries and donated PPE to National Health Service workers. It eventually won a 573,000 pound contract with the British government to make gowns and protective equipment for the NHS from its factories in Yorkshire, England.