Brand Analysis
Burberry Group is a British fashion house that sells high-quality, luxury items and clothing. Burberry has a rich history and is regarded as a symbol of British elegance. The company is well-known for its trench coats and recognizable checkered pattern (Burberry, n.d.a).
In 1856, at the age of 21, Thomas Burberry created Burberry in Basingstoke with the idea that clothes should be made to protect people from the British climate (Burberry, n.d.a). Currently, the brand is being revolutionized by the new chief creative director, Daniel Lee, who replaced Riccardo Tisci (Burberry, n.d.a).
Since 2005, retail has become the main channel of distribution, replacing wholesale and licensed operations (Burberry, n.d.a). Currently, it produces and markets ready-to-wear items, including trench coats, boots, and leather accessories (Burberry, n.d.a). An open-minded, inventive, and purpose-driven brand like Burberry, known for its high-end clothing, has a mission to protect, explore, and inspire its distinctive heritage (Burberry, n.d.b). Therefore, one can see that Burberry is a client-oriented company that adapts to the demand of consumers and has its mission to advance its heritage.
Recent Success
When discussing recent success, Burberry’s endeavors in 2020 and 2021 can be outlined. Earlier, in 2020, by demonstrating digital leadership, investing in omnichannel operations, such as the store, and focusing on its primary premium apparel and leather categories, Burberry expressed its intention to dominate the market in terms of online sales (Burberry, 2022d).
Consequently, in 2021, due to progress made in its transformation strategy, the corporation announced an increase in online sales during the golden quarter (Nazir, 2021). The luxury fashion retailer reported that online sales increased by more than 50 percent in the 13 weeks leading up to December 26, 2020 (Nazir, 2021). As a result, it can be seen that by concentrating on marketing and new approaches to introducing apparel, Burberry was able to attract new clientele and then concentrate on retaining them.
Another success can be viewed as a continuation of the previous one. In efforts to attract a new customer base and boost sales, Burberry has initiated initiatives to focus on the Chinese market. To achieve further success, Burberry continued to implement its Mainland China plan, utilizing localized advertising campaigns and increasing marketing spending to meet its growth objectives (Burberry, 2022d).
Moreover, the corporation emphasized the importance of forming new social alliances in key locations throughout Mainland China, as well as developing regionally relevant products, services, and consumer experiences (Burberry, 2022d). Consequently, Burberry’s retail revenue increased by 17% in the first fiscal quarter, driven by a solid recovery in China and a strong performance across the Asia Pacific in 2022 (Burberry, 2022d). Therefore, Burberry focuses more on Mainland China in its endeavors to attract customers and increase sales.
Recent Failure
However, not only successes but failures are connected in the case of Burberry. Apparently, Burberry utilized local labor and materials to manufacture its products for the Chinese market. However, in 2021, famous retailers such as Nike and H&M were boycotted by Chinese consumers due to alleged human rights violations associated with a cotton collection in the Chinese region of Xinjiang (Togoh, 2021).
The region is considered the most significant area for cotton production (Togoh, 2021). As a result, the British designer Burberry was also boycotted. Retailers have come under increasing pressure to reduce their use of cotton from Xinjiang (Togoh, 2021). The reason is that there was evidence that close to a million Uyghur Muslims, who make up the vast majority of people in the area, may have been imprisoned in “re-education” and labor settlements and ordered to harvest cotton and work for clothing manufacturers (Togoh, 2021).
Nevertheless, the boycott of the corporation extended to actors and other local businesses as well. For example, actress Zhou Dongyu, a brand ambassador for Burberry, terminated her relationship with the company after learning that the trench coat manufacturer had not openly and explicitly stated its position on cotton from Xinjiang (Togoh, 2021). Furthermore, days after the collaboration between Burberry and the game was announced, the company’s distinctive beige, black, and red plaid was removed from Honor of Kings, one of China’s top-performing video games (Togoh, 2021). Although it may seem that such a predicament is insignificant if the company’s portfolio is diversified and it operates in several markets, Burberry’s position was significantly weakened. Due to the corporation’s heavy reliance on Chinese consumers, such backlash can put risks on the revenue and popularity of the brand.
Sustainability Actions Strategy for the Future
After observing how Burberry’s success is influenced by one client group and one region, it became necessary for the company to refocus on its vision, mission, and green strategies. Indeed, after receiving major criticism for being unsupportive and exploitative of labor in developing countries, focusing on ESG can help change the reputation. The company became aware that making investments in the environmental sustainability of its operations, the resiliency of supply chains, and its management are necessary for the long-term success of Burberry.
As a result, the corporation conducted an ESG materiality analysis evaluation during the fiscal year 2021/22 to pinpoint the most significant company risks and opportunities (Burberry, 2022c). This involved evaluating environmental and social issues in terms of significance to Burberry’s stakeholders and how they might affect the company (Burberry, 2022c). Moreover, it involved deciding which issues were the most relevant to the fashion brand (Burberry, 2022c). To ensure proper monitoring of ESG risks and opportunities, management assessed the Group’s governance of ESG themes (Burberry, 2022c). Therefore, Burberry’s swift shift toward environmental consciousness and increased awareness has significantly contributed to its reputation.
To reinforce the new image in the market, the British designer established the goals and mission. It was decided that Burberry is dedicated to concentrating efforts on bringing about change through the Global Goals as part of the 2030 Agenda for the United Nations (Burberry, 2022c). The goal is to reduce Burberry’s indirect greenhouse gas emissions by 46% by 2030 (Burberry, 2022b). This pledge is a component of Burberry Beyond, a new sustainability strategy comprising three elements: climate, nature, and people (Burberry, 2022b). In addition to such significant objectives, openness and measurement are crucial. Burberry hopes to learn from its experiences, adapt, develop, and inspire others by documenting and sharing its progress (Burberry, 2022b). Therefore, with such changes, it is generally possible for the company to offset the failures it has endured and reclaim its position in the Chinese market.
