Following a constant decline in sales during the second quarter, Burberry has announced a £40 million cost-reduction strategy to revitalise the brand. Chief executive Joshua Schulman, said he wants it to focus on “productivity, simplification and financial discipline.”
The fashion house witnessed a sharp decline, dropping from a £223 million profit recorded during the previous September to a £53 million loss in a year. Consequently, the London-listed firm was forced to suspend its dividend payments to shareholders as revenue fell 20% year over year, collapsing to £1.09 billion.
According to Mr Schulman, the turnaround plan will involve enhancing the business’s website, in-store productivity, and flexible prices. He added that the company needs to prioritise the wants of its core customers and focus on its well-known products. In a statement on Thursday, the company confessed that it had focused on modernising the brand “at the expense of celebrating our heritage.”
“Pricing, particularly in leather goods, did not always align with our category authority. Consequently, Burberry’s offer was skewed to a narrow base of luxury customers,” the company added.
Burberry has faced challenges in a stagnant luxury market, with its vital Chinese market particularly hard hit. Sales in Burberry’s mainland China stores dropped by 24% in the first half, with the decline worsening in the second quarter.
“Our recent underperformance has stemmed from several factors, including inconsistent brand execution and a lack of focus on our core outerwear category and our core customer segments. Today, we are acting with urgency to course-correct, stabilise the business and position Burberry for a return to sustainable, profitable growth,” Mr Schulman said.
“So far it’s been about changing ways of working and more efficient ways of working,” responded Chief Financial Officer Kate Ferry when asked about potential job cuts arising from the cost savings plan. Meanwhile, she stated that the Government’s decision to increase employers’ national insurance contributions has “had an impact”, but declined an elaboration.
This year, with its shares falling to their lowest since 2009, Burberry saw an exit from the FTSE 100. Burberry’s share prices saw an unexpected boost in recent weeks following rumours that Moncler, owner of Stone Island, was considering an acquisition. However, Thursday’s interim results made no mention of a potential takeover, and new reports this week suggest the deal is unlikely to proceed.
“We obviously make no comment on speculation,” replied Schulman when asked about the Thursday’s reports. “We have a lot of opportunity ahead and there is a lot more we can do as a publicly limited company,” he added.
Pointing to the continued plummet in China, Kathleen Brooks a research director at investment firm XTB commented that the company “still has a mountain to climb.”
