New lockdowns caused Burberry sales to drop 35% in China

British luxury house Burberry suffered a sharp drop in sales of 35% in mainland China in the three months to July 2 as Covid cases surged in major cities like Shanghai and Beijing, dragging extended closures in some cases and temporary store closures. The shares were down 3.8% at the close of the London market today.

The results from China are a taste of what could be in store for rivals like Louis Vuitton owner LVMH and Gucci parent Kering, both of which released a report in late July. China’s performance dragged down the entire Asia-Pacific region which saw a 16% contraction in the first quarter of Burberry’s fiscal year 2023. Excluding China, the rest of Asia recorded growth of 14%.

Asia-Pacific accounted for more than half of Burberry’s sales in FY22, so the decline in the first quarter is concerning. However, it was offset by very strong growth of 47% in Europe, the Middle East, India and Africa (EMEIA) which drove comparable store sales up 1%. Tailwinds in currencies created a further increase to end the quarter at £505 million ($597 million).

The luxury brand – which launched its TB Summer Monogram collection in May with a campaign led by model Gisele Bündchen – said a “more localized approach” in the EMEIA region, as well as increased tourism spending by Americans , helped boost sales above pre-pandemic levels. CEO Jonathan Akeroyd said in a statement, “Our focus categories, leather goods and outerwear continued to perform well outside of mainland China and our brand activations program drove customer engagement. “

Can China rebound strongly in the current quarter?

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, commented: “Burberry’s performance in the first quarter deeply disappointed the market, which is worried about lackluster growth. Mainland China acts as a serious drag, overshadowing successes elsewhere. The group’s medium-term ambitions for revenue growth are admirable, but how to achieve them is the big question for CEO Jonathan Akeroyd.

Pippa Stephens, clothing analyst at GlobalData, added: “Despite significant investment in growing its customer base through various high-profile celebrity partnerships, community initiatives and product updates, Burberry achieved moderate growth in the first quarter.

“Reliance on the EMEIA, particularly the UK, has been a major driver of Burberry’s consistent underperformance against other luxury players like LVMH and Kering since the pandemic. Although the company’s affluent shoppers are less affected by the cost of living crisis, this region is experiencing some of the highest rates of inflation, making Burberry more vulnerable than its more global rivals.

Do not skimp on marketing investments

Burberry is doubling down on its brand and product investment plans, and staying committed to digital, dabbling in the metaverse and adding new NFT collections. In April, the company expanded its line of Lola handbags, supported by a series of pop-ups and pop-ins as well as a campaign featuring Bella Hadid, Lourdes Leon, Jourdan Dunn and Ella Richards.

Lola is also appearing as a virtual collection on the Roblox online gaming platform via digital fashion designer @Builder_Boy. Meanwhile, to support the TB Summer Monogram collection, Burberry is running a series of brand buyouts, the first of which is at the Loulou Ramatuelle beach club in Saint Tropez where it created a bespoke version of the collection that is only available. than at a high-end pop-up store in the resort. In the United States, the exterior of the Neiman Marcus store in Atlanta will be wrapped in the new TB monogram and a pop-up will open inside.

More recently, the luxury brand hosted the South Korean Prime Minister
League footballer Son Heung-min as the new brand ambassador. Instagram’s ad hit the highest level of engagement ever, some 21% ahead of the previous peak. The company is also on track to add 65 newly designed stores this fiscal year. They will join the 47 deployed last year.

Although Burberry started the first quarter with around 40% of its distribution disrupted by closures in China, all stores were fully reopened by the end of the period. “Our performance in mainland China has been encouraging since stores reopened in June and we are actively managing the inflation headwind,” said the company, which is targeting mid-single-digit revenue growth and 20% margins. term.

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Post expires at 10:20pm on Thursday July 21st, 2022