Burberry, the British luxury clothing giant has announced a PS40-million cost saving programme. This is part of its comprehensive turnaround strategy revealed by Joshua Schulman, Burberry’s new CEO.
Schulman, who was appointed in July after Jonathan Akeroyd left the company, aims to stabilise the business following years of poor performance and missteps with the brand.
Schulman stated in a press release that “our recent underperformance is due to a number of factors including inconsistent branding execution, a lack focus on the outerwear segment and core customers segments”, and that this has led to a decline.
The company has now, he said, “acted with urgency in order to correct the course, stabilize the enterprise, and prepare Burberry to return to profitable, sustainable growth”.
The luxury retailer’s shares jumped up to 22% after the announcement of its turnaround plan, becoming the top gainer on the FTSE 250.
Burberry Forward is launched amid loss
On Thursday, the fashion company announced its relaunched sales strategy called “Burberry Forward”.
This announcement came along with its announcement of earnings for the six-month period ending in September. It reported a PS41million loss, an enormous contrast from the PS223million adjusted operating profit that was recorded during the same time last year.
The revenue dropped by 22% to just under PS1.1 billion.
The brand has opened 19 stores and closed 12, but still maintained 429 stores that are directly owned as of 28 September.
Burberry, a luxury fashion brand, was relegated to the FTSE 100 in September after a difficult period of declining sales and a number of changes in leadership.
We are aware that there is much work to do in the near future, so we’re acting quickly. Schulman stated that he was confident the company could return to its previous revenue of PS3 billion over time, while rebuilding margins.
Schulman’s plan to increase Burberry’s revenue to PS3 billion with an emphasis on its core products is in stark contrast to the more conservative predictions of market analysts, who estimate that revenues will be around PS2.73 by 2027-2028.
Savings of PS40m per year through a cost-cutting programme
Schulman said that the company, as part of its turnaround strategy, has taken certain steps in the past 90 days. This includes a programme for cost cutting that will save PS40m per year.
The savings of approximately 25 million PS would be realized in the financial year 2025.
Burberry is currently streamlining their operations and consolidating roles in the office. However, they have not revealed specifics about potential job loss.
Kate Ferry is Burberry’s Chief Financial Officer. She noted the external pressures the company faces, such as the recent UK Government increase of employers’ national security contributions. This has added an estimated PS3-4 Billion to the operating costs.
“Scarf bars” are part of the new program
Schulman, to support Burberry’s turnaround, has strengthened the leadership team of the company by adding new managers for marketing, product merchandise, and planning. This is especially true in important regions such as the Americas.
The campaign includes “scarf bar” retail experiences, which were first launched at Burberry’s flagship store in New York on 57th street.
Schulman commented about the recent performance of the brand, blaming it on inconsistent strategy and drifting away from its core strengths.
He said: “We are a brand that has broad appeal with luxury consumers, we have authority in outerwear and scarves categories, which remain resilient in this period and we have a strong present in all the key luxury markets.”
What are the analysts’ opinions of the revival plan
Burberry’s problems reflect broader issues in the luxury industry, where demand has been slowing.
The global luxury market has also been affected by competitors like Kering (parent company of Gucci, Balenciaga and Mulberry) and Mulberry, a British brand.
Analysts see Burberry’s new focus on core products as a positive, despite the financial challenges.
Analysts at RBC Capital Markets pointed out that the downturn of the company was due to a misjudgment in price elasticity for the leather goods sector.
The move by Schulman to return to Burberry’s heritage outerwear is seen as promising, and will bring the brand to a less saturated, more authentic product category.
Morgan Stanley analysts noted that Burberry could achieve financial goals similar to those of its pre-pandemic period, including a gross profit margin in excess 70% and an operating margin around the mid teens.
The management, as reflected in the latest update, was confident that these goals would be achieved.
Schulman admitted that turning around the company would not be immediate.
Burberry said that it was too soon to tell whether the second half results would fully compensate for the adjusted first-half operating loss.
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