Burberry, the iconic British luxury brand, is facing a major challenge as it struggles with declining sales and a shrinking share price. With new CEO Joshua Schulman stepping in, the pressure is on to turn the company around. Schulman, a veteran of brands like Coach and Michael Kors, is expected to present his vision for Burberry’s future on November 14th during the company’s half-year results announcement. But he’s up against a tough set of obstacles — including how to handle Burberry’s outlet stores and pricing strategy that could make or break the brand’s luxury status.
A Decline in Sales and Market Value
Burberry’s troubles are not entirely unique. The broader luxury sector has been hit by rising interest rates and inflation, which have made consumers more reluctant to spend. However, Burberry has underperformed compared to its competitors, and its stock price has dropped by 40% this year alone. Despite a recent rally in its shares following rumors that Italy’s Moncler might be interested in a buyout, the brand is facing growing pressure to reinvent itself and reclaim its position at the high end of the luxury market.
Schulman’s task is clear: Turn around a brand that has been through four CEOs in 10 years and faces intense competition in the luxury space. Investors are hoping his experience at Coach and Michael Kors, where he helped revitalize those brands, will help Burberry chart a new course. But the challenges ahead are significant.
The Outlet Store Dilemma: A Luxury Brand at Discount Prices?
One of the key issues Burberry’s new CEO will have to address is the brand’s reliance on outlet stores. The company operates about 56 outlet stores in key markets like China, Japan, the UK, and the US. These outlets offer steep discounts on past-season collections, including Burberry’s classic trench coats, scarves, and handbags. While these stores bring in a lot of money — accounting for nearly 30% of Burberry’s sales and 50% of profitability — they also pose a significant risk to the brand’s high-end image.
Analysts argue that outlet stores, by selling discounted goods, hurt Burberry’s luxury appeal. As HSBC analyst Aurelie Husson-Dumoutier pointed out, a classic trench coat from 2019 may not look much different from the 2024 version, and if a consumer can buy it at half the price in an outlet store, why would they ever pay full price?
Reducing outlet exposure could be costly for Burberry, but it may be necessary if the brand is serious about pushing itself toward the higher-end luxury market. Brands like Coach and Michael Kors have faced similar challenges, as they straddle the line between luxury and more affordable, accessible fashion. Bank of America analyst Ashley Wallace suggests that Burberry is “stuck in the middle,” and the company needs to decide whether it wants to compete as a true luxury brand or as a more accessible, premium brand with lower margins.
A New Strategy: Pricing, Product, and Identity
Aside from the outlet store dilemma, Burberry’s pricing strategy is another critical issue that Schulman must address. Price hikes over the past few years have led some shoppers to feel that the brand has become too expensive. In particular, younger consumers who have more options for luxury-inspired fashion may be put off by Burberry’s price tags.
Tom Delic, portfolio manager at Momentum, a firm that holds Burberry shares, has expressed concerns that the company may have raised prices too quickly. “It has alienated aspirational shoppers, especially younger ones,” Delic noted. This could be a significant concern, especially when competitors like Jacquemus and other “cool” brands are attracting a younger, fashion-savvy crowd with trendy, more affordable options.
At the same time, Burberry is known for its classic designs — particularly its famous plaid pattern and trench coats. These timeless pieces are a key part of its identity, but Schulman and his team may need to work on repositioning the brand to appeal to a younger generation, without losing its heritage or luxury status.
Creative Direction: A Key to Burberry’s Future?
Creative direction has also been a point of contention at Burberry. In the past seven years, the company has had three different creative directors, each bringing their own vision to the brand. Christopher Bailey, Riccardo Tisci, and now Daniel Lee have each had their turn at reimagining Burberry’s collections, logos, and overall aesthetic. But some say this lack of consistency in creative direction has confused the brand’s identity.
Daniel Lee, who joined Burberry two years ago, is known for his success at Bottega Veneta, where he created viral products like the Jodie bag. However, Lee’s designs for Burberry have not yet achieved the same level of success, leading to questions about his future at the company. Burberry’s Chairman, Gerry Murphy, reassured analysts in July that there would be no change in creative leadership anytime soon, but the pressure is mounting.
As Sasha Kachanova, a consumer analyst at abrdn, pointed out, Burberry’s apparel is more famous than its leather goods, so creating a must-have “it” bag or shoe could take longer. This means Schulman may have to work on refocusing Burberry on what it does best: high-quality clothing and classic luxury that appeals to a range of consumers.
The Road Ahead: Can Burberry Regain Its Luxury Status?
Burberry’s brand image and positioning are at a crossroads. As it grapples with pricing strategies, the challenges of outlet stores, and the need for consistent creative direction, the company has a difficult road ahead. Schulman will need to find a way to balance Burberry’s heritage with the desire for modernity, while also addressing the needs of younger consumers who are seeking both luxury and affordable luxury options.
Burberry’s success will depend largely on how it navigates these challenges. The company needs to figure out how to remain true to its classic roots while also appealing to a new generation of consumers. And, crucially, it needs to make decisions that will support its long-term growth and position it as a true luxury brand once again.
With Schulman at the helm, Burberry will be hoping that his expertise in revitalizing brands can help steer the company back on track. The key question will be: Can Burberry return to its former glory, or is it too far down the road to recovery?
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.
