Burberry’s Return to Heritage Products Under New CEO

Burberry, the luxury fashion house renowned for its iconic trench coats and checkered designs, is undergoing a significant transformation under its new CEO, Joshua Schulman. Amid declining sales and a battered share price, the company has launched a comprehensive strategic overhaul termed "Burberry Forward." This strategic plan aims to reestablish Burberry's market position and drive sustainable growth.

“Today, we are acting with urgency to course correct, stabilise the business and position Burberry for a return to sustainable, profitable growth. We have a powerful brand with broad appeal among luxury customers, authority in the outerwear and scarf categories which have remained resilient through this period, and a strong presence in all key luxury markets. Now, we have a clear framework to reignite brand desire, improve our performance and drive long-term value creation. Building on our strong foundations, I am confident that Burberry’s best days are ahead.” - Joshua Schulman, Chief Executive Officer.

RB Insights

• Cost-Cutting Drive: Implementing a £40 million initiative to enhance productivity and digital platforms.
• Product Emphasis: Focus on heritage and core products, targeting doubling sales in leather goods, women's ready-to-wear, and shoes, alongside a 1.5x increase in outerwear sales.
• Operational Simplification: Streamlining operations and improving in-store productivity.

Key Initiatives in the Burberry Forward Plan

The "Burberry Forward" initiative is anchored by a £40 million cost-cutting drive, targeting improvements in productivity and digital platform enhancements. Schulman, who took over as CEO in July 2024, emphasizes a return to the brand's heritage and core products while aiming to revitalize its financial performance. This includes doubling sales of leather goods and women's ready-to-wear, more than doubling shoe sales, and increasing outerwear sales by 1.5 times. Additionally, Schulman focuses on simplifying operations and enhancing in-store productivity.

Financial Performance and Challenges

Burberry's recent financial results highlight the urgency of this strategic shift. The company reported a staggering loss of £53 million in the first half of the fiscal year, compared to a £223 million profit in the same period the previous year. Revenues dropped by 20% year-on-year to £1.09 billion, prompting the suspension of dividends. The decline is attributed to inconsistent brand execution and a significant drop in sales, especially in the crucial Chinese market, where revenues fell by 24% in the first half.

Market Response and Investor Confidence

Despite the grim financials, Schulman's forthright acknowledgment of Burberry's shortcomings and his detailed strategy for turnaround have instilled cautious optimism among investors. The company's stock, which had plunged to a 14-year low, saw a temporary lift following speculation of a potential takeover by Italian luxury brand Moncler. However, this speculation did not materialize into any concrete buyout offers.

Interactive Investor's head of markets, Richard Hunter, and other analysts have noted the ambitiousness of the new strategy but remain wary of the challenges ahead. The global luxury market's stagnation and downturn in China remain significant obstacles. Analysts at investment firm XTB underscore that Burberry still faces substantial hurdles, requiring more visible progress to alter the current market consensus, which rates the stock as a “sell.”

Schulman’s Leadership and Vision

Previously with Coach and Stuart Weitzman, Joshua Schulman has been tasked with steering Burberry back to profitability. With a base annual salary of £1.2 million, Schulman has committed to leveraging Burberry's rich heritage while modernizing its approach to align with contemporary market demands. His leadership focuses on financial discipline, robust brand execution, and a keen understanding of Burberry’s historical strengths.

Conclusion

The "Burberry Forward" strategic plan is pivotal for the storied brand. Under Joshua Schulman's guidance, Burberry aims to correct past missteps and reposition itself within the competitive luxury fashion market. Whether these measures will yield the desired turnaround remains to be seen. Still, the company's renewed focus on its core values and product offerings marks a determined attempt to reclaim its prestigious standing.