Whether we’re back to boho chic or donning waistcoats, the trend for Burberry’s share price has been downwards since last year, leaving the British luxury brand on the verge of being ejected from the FTSE 100.
The heritage label, known for its trenchcoats and check, listed on the stock market in 2005 and joined the FTSE 100 in 2009, but has struggled to maintain a truly global luxury status. Shares in Burberry are languishing at their lowest level since 2010 after the abrupt exit of chief executive Jonathan Akeroyd in July in the wake of two profit warnings. He had been with the brand for just over two years.
The dividend has been suspended as the company has warned it expects to report a half-year loss in November, after sales fell 20% in the three months to the end of June.
With a value of £2.4bn – more than £1bn behind easyJet, which is also on course to exit the blue-chip share index – Burberry is highly unlikely to survive the quarterly FTSE reshuffle, which will be based on market prices at close of play on Tuesday.
But what are the prospects of Burberry checking back into the top-ranked shares and taking on the likes of Louis Vuitton or Gucci?
Since the exit of designer and one-time chief executive Christopher Bailey in 2017, Burberry has tried to gain a name for itself with a marked shift away from its cosy heritage of raincoats and scarves in an attempt to win favour with younger shoppers, particularly in China, and persuade the world that it can play in a higher price bracket.
Riccardo Tisci, appointed as designer in 2018, won design plaudits and created a buzz, but his street-influenced gear seemed a long way from the brand’s heritage. Just under five years later, he was off, shortly after the exit of Marco Gobbetti, the chief executive who hired him.
Ackeroyd then touted a return to British heritage, hiring the highly thought of Yorkshireman Daniel Lee, known for reinvigorating the heritage brand Bottega Veneta, as creative head. However, Lee also seems to have failed to tie modern cool to Burberry’s much-loved trenchcoat and famous check. In short, the current output of leather goods has not had shoppers salivating enough to pay the prices now being asked.
With some not-that-interesting-looking Burberry bags now priced at more than £3,000 and even a polyester tote costing almost £1,500, this is a brand aiming for the pulling power of Prada or Miu Miu and reaching above Michael Kors or Ralph Lauren – without the attendant design cachet.
The move has proved ill-timed, as the cost of living crisis hits aspirational luxury customers around the world alongside an economic slowdown in China and the Brexit-linked end to tax breaks for tourists in the UK.
For Luca Solca, luxury goods analyst at Bernstein, Burberry’s mistake was in attempting to move upmarket too abruptly, particularly in the highly competitive area of leather goods such as handbags, without sufficient brand buzz and with continued high exposure to discounting.
The replacement of Akeroyd with Joshua Schulman, whose recent experience includes stints at the more accessible Michael Kors and Coach, suggests the company has now recognised its limitations. Schulman has said he will put a greater emphasis on classic pieces and widen price points to better embrace the affordable luxury expected by Burberry’s traditional clientele, and is hoped to give more details in November. Burberry has already announced plans to emphasise its coats with a global campaign launching in October.
Solca says Burberry’s current situation is not sustainable, arguing that “you cannot increase prices with one hand and sell as much as £1bn in factory outlets with the other”.
He believes there are two choices: to follow the example of the US brand Coach and double down on appealing to a wider audience via cut-price outlets; or to continue to pursue its long-term aim to move upmarket.
As we head rapidly towards Burberry’s half-year report in November, Schulman must also decide whether to stick with Lee while massaging the strategy and product in a slightly different direction, or to bring in a fourth designer in seven years to try to emphasise change.
If he makes the right call, Burberry may yet be in a position to ride a revival of the luxury market.
“Historically, luxury downturns have not lasted longer than one to two years and Burberry has a chance to reinvent itself through a renewed focus on key outerwear collections and more affordable ranges,” Jelena Sokolova from Morningstar suggests.
