Year of the fire horse brings glad tidings as Burberry’s bet on China pays off
FTSE 100 fashion house Burberry had spooked the market with its drastic cost-cutting turnaround, but its full-year results saw the brand canter back to profit. Felix Armstrong looks at the firm’s renewed focus on Chinese consumers
British luxury brand Burberry has identified a symbol of “luck and prosperity” according to its latest collection for the Chinese New Year, which has become a big deal for a company that has turned to the east to return to profit.
In the Chinese zodiac calendar it’s the year of the fire horse, and some of the good luck associated with it has boosted the London-based firm’s stable of luxury apparel.
A resurgence in the Chinese market spurred galloping sales which helped it ride back to profit this year.
The FTSE 100 fashion house has endured a tumultuous few years which saw it temporarily slip out of the blue-chip index and embark on a £60m cost-cutting plan which came at the expense of 1,700 jobs.
One year after unveiling the £66m losses which sent the luxury firm into a tailspin, investors were clear that Burberry’s full-year results were a make-or-break moment for chief executive Joshua Schulman.
Burberry boss gleeful
But the fashion boss seemed undeterred by this pressure, and was all smiles as he announced the firm’s results on Thursday.
“I am pleased to say our strategy is working and there are opportunities for further growth,” he told analysts.
Burberry’s results did appear to be cause for glee, as the fashion house emerged out of the red to turn a £49m pre-tax profit and met analyst expectations with a £2.4bn revenue in the year to March.
The fashion house’s financial turnaround and growing sales came after it mounted a renewed focus on “Britishness,” following a short-lived foray into ultra-high luxury.
“Burberry’s return to a more mid-tier and aspirational customer base is a tacit admission that in trying to compete at the high end of luxury it had flown too close to the sun,” according to AJ Bell’s head analyst Dan Coatsworth.
‘Especially important to win in China’
The fashion brand enlisted contemporary British celebrities like Olivia Colman, Cole Palmer and Olivia Dean to turbo-charge the brand’s turnaround, but the driving force of its recent success is found overseas.
China has long been a key market for Burberry, and whether it could regain this consumer base in earnest was a central question Schulman was expected to answer with these results.
Burberry’s answer was compelling, as it toasted 10 per cent sales growth in the Greater China region for the three months leading up to March, pushing sales in the region to a four per cent rise in the year overall.
The fashion house took £670m in revenue from China in the year, making it the company’s second best-performing region – below £821m in Europe, the Middle East and Asia.
“It’s especially important to win in China,” Schulman told investors, the area which accounts for 30 per cent of the firm’s global sales.
Gen-Z drives China growth
The fashion company piled advertising investment into the region, releasing a Chinese New Year range which translates Burberry’s iconic trench coat and checked scarf into the bright red colours of the fire horse.
Burberry also rolled out a large-scale marketing campaign featuring Chinese actor Wu Lei, a series of documentary films celebrating “China’s natural landscape” and is planning a “finale” to its 170-year celebrations in Shanghai.
“The Burberry scarf has been a social media sensation in China and has really driven a new generation of young customers,” Shulman told analysts.
“That was really amplified by our significantly increased investment over Lunar New Year which had a much broader media plan and we had much more content because we had four major Chinese talents headline the Lunar New Year campaign,” he continued.
Burberry may have led the fire horse to water, but it cannot make it drink.
It remains to be seen whether the fashion house has made enough progress in China to return itself to long-lasting stability, Dan Lane, lead analyst at investment platform Robinhood UK, explained.
“You can stabilise a brand through discipline but premiumisation requires desire – if Burberry can maintain and lift interest in the fragile Chinese market and navigate a higher-inflation environment, today could well look like the turning point,” he said.