Burberry Sets Layoffs Despite Sales Rebound in Mainland China, Korea

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LONDON — There may be a sliver of light at the end of the tunnel, but it’s going to take a while for Burberry to get there.

Fiscal 2020-21 was supposed to be a year of growth and transformation for the British brand, which is now being forced to retrench, restrategize and swallow the sort of shocking sales declines rarely witnessed by a big luxury brand in such a short space of time.

In the first quarter ended June 27, Burberry’s retail sales fell 48.4 percent to 257 million pounds, while comparable store sales were down 45 percent.

As lockdown and quarantine measures eased worldwide, and stores began reopening, those numbers improved, with sales in June falling 20 percent, and a powerful rebound in the key markets of mainland China and South Korea, especially with regard to leather goods sales.

The news drove Burberry’s share price down 5.6 percent on Wednesday to close at 14.70 pounds.

A targeted leather goods campaign in those regions drove strong, double-digit, full-price sales growth in the period, and Burberry said both markets are now delivering sales ahead of pre-COVID-19 levels. The campaign featured pop-up stores offering an augmented reality experience, as well as a limited-edition Pocket Bag for Mr Bags’ WeChat followers.

Sales in mainland China, in particular, grew in the mid-teens in the first quarter, and swelled to 30 percent in June.

“Recent months have been unlike any I have experienced at Burberry or, indeed, in my entire career,” chief executive officer Marco Gobbetti told shareholders at the virtual — and brisk — annual general meeting late Wednesday morning shortly after the first-quarter results were released.

He added that Burberry has “a robust plan in place to navigate the next 12 months,” and pointed to the fact that the brand is a fundamentally healthy company, with sales growth in the first nine months of last year tracking ahead of expectations, before COVID-19 hit.

Gobbetti added a note of optimism, saying that while markets worldwide “will take time to heal,” he was encouraged by the bounce back in mainland China and South Korea, where Burberry has seen customers splash their money locally rather than during trips abroad.

The company said it expects the second quarter, which ends in September, to be “materially impacted by the pandemic, with tourist flows likely to remain negligible, and store operations continuing to face significant headwinds.” Some remain closed and those that are open are operating with reduced trading hours.

Sales in the three months to September are expected to decline by 15 to 20 percent. In the first half, wholesale sales are set to fall 40-50 percent, Burberry said.

During the AGM, Burberry also pointed out that it has been left with 68.3 million pounds worth of additional inventory from current and recent seasons due to the worldwide store closures. By the end of March some 60 percent of Burberry’s stores were shut.

Burberry added that second-half performance will largely depend on the actions governments take to control the spread of the virus as economies restart, “including their responses to second viral waves, as well as the phasing of store reopenings, an easing of travel restrictions, and the ongoing consumer response.”

As a result of the damage, and to pave the way for recovery, Burberry confirmed Wednesday that it is in talks to eliminate 5 percent of its workforce, or 500 jobs, internationally. That number includes 150 office-based roles in the U.K., and Burberry stressed there would be no cuts to manufacturing or shop floor jobs in its home territory.

The reorganization, which also includes office space and retail rationalization, is expected deliver savings of around 35 million pounds in fiscal 2020-21, with annualized savings of 55 million pounds and an associated one-off restructuring charge of 45 million pounds.

Burberry said those savings are in addition to the previously announced 140 million pound cumulative cost saving program.

As part of a wider move to tighten operations and “to sharpen the focus on product, agility and efficiency,” Burberry is in the process of setting up three new business units: ready-to-wear, accessories and shoes.

Each unit will have dedicated commercial planning, merchandising and product development teams. Previously, those teams had worked across all three categories.

The company said that “conditional on the macroeconomic recovery from COVID-19 and luxury industry growth, we will be able to reinvest these savings into consumer-facing activities,” such as pop-up stores, visual merchandising, digital activations, events as well as marketing.

Burberry had been quick to reject the British government’s furlough payments during lockdown, choosing instead to pay store staff and others who could not work from home out of its own pocket.

After lockdown, company bosses and top board members took pay cuts; merit increases were frozen; Burberry eliminated the dividend payment for the 2019-20 fiscal year, and the company girded its balance sheet and liquidity for the tough months ahead.

In the first quarter, Burberry said it saw “progressive, month-on-month improvement” in the April to June period, “excellent consumer response” to new launches, including the fall 2020 collection, the Pride and summer monogram capsules and leather goods exclusives.

With the exception of mainland China and South Korea, sales were down in all other regions.

EMEIA declined around 75 percent, impacted by lockdown measures and a significant reduction in travel. While sales improved in June, they continued to be impacted by “a significant headwind due to tourist flows,” Burberry said.

The Americas declined by 70 percent impacted by lockdown measures, although Burberry said trends improved significantly into June.

Due to the fact that no one is traveling, Burberry is putting more firepower behind its “localization” strategy, given that tourists are no longer snapping up check bags, TB monogram scarves and trenchcoats while traveling abroad. During the AGM, Gobbetti said the brand had “bespoke plans for each market,” and stressed that it can respond quickly in those regions that are recovering the fastest.

“We are leaving space for investments as markets recover,” he added.

Burberry plans to follow up its successful China campaign with the launch of its first “social retail” store, developed in partnership with Tencent, which will open in Shenzhen this summer. The experimental store will look to offer experiences that connect luxury customers’ social and online lives to their physical environments using technology powered by Tencent.

As part of its marketing efforts, the brand will also kick off London Fashion Week in September, with a presentation under British skies. It will take place live, in the great British outdoors, while press and the public will be able to view the event digitally.

The Burberry show will take place on Sept. 17 — chief creative officer Riccardo Tisci’s lucky number. The designer said he wanted to channel the “purity and simplicity of the outdoors” and redefine the fashion landscape through new forms of expression.

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