By Helen Reid
LONDON (Reuters) -Burberry will use its British heritage appeal to win back customers by focusing on trench coats and scarves and be less ambitious with prices on bags and shoes, the loss-making luxury brand said in a revamp that sent its shares up sharply.
New CEO Joshua Schulman laid out his turnaround plan on Thursday after Burberry (LON:) reported a loss for the first half of its financial year and announced a 40 million pound ($50.67 million) cost savings programme.
The group’s shares surged more than 14%, putting them on course for their biggest one-day gain since March 2020 as analysts welcomed the strategy shift. Burberry shares are down more than 40% so far in 2024, including Thursday’s rally.
“We took pricing too high across the board,” Schulman told investors and analysts, setting out his assessment of what went wrong at Burberry.
“We created new brand codes… that were not familiar or recognisable for our customers.”
Looking ahead, he said Burberry would be incredibly disciplined with its brand and market itself as timeless British luxury. Its recent campaigns have focused on outerwear and scarves and featured British celebrities including model Cara Delevingne, rapper Little Simz, and actor Olivia Colman.
Burberry, like other luxury goods companies, has been hit by consumers’ fading appetite for luxury in China and elsewhere, but it has lagged in the industry-wide slowdown.
Schulman, previously CEO at Coach (NYSE:) and Michael Kors, is Burberry’s fourth CEO in a decade, and the brand has also had three creative directors in the last seven years, each bringing new styles and logos.
PRICING STRATEGY SHIFT
Schulman told reporters Burberry would add more lower-priced “entry-level” products to its range as part of a pricing shift. Burberry has the most pricing power in outerwear, while it has less in handbags, he said.
“It is only in the recent 18 to 24 months that we really were trying to stretch our pricing on absolutely every product,” Schulman said, adding that he sees opportunities in handbags priced under 2,000 euros ($2,109.00), with a “sweet spot” at 1,600 euros.
But he said Burberry’s positioning would remain in luxury and there were no plans to make it an “accessible” luxury brand.
Burberry’s creative director Daniel Lee, who joined the brand two years ago, had made his name at Bottega Veneta with a series of top-selling “it” shoes and bags. But his designs at Burberry, which is not primarily known for leather goods, have not found the same success.
Leather goods and shoes underperformed in the first half, Burberry said, while outerwear did better than average.
Burberry made an adjusted operating loss of 41 million pounds in the first half and said it was too early to tell, with the festive period ahead, whether it would make a profit for the full year.
The company announced a 29 million pound inventory writedown as it aims to get rid of unsold stock. Some analysts have been critical of Burberry’s outlet exposure, but Schulman said outlets are important for clearing stock in times like this.
Sales in Burberry’s second quarter ending Sept. 28 fell at the same pace as the first, with revenue for the first half down 20% in constant currencies.
Asia Pacific was the weakest region in the second quarter with sales down 28%, while sales in the Americas fell 18% and Europe, Middle East, India and Africa declined by 10%.
Burberry is widely seen as a takeover target. Media reports that Moncler was preparing a bid have boosted the stock, but sources close to the matter denied any talks were underway.
Schulman, asked if Burberry was for sale, would not comment on speculation, but said Burberry’s independence – separate from a luxury conglomerate – was an asset.
Burberry aims to return to annual revenues of 3 billion pounds, the company said, without giving a specific timeline.
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