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As a brand, Global Britain has faced numerous challenges. However, luxury fashion house Burberry is embracing this image as it establishes itself in the global luxury market. It won’t be an easy task.
In the first quarter, sales growth of 18% was achieved, although this falls more than 25% short of what upmarket rival Hermes is expected to deliver. This highlights the magnitude of the challenge.
Burberry has two main objectives. Firstly, to reach its £4 billion annual sales target, a third higher than its current level, it must make its brand more relevant without losing its distinctiveness. This is particularly challenging when starting from a niche position with raincoats and a patterned trademark.
Secondly, Burberry needs to move further upmarket. While the demand for “affordable luxury” is affected by the cost of living crisis, the high-end fashion and jewelry brands still have a strong customer base, especially in Europe, the US, and China. Burberry has already taken steps by terminating licensing deals and distribution outlets that diluted its brand equity, but there is more work to be done.
Burberry aims to increase sales per square meter of retail space by offering higher value products. Currently, this metric stands at around a quarter of its competitors, Hermes and Louis Vuitton. The target is to more than double that figure, reaching £25,000 per square meter per year. This should also improve operating margins, which currently sit at the lower end of the industry at 20%.
Turnarounds within the luxury sector can be challenging, especially when facing competition from industry giant LVMH. Investors have shown limited patience with Burberry, reflected in a 28% stock increase over the past year, compared to over 45% for LVMH and over 80% for Hermes. The seamless execution of strategies is key to success.
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