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Published
Jul 15, 2020
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Burberry recovery begins after pandemic sales plunge, cuts 500 jobs

Published
Jul 15, 2020

Burberry spoke of “trends improving through the quarter” as it delivered its Q1 update on Wednesday but sales still plunged and job losses could be on the cards. It said “sales were severely impacted by the drop in luxury demand from Covid-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel”.


Burberry


That impact meant a 45% drop in comparable sales as total retail revenue fell 48% to £257m, but online full-price sales grew in double-digits in the quarter. 

Asia Pacific declined 10% in Q1 as a whole, but returned to growth in June and within this, Mainland China grew in the mid-teens. EMEIA declined around 75%, hurt by lockdowns and no tourists. June sales improved “but continued to be impacted by a significant headwinds due to tourist flows”. The Americas declined 70% for the same reasons, but trends "have improved significantly into June”.

In fact, by June, all regions were less challenged and the comp sales drop had eased to only 20%.

Burberry also said it saw “an excellent response to new product launches in recovering economies as well as online”. Demand for leather goods was “particularly strong” in Mainland China and Korea, and importantly, this brought “new, younger luxury customers to the brand”.

It added that growth in those two hugely important markets was ahead of pre Covid-19 levels last month, “albeit with some benefit from the repatriation of sales given Covid-19 travel restrictions”.

TRANSFORMATION AND COST CUTS

The company is in the midst of a major transformation programme and is “sharpening our focus on product and making other organisational changes to increase our agility and generate structural savings that we will be able to reinvest into consumer-facing activities”.

So what exactly does that mean? Organisational changes. It had already announced that it’s “evolving” its approach to product, creating three new business units covering Ready-to-Wear, Accessories and Shoes. It plans to “pool expertise within each unit to enhance our product focus, increase our agility and elevate quality. We are also proposing to further streamline our office-based functions and improve our retail efficiency in certain geographies outside the UK”.

The changes include office space rationalisation to deliver savings of around £35m this year (FY 2021), with future annual savings of £55m, in addition to previously announced cost cuts. 

Contingent of economic recovery, it said it will “reinvest these savings into consumer-facing activities… pop-up stores, visual merchandising, digital activations, events, as well as marketing”.


Burberry


It all means job cut too. Some 500 jobs are to go, 150 of them at the UK HQ. Manufacturing plants and stores around the world seem to be safe, but the Hong Kong stores remain under review. The company employs around 10,000 people in total and didn’t furlough any of them during the lockdowns.

LOOKING AHEAD

What Burberry did talk about was growth potential. It’s currently fully focused on growth opportunities and is targeting
rebounding economies, with initiatives tailored to each market “driving strong double-digit full-price growth in leather goods in Mainland China and Korea”.

It’s also focused on innovative marketing and said its new summer monogram collection campaign featuring Kendall Jenner and new digital game B-Surf has made a big impact. “[It has] average reach over 60% higher than our previous monogram capsule and our most watched video ever on Instagram TV,” the company said.

It has taken a much more local approach with other campaigns and an April accessories campaign in China that included AR, influencers and “more sustainable pop-up stores” generated a reaction that was “exceptional”. Its limited edition bag sold out within a minute and Pocket Bag styles overall sold out within three weeks of the campaign going live. It looks like we'll see more such campaigns to come.

Another innovation, Burberry's social retail store developed in partnership with Tencent, will open in Shenzhen this summer, offering “unique experiences that connect luxury customers' social and online lives to their physical environments”.

But for H2 overall, the firm's general performance is very dependent on so much that’s outside its control. Q2 — the three months to September — should “continue to be materially impacted by the pandemic. In retail, tourist flows are likely to remain negligible, and store operations are continuing to face significant headwinds, with some remaining closed and operating with reduced trading hours”.

It’s predicting a comp sales drop of between 15% and 20% for Q2.  But it said that “in wholesale, we are collaborating with our partners to protect the brand and as a result, anticipate H1 sales declining around 40% to 50%”.

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