Burberry rocked by doubts it will remain ‘a high-end luxury brand’

Worn by Queen Elizabeth II, Naomi Campbell and Vanessa Redgrave among others, Burberry was for many years considered the height of British fashion.

However, worries are now rising about the brand’s ability to hold on to its luxury image because of heavy discounting.

Burberry last week fell out of London’s FTSE 100 index of the biggest listed British companies and on Monday, its shares hit a 15-year low after analysts raised doubts over its ability to remain “a high-end luxury brand”.

A Burberry billboard in Shanghai. The British brand is losing its luxury shine. Credit: Bloomberg

Barclays analysts warned that the company’s reliance on sales through outlet stores, where designer goods are often sold at a discount, has hurt its once-prestigious reputation.

According to the bank, the designer has been selling products such as its flagship Knight handbag for as little as £820 ($1610) at outlets in China, when the retail price is typically around £2,400 ($4710).

It said the 66 per cent discount meant there was “limited incentive” for customers to purchase the bag at full price.

“We believe that Burberry’s association with discounting and promotions is highly damaging to its brand positioning, and we fear that it could take a long time for Burberry to rebuild its credibility on pricing, especially since the group doesn’t intend to reduce its exposure to outlets in the short term,” the bank’s analysts said.

Shares in the British fashion giant fell by as much as 8 per cent on Monday to 565p per share following a downgrade from the bank, meaning the company is now worth only £2 billion, less than a quarter of its £9 billion market value in mid-2023. This marks its lowest point since 2009.

Burberry has been scrambling to restore faith among investors after a string of profit warnings caused its share price to fall by more than 70 per cent over the last year.

Super model Naomi Campbell in Burberry.Credit: Getty

However, analysts at Barclays said Burberry’s performance is likely to worsen “despite already being one of the worst-performing names in our space”.

“We still see downside as we have concerns around the ability of Burberry to remain a high-end luxury brand in line with our coverage considering its lack of disciplined full-price strategy,” they warned.

It comes almost two months after Burberry suspended its dividend and ousted its chief executive Jonathan Akeroyd, with Joshua Schulman, former chief executive of Coach handbags, hired as his replacement.

Schulman, who also formerly worked for Jimmy Choo, has been handed a so-called “golden hello” pay package worth up to £9.2m, including a £1.2m salary, bonuses and “recruitment share award” worth £3.6m.

As well as hiring a new chief executive, Burberry was planning to axe hundreds of jobs in a race to cut costs, The Telegraph revealed in July.

Fears have risen that the once-prestigious brand has struggled to find an identity that resonates with modern shoppers.

The business has been attempting to refocus its image around “Britishness” in a push led by creative director Daniel Lee, but it has failed to translate into sales growth.

Its chairman, Gerry Murphy, promised in July the brand would take “decisive action to rebalance our offer to be more familiar to Burberry’s core customers”.

Barclays analysts warned Burberry was facing “structural brand weakness”, which led to sales falling 22 per cent from April to June.

They said: “Burberry looks likely to turn loss-making for the first time in [the December half] and considering that we expect the environment to remain tough next year, it could be difficult to see margin recovery in the short term.”

It has also had to contend with slowing demand for luxury goods across the world, which has hurt investors’ confidence in many of the biggest brands.

This includes Kering, the owner of Gucci and Balenciaga, which was also downgraded by Barclays amid fears of declining demand in China.

Burberry declined to comment.

The Telegraph, UK

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