Given the tough time being faced by the luxury sector at present, predictions around Burberry’s results for the year to March 31 ranged from bad to downright awful. So now that the figures are out, what did we actually get?
Well, not bad in the circumstances with plenty of focus on the future. And that focus means a simplified product offer, a great focus on accessories and moves to increase its clear lead in digital.
First, let’s get the boring bits over. Pre-tax profit fell 6.5% to £416m with underlying adjusted pre-tax profit down 10% to £421m. Sales only fell 1% on a comparable basis, but the larger profits dip isn’t good news as luxury shoppers in general tighten their expensive purse strings and the all-important Chinese and Russian shoppers react to circumstances at home and tighten them even more.
What was more interesting was Burberry’s plan to answer the challenges it’s facing. For a start, it’s going to look at its product offer (which is wider than that of many peers) and simplify it. It will also “give greater visibility to fashion and newness, while tailoring our offer more effectively for local needs.”
That means fundamentally changing its ways of working “by introducing end-to-end category management for key products, from design to retail sell-out. Delivering narrower and better balanced assortments, more centrally-directed, improving both global consistency and local relevance. And rebalancing marketing from brand towards key products.”
Following the successful relaunch of its heritage trench coat and cashmere scarves, the next area of focus is bags, where it’s “under-penetrated compared to our peers”.
So it’s introducing the new category management approach, “reinventing” the collection around a new pillar and shape strategy, cutting the number of options, and targeting marketing around the patchwork and banner bags and the rucksack ahead of major new product launches in FY 2018
With retail now accounting for 73% of group revenue, it’s focusing on this area in a big way. Omnichannel is obviously key but Burberry is also putting a greater focus on local customers than before, “driving loyalty by leveraging our customer insight capabilities, with investment prioritised in selected cities. Improving sales densities, conversion and customer retention will be among the key measures of success.”
It’s developing an improved digital selling tool for sales associates and increasing by 20% the number of private client sales associates, whose productivity is significantly above-average.
And digital will continue to be a major focus, of course. “We plan to ensure that digital remains the clear point of differentiation for Burberry but have scope to be even more ambitious commercially. We will grow burberry.com through increasing conversion, especially on mobile, driving the penetration of e-commerce particularly in Asia, while integrating and improving customer experiences across online and offline,” it said.
The company also wants to ìactively grow with third party digital players, while always retaining control over our brand. The majority of e-commerce growth for the sector is expected to come from these physical retailers, pure play e-tailers and, increasingly, new channels such as social commerce.”
So expect to see a relaunched burberry.com, the introduction of a customer app (facilitating among other things mobile checkout and customer connectivity), and further investment in localisation of sites in Asia, following the China relaunch in April 2016.
That’s the future, now the past…
Back with those annual results, sales were £2.5bn in total (so while sales dipped, it’s not as if people are actually shunning Burberry goods), and on a comparable basis they would have been up 3% if Hong Kong and Macau were taken out of the mix. Those two weren’t the only troublesome markets as mainland Europe also had a tough time on the back of fears over terrorist attacks and general economic uncertainty.
It’s no surprise then that Burberry is promising cost savings (of around £100m), and has raised the dividend it pays to shareholders to keep them sweet.
“While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry’s future outperformance, underpinned by strong brand and business fundamentals,” CEO and creative supremo Christopher Bailey said.
The company said demand slowed in many markets for both cyclical and structural reasons but against this backdrop, “brand momentum remained strong and innovation around product, digital and marketing continued.”
It continued to partner with digital big-hitters, including Google, Apple and DreamWorks for interactive and personalised marketing campaigns. It created bespoke content for its social media platforms, including shooting and publishing the SS16 main advertising campaign live through Snapchat. These activities supported an increase of about 30% in its followers globally to over 40m across all its social media platforms.
No surprise then that digital outperformed during the year, delivering growth in all regions. In the second half, it rolled out the single pool of inventory model, tested in China in FY 2015, to stores across the US and EMEIA. This allows digital transactions in all 44 online countries to draw on inventory in regional distribution centres and then store networks, with 75 stores now live. The rollout of this fulfilment approach has improved stock availability by around 5% and contributed to digital growth.
The Scarf Bar initiative that launched both online and in-store in September 2015 helped scarves outperform other accessories, with double-digit percentage growth.
In Beauty, it continued to focus on building its fragrance pillars, including product extensions for My Burberry throughout the year. Only last month it launched Mr Burberry, a new male fragrance, with the marketing campaign also highlighting men’s tailoring and outerwear. The halo effect from this alignment of fashion and Beauty marketing was a key driver for bringing Beauty in-house, Burberry said.
Luxury in focus
Burberry’s results also gave us some interesting insights into just what’s been happening in luxury generally and what it means for future growth.
The company said that since 2010, the personal luxury goods market has grown on average by about 7% per annum at constant exchange rates, largely driven by the emergence of the Chinese luxury consumer, space growth and price increases.
Looking forward for the next five years, the luxury market is expected to grow on average by a low single-digit percentage annually at constant exchange rates with accessories marginally outperforming apparel and beauty and continued double-digit percentage growth in e-commerce.
Most sector growth is expected to come from new and existing Chinese consumers, both when travelling and, increasingly, at home.
Luxury customer behaviours are also changing, Burberry said, as shoppers seek experiences, newness, greater authenticity and story-telling, while desiring more service-driven personalised contact with greater use of technology, particularly mobile.
Burberry feels it can answer all the new luxury shopper’s needs saying: “Our brand strength is driven by a blend of heritage and innovation. We have over 40m followers on social media, demonstrating the extent of our brand reach, [and] based on customer research, Burberry is among the top five luxury brands globally for unaided awareness.
“For the Chinese consumer, our research shows brand recognition and desirability entirely consistent with our core luxury peers.
“Looking ahead, we see opportunity to enhance this existing brand strength through greater consistency and clarity across customer groups and markets, including, for example, the United States.”
So, it looks like Burberry has a busy year ahead of it. Now I’m off to check its share price. With any luck it will have fallen and I might just be able to afford a few…