Last week, it was reported the luxury brand Burberry was set to slash hundreds of jobs after a dramatic fall in profit.
But this time last year, the company had just reported a bumper set of results for the first quarter of its 2023 financial year. Burberry shares jumped around six per cent in mid-July 2023 when it said sales for the first quarter had grown 18 per cent.
Since then, the company’s share price has fallen 57 per cent, profit has plunged and debt has more than doubled.
So how did we get here?
Burberry blamed the problems on London’s tourist tax and slower global demand for luxury goods.
However, Burberry seems to have lost the ‘aspirational consumer.’ Luxury companies pride themselves on catering to the top one per cent, but according to analysts, Burberry is more exposed to ‘aspirational’ luxury buyers – the top 10 per cent of the market – than super-high-end luxury brands.
These less wealthy shoppers account for about $273.5bn in fashion spending annually, according to a recent McKinsey study.
The harsh economic environment has had a bigger impact on this bracket of consumers than the top one per cent.
Burberry’s a shop where a swimsuit set costs £450 and a trench coat costs more than the average monthly rent in London—a staggering £2,290 – a steep price for an aspirational consumer during a cost-of-living crisis.
“Inflation and slowing economic growth have affected most luxury brands,” Ana Friedlander, Industry Strategy Director for Fashion at Infor, said.
Those who want to survive must “truly prioritise their identity”, she said, including “highlighting heritage and craftsmanship” while modernising their image, maintaining quality and exclusivity, and addressing environmental concerns.
All about the Burberry brand
Looking at brands that have bucked the trend and grown this year, it is clear how essential branding is to luxury.
Italian fashion giant Miu Miu reported 89 per cent growth in first-quarter sales this year, and took the top spot in the latest instalment of the Lyst index, a quarterly ranking of the trendiest fashion brands.
Burberry hovers in the early teens of the index.
Hermes, too, saw sales jump 28 per cent in the second quarter of 2024, in no small part due to its Birkin-obsessed consumer base.
Consistently profitable companies like Miu Miu and Hermes have capitalised on their brands and made the most of social media like Tiktok – carving out a modern identity, steering trends on the app and capturing an increasingly rich Gen-Z market.
“When looking at Burberry’s reported 30 per cent profit drop, you can see that they have taken some brand missteps which have not prioritised their identity.” Friedlander said.
“For example, abandoning their iconic logo and diluting exclusivity with low-cost items has led to unclear campaign messaging and increased counterfeiting.”
Back to the 00s
This isn’t the first time Burberry has had something of an identity crisis.
In the 2000s, it faced the twin challenges of branding issues and a proliferation of fake items, which ultimately led to a complete rebranding of the company.
The company has been here before, but investors could experience further pain as Burrbery tries to rebuild its core customer base.
“The combination of weak social media and Google search trends, as well as muted feedback from the trade on Burberry’s new collection, give no reason to believe that its momentum is accelerating,” UBS analyst Zuzanna Pusz said last month in a note.
“While Burberry’s doing a lot of things right behind the scenes, like investing in products and distribution and even refreshing the management team, its short-term picture remains fraught with real challenges and uncertainty,” Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said.
“On their own [job cuts] are likely to only be a sticking plaster, and if this means customer service, or creative capabilities are compromised, it could do further long-term damage to the brand.
To move forward – and avoid a buyout – Burberry needs a “stable and visionary leadership”, Friendlander said, in order to guide the brand through its hurdles and towards digital transformation and innovation.
“It could be a while yet before sentiment swings and Burberry begins to bloom again,” Chiekrie noted.