Burberry plans to move further up market

Burberry label on clothes.
Reuters

Luxury goods retailer Burberry, best known for its trench coats and distinctive check pattern, is to close some stores and withdraw from outlets that are not upmarket enough.

The new strategy was announced along with its half-year results, which showed like-for-like sales up 4% and a 24% rise in operating profits to £127m.

Burberry said it had made another £20m in cost savings, taking total cuts so far to £40m.

The firm’s shares fell 12% on the news.

The luxury retail sector had changed and the “luxury consumer demands innovation, curation and excitement from brands and creativity at every turn,” Burberry said in a statement.

“To win with this consumer, we must sharpen our brand positioning.”

It intends to close an unspecified number of non-luxury retail and wholesale stores, as well as refurbishing other stores.

Burberry is in the middle of a major cost-cutting excercise under which it aims to make at total of £100m in savings by the 2019 financial year.

Earlier this year, it announced it was relocating 300 jobs from its London offices to West Yorkshire as part of the cost-saving measures.

Thursday’s’ announcement comes just nine days after Burberry’s chief creative officer Christopher Bailey, who has been with the brand for 17 years, announced that he would leave the company at the end of 2018.

Steve Clayton, manager of the Hargreaves Lansdown Select UK Growth Shares fund, which owns shares in Burberry, said: “It’s a text-book luxury brand repositioning exercise, which should leave Burberry jostling up against the world’s most exclusive names, with the margins to match, but this will take time and in the near term, sales growth will be held back and the group must invest more to achieve its goals.

“We think the plan makes sense.”

Ken Odeluga at City Index also agreed that Burberry’s strategy update made sense, but said it was “essentially a profit warning”.

“The stock gained more than 40% between mid-June last year and Wednesday’s close, as hopes built that installation of chief executive Marco Gobbetti, renowned in the luxury world, would accelerate growth, but his sound plan of action appears to offer a lower hurdle for near-term performance than investors expected.”

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