Burberry’s H1 chill: bag bonanza but beauty battered, digital dynamic but sales dip

Burberry campaign September 2016 by Mario Testino

Burberry campaign September 2016 by Mario Testino

So what did the first half bring Burberry? Was it more pain or was everything in the luxury garden lovely? Read on…

In the six months to September 30 dresses, ponchos, the new Bridle bag, and the runway rucksack and see now, buy now collection all did well. Digital was strong (as always with this brand), especially after the website was revamped.

But… Yes, there plenty of ‘buts’ because, like most luxury players at present, no sales report is going to be an unending list of triumphs. Luxury overload, currency exchange effects, terrorism, China, intense competition and so much more mean growth can be hard to come by.

Let’s look at some detail

Oh dear. Total revenue fell 4% on an underlying basis (which removes all the benefits of currency exchange effects) to £1.159bn. But wait, there’s better news. It was up 5% on a reported basis once those currency exchanges were added back in.

Hmmm, here’s some more bad… wholesale and licensing was down due partly to “strategic brand elevation”. But again, here’s some better news – the brand saw retail growth. In fact retail revenue rose 2% underlying or 11% reported to £859m and comp sales improved in Q2 with a 2% rise after falling 3% in Q1.

More bad? Wholesale revenue of £287m was down 14% underlying, because of that strategic brand elevation in the US as well as the Beauty business (more of that later). And there tough times in some regions with continued uneven demand in the Americas.

Burberry September 2016 collectionAny more good stuff? Of course. Asia Pacific was positive (but that’s with troublesome Hong Kong and Macau factored-out) and EMEIA was positive with a significant outperformance in the UK in Q2 (presumably because of the post-Brexit vote pound plunge).

I think we get the picture. Times are tough but not everywhere and the business is definitely progressing, but maybe not as fast as it would like.

This is what went right

The company said that its brand momentum is strong and it saw “exceptional brand reach” from its September runway show with a strong response to its inaugural straight-to-consumer collection.

Innovation and newness is resonating with customers, it’s seeing strength in bags and the emerging growth categories of dresses and ponchos that both powered ahead.

Retail is being boosted by “an intense focus on customer cultivation and retail service” and it’s seen an increased number of personal appointments and expansion of the Burberry Private Client team.

Digital, of course, continued to outperform in the half, with growth in all three regions. The redesign of burberry.com helped and there was progress on other initiatives including improved payment options, the launch of store stock look-up and increased product personalisation for heritage scarves.

So over to CEO and creative chief Christopher Bailey: “In a challenging external environment, we continue to focus on product innovation, retail productivity and digital leadership, against a backdrop of sustained action and investment to deliver long-term outperformance of our brand and business. We remain on track to deliver our financial goals.”

Bags and Beauty

It’s interesting that accessories are now the biggest money spinner for a brand that used to be all about trench coats. Taking combined retail and wholesale turnover into account they brought in £426m in H1, although that was down 1% on an underlying basis, despite currency exchanges effects boosting the overall take by 8%.

Growth in bags was led by the runway rucksack and new Buckle bag collection and the firm also saw a good response to the Bridle bag, the number one selling item, from the September runway collection.”

Lily James, My Burberry Black

Lily James, My Burberry Black

All those dresses and ponchos meant womenswear generated £326m and fell 6% underlying or rose 3% in total, which is OK in the current environment I suppose. By product, in mainline, fashion outperformed replenishment “as customers responded positively to innovation and newness.”

But what’s this about Beauty? The category generated £76m, which was down 6% even when positive currency effects were included and fell a scary 17% underlying.

Can we hear more please? “In Beauty, underlying wholesale revenue declined by approaching 20%, reflecting cautious ordering and strategic brand control including the rationalisation of distribution in key markets,” Burberry said. But it aded: “My Burberry and Mr Burberry performed well, with market share gains in key markets.”

We didn’t get much more detail but its looks like maybe retailers feel that, in a belt-tightening environment, shoppers won’t see Burberry eyeshadow as a must-have but they’ll still go crazy for the latest blockbuster fragrance. If that’s the case, it’s interesting. Make-up has been a growth driver for beauty recently but with the global strength of big-name mass and prestige brands, unless you can establish yourself as a standout brand, you’ll struggle to get shelf space.

Global shoppers

Overall, business for Burberry improved in mainland China, which improved with mid-single-digit percentage comp sales growth in Q2, despite the impact of the planned elevation of the store portfolio in Beijing, Burberry’s largest market in the country.

Hong Kong continued to see negative footfall throughout the half, with comparable sales down a double-digit percentage. 

Burberry rucksack

Burberry rucksack

An improved performance from the travelling luxury customer in Q2 was most significant in the UK, with comparable sales up over 30%, given sterling’s depreciation. But major markets in Continental Europe remained weak, where growth from domestic customers was more than offset by declines in tourist spend.

And the Americas saw comp sales for the first half down a low single-digit percentage as domestic customer demand remained uneven and spend from the travelling luxury customer remained down by a double-digit percentage.

So there you have it, the story of Burberry’s first half. I’ll be interested to hear more about how the see no, buy now collection fares longer-term (will it sell well for the rest of the season or is it just a flash in the pan?) And I want to know what’s going to happen around the Beauty business. But it looks like I’ll need to wait six months before I get more information.

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