LONDON — There will be no major changes to Burberry’s day-to-day operations following the brand’s purchase of the remaining 15 percent stake in its China business.
Earlier this week, Burberry said it had acquired the 15 percent economic interest in its China business held by a local, Hong Kong-based partner, Sparkle Roll Holdings Ltd.
The transaction, at a cost of 54 million pounds, or $71 million, gives Burberry 100 percent economic interest in the group’s business in China. Burberry had a call option on the shares, and analysts had expected the option to be exercised.
The company declined to comment on the purchase, but confirmed that option liability will come off the balance sheet during the interim results in November.
It is understood that day-to-day business in China will proceed as normal, although Burberry will now reap 15 percent more of the sales and profits following the buyback.
In 2010, Burberry bought the majority of its China business in a move aimed at upgrading its offer in the region, building stores and capitalizing on the seemingly insatiable appetite for luxury goods in the region.
Sparkle Roll had held the remaining stake and acted as a sleeping partner since Burberry bought the majority of the business in 2010.
The move to buy the remaining 15 percent dovetails with Burberry’s strategy of expanding and upgrading its offer in Mainland China despite flat sales in the region and a major contraction in demand in Hong Kong, once the most dynamic and profitable market for luxury goods.
Earlier this year, when he laid out the company’s new strategy, Burberry’s chief creative and chief executive officer Christopher Bailey said the brand isn’t giving up on China, despite the recent woes.
Bailey said the world’s most populous country “will contribute a disproportionate amount of customers, both while traveling and increasingly at home. We have developed our strategies with this understanding of the landscape in mind.”
Short-term challenges remain for Burberry and its peers, however. In the three months ended June 30, in Asia-Pacific, Europe and the Middle East, and the Americas, Burberry witnessed low-single-digit percentage comparable-sales declines.
The crackdown on bribery in China and changing tourism patterns among the Chinese are proving particularly sticky problems.
Last month, Andrew Hall, analyst at Verdict Retail in London, said Burberry’s incoming ceo Marco Gobbetti should turn his attention to Burberry’s performance in the Far East, as soon as he takes over his new role next year.
“Whilst sales declined across all three regions, a dire performance in Hong Kong and Macau stood out as a particularly stubborn thorn in the side of the luxury player,” said Hall.
As reported, Bailey will retain his role of chief creative officer, and take on the new one of president while Gobbetti will become ceo.