Burberry CEO Develops Strategy Amidst Sales Decline
Joshua Schulman, the newly appointed CEO of British luxury fashion house Burberry (LON:BRBY), is facing significant challenges as he steps into his role amid a sharp decline in the brand's sales and a 40% drop in share price this year.
This decline has raised speculation that Burberry could become a target for acquisition, especially following reports that Italy-based Moncler is considering a bid, which prompted a rally in shares on Monday. Both Burberry and Moncler have refrained from commenting on these speculations.
The luxury sector has been widely affected by consumer spending hesitancy due to high interest rates and inflation. However, Burberry's performance has lagged behind its competitors. Schulman, who previously managed Coach (NYSE:TPR) and Michael Kors, is expected to outline a new strategy to revitalize Burberry during the company's half-year results announcement on November 14.
A critical issue for Schulman to address is Burberry's network of approximately 56 outlet stores. Some investors and analysts believe these stores undermine the brand's efforts to position itself in the upper segment of the luxury market. Outlets located in China, Japan, the UK, and the US are used to sell excess inventory and past collections at significant discounts.
HSBC analyst Aurelie Husson-Dumoutier noted that the presence of these stores could jeopardize Burberry's high-end brand-building efforts, as customers might prefer discounted products from earlier collections rather than purchasing the latest collections at full price.
Reducing the number of outlet stores could be a costly move for Burberry. According to HSBC estimates, these outlets account for approximately 30% of sales and 50% of profitability. Nevertheless, such a step may be necessary for Burberry to achieve a higher market positioning and consequently a higher stock valuation.
Burberry's creative direction has also seen frequent changes over the past seven years, with three creative directors, each bringing different styles and brand elements. Current creative director Daniel Lee, who joined Burberry two years ago and previously earned acclaim at Bottega Veneta, has yet to replicate that success at Burberry. Despite rumors about the brand's future, Burberry Chairman Gerry Murphy assured analysts in July that there would be no change in creative leadership.
Sasha Kachanova, a consumer analyst at asset manager abrdn, pointed out that Burberry's stronger reputation in ready-to-wear compared to leather goods could mean that creating a viral accessory might take longer. Tom Delic, a portfolio manager at Momentum, which holds Burberry shares, expressed a desire for the brand to refocus on its core product range. Delic also raised concerns regarding Burberry's pricing strategy, suggesting that the brand may have increased prices too rapidly, which could deter young aspirational luxury consumers.
Young shopper Kishica Arora shared her experience at a Burberry outlet in Hackney, east London, stating that while she found discounted items, she would not buy Burberry products at full price, opting instead for trendier brands like Jacquemus.
As Burberry navigates these challenges, the industry will closely monitor Schulman's strategic decisions during the upcoming half-year results presentation.