Current Situation
One might wonder why such actions aimed at reclaiming the Chinese market are essential. After reviewing Burberry’s 2022 annual report, revenues by region can be observed. Here, while the Americas brought £743m in 2022, Europe, the Middle East, India, and Africa contributed £1,004m, and Asia Pacific accounted for £1,297m (Burberry, 2022a). This figure shows that the Asian Pacific region generates more revenue than other continents, which is why the Chinese market is crucial for the company.
However, in addition to the region’s diversification, there is positive financial news for Burberry. In 2022, the Group achieved a robust financial performance, with sales increasing in the fourth quarter as growth in Mainland China recovered (Burberry, 2022a). Burberry anticipates that by the end of the fiscal year 2023/24, over 50% of the network will have been renovated or launched in the new format (Burberry, 2022a).
The Group’s adjusted tax rate is expected to rise to approximately 27% for the financial year 2023/24, following the UK corporation tax rate increase to 25% on April 1, 2023 (Burberry, 2022a). However, given the adjusted EPS growth, a dividend of 61.0p per share is recommended, representing a 30% increase, and a projected share repurchase of £400 million is both in accordance with the capital allocation approach (Burberry, 2022a). Overall, it is evident that Burberry’s current position is strong, and its financial health is stable.
Consumer Profile
Regarding the consumer profile of Burberry, its 2020 report offered a clear distinction between the generations. According to Burberry, the newest consumers, millennials and Gen Z, were already anticipated to drive luxury market expansion before the pandemic (Burberry, 2020). The demographics above have become even more significant in light of COVID-19, as they have been at the forefront of the rebound (Burberry, 2020).
Despite the uncertain economy, millennials and members of Generation Z exhibit greater resilience by continuing to make luxury purchases (Burberry, 2020). Older generations of consumers are more frugal and thoughtful with their money (Burberry, 2020). Young consumers are expected to drive 180% of growth between 2019 and 2025, achieving a 65-70% stake in the luxury market by 2025 (Burberry, 2020). The reason for this is that their purchasing power will rise in future years, as younger generations gain the potential to impact older generations. As a result, as long as Burberry can retain customer groups of Gen Z and millennials and respond to their demands promptly, there are chances for further success and brand recognition.
Market Analysis
Ultimately, market analysis is essential for understanding why Burberry maintains such financial stability, beyond the influence of brand factors. The apparel, fashion, and luxury (AF&L) market has performed well over the past decade, with 70 percent of the largest AF&L businesses globally generating returns of more than 10 percent since 2016 (McKinsey & Company, 2022).
The global clothing industry was performing well as of December 2021, compared to the majority of other industries, with AF&L’s return on equity outperforming those of the S&P 500, the technology sector, the retail sector, and the MSCI World Index (McKinsey & Company, 2022). Therefore, the substantial revenue shown by Burberry is supported by the company’s position in the luxury market, where organic growth was observed even shortly after the pandemic.
Another point that can be made is that the industry in which Burberry operates is highly competitive. Profits from the top 100 luxury goods firms worldwide reached US$305 billion in fiscal year 2021, up from US$252 billion the previous year and surpassing the US$281 billion mark in fiscal year 2019 (Deloitte, 2022). The significance of major luxury goods firms is evident from the fact that they accounted for more than two-thirds of the top 100 luxury goods sales (Deloitte, 2022). Only 6.7% of the total came from forty-five businesses with revenues of US$1 billion or less (Deloitte, 2022). Thus, the majority of sales are concentrated in the hands of the leading luxury companies, making it challenging for new market entrants to gain a foothold.
Additionally, Burberry’s decision to adopt a greener strategy reflects the overall market trends. Luxury goods firms are now facing new prospects as a result of the “green transition” and advancements toward a circular economy model and ethical business practices (Deloitte, 2022). This is generating a great deal of excitement in the luxury market and offers unparalleled opportunities for businesses to be innovative and disruptive (Deloitte, 2022). This is why Burberry has set goals till 2030 to reduce its carbon emissions in half.
Consequently, regarding both the attractiveness of commodities as long-term investments and the allure of sustainable purchasing through premium resale, consumers are beginning to perceive luxury products through an entirely new perspective. The primary customer is a departure from the conventional international shopper, and this time period can legitimately be characterized as a new era of luxury shopping (McKinsey & Company, 2022). Overall, the luxury market appears to be gaining momentum due to a new type of conscious luxury consumer, who focuses on value and ethical purchasing.
Reference List
Butler, S. (2022) Burberry designer Riccardo Tisci to step down ending five years of Italian control. The Guardian.
Burberry. (2020) Annual report 2020-2021.
Burberry. (2022a) Annual report 2022-2023.
Burberry. (2022b) Climate positive 2040.
Burberry. (2022c) Environment and social responsibility report.
Burberry. (n.d.a) Our history.
Burberry. (n.d.b) Our purpose and values.
Burberry. (2022d) Strategic report.
Conti, S. (2023) Burberry revenue climbs 17% in Q1 as Chinese demand surges. WWD.
Deloitte. (2022) Global powers of luxury goods 2022.
McKinsey & Company. (2022) Winners take all in global apparel, fashion, and luxury.
Nazir, S. (2021) Burberry sales driven by digital as “younger” customers shop online. Retail Gazette.
Togoh, I. (2021) As Burberry faces backlash in China over Xinjiang cotton, other luxury brands could face boycott. Forbes.