Executive Summary
This report investigates the current and future financial prosperity of global luxury goods manufacturer Burberry, as outlined by Gabriel (2010). Methods of analysis employed by Gabriel include interim results reports and trend analyses. As Gabriel (2010) outlined, industry analysts approximated a 9 per cent decrease overall in the global luxury market in 2009, attributed to a decline in consumer spending. Analysts anticipate the global luxury goods sector will recuperate in 2010, although analysts do not expect as much growth as “the 8 per cent seen prior to 2008” (Gabriel, 2010: p. 1).
Fruits of Gabriel’s information gathering reveal that Burberry now enjoys a hale financial position, unlike competitors who were forced to deeply discount their inventory at the apex of the 2009 recession (Gabriel, 2010: p. 1). Burberry’s performance has shown consistent buoyancy and as “profit before tax was up 49 per cent,” Burberry’s performance rates above industry averages on the whole (Gabriel, 2010: p. 1). Performance ranks especially vigorous in the emerging markets of Russia, Eastern Europe, India and the Middle East which added 10 per cent to the retail and wholesale profit.
Burberry realized significant gains in the emerging Chinese luxury goods market also, wherein Burberry stated greater profit “both in the country itself as well as from Chinese tourists buying the Burberry check in Europe” (Gabriel, 2010: p. 1). From the years 2008 through 2010 several environmental factors affected Burberry’s brand, the most significant being the global financial recession that began in 2008 (Brownlie, 2000).
Subsequent marketing strategies and approaches underwent significant transformation as a result (Brassington and Pettitt, 2007; Brassington and Pettitt, 2006). Burberry took a bold stance and deployed more distinct product delineation within its existing lines, the Burberry London collection and the Burberry Brit collection. After 150 years the Burberry brand proves itself bulletproof in tough economic times, which may explain its courage in choosing to expand during a recession (Mowen, 1998; Mowen and Minor, 2001; Brassington and Pettitt, 2007; Brassington and Pettitt, 2006 ).
Introduction
The following report examines Come Back Burberry Again and Again, a detailed case study that tracks the global resurgence of the Burberry brand between 2008 and 2010 following trying economic times between 1997 and 2007. The report places special emphasis on how Burberry successfully adjusted its market segmentation strategy to leverage the brand in the midst of the global recession of 2008 and 2009 (Testinger, 1957; Brassington and Pettitt, 2007; Brassington and Pettitt, 2006).
According to Gabriel (2010) Burberry posted positive “interim results for the six months ending 30 September 2010. The interim results show that profit before tax was up 49 per cent to £128.5 million,” a significant increase when compared to posted results in 2009 at £86.2 million (Gabriel, 2010: p. 1). This report also analyses the strategy Burberry employed to solve problems encountered at its operations located in Spain in 2009 and the ongoing loss of revenue issues attributed to rampant counterfeiting of their brand (Gabriel, 2010: p. 3).
Findings
Background
Since its inception in 1856 Burberry has been synonymous with the best British fashion has to offer. Burberry’s unique brand offering combines modern British fashion with a distinctive echo of the genteel British luxury of the past as well as “reconstructed Englishness” (Gabriel, 2010: p. 2).
Burberry’s identifiable customer base for the most part responds positively to Burberry’s marketing mix (Brassington and Pettitt, 2007; Brassington and Pettitt, 2006; Hsu and Powers, 2002; Enis, 1980). The luxury market segment tends toward the niche, being significantly smaller than that of the Gap or H & M, for example, yet what the luxury market lacks in size it makes up for in liquidity and remains substantial enough due to the financial stability of its consumers. Burberry’s consumers also maintain sustained and significant loyalty to the brand. Burberry generates profits from a mix of apparel and non-apparel products (Gabriel, 2010: p. 2).
Non-apparel such as umbrellas, time pieces, fragrance and eyewear accounted for 36 per cent of revenue in 2009 (Gabriel, 2010: p. 2). In the apparel category women’s wear brought in 35 per cent of total revenue, men’s wear supplied 24 per cent of total revenue, and “the smaller but high potential children’s wear division” accounted for 5 per cent of total revenue in 2009 (Gabriel, 2010: p. 2). Non-apparel revenue also saw an increase of 10 per cent in 2009 (Gabriel, 2010: p. 2).
Burberry’s market segmentation has been employed to reach all members of the luxury market segment from the wealthiest such as celebrities at the top end to the upper middle class consumers at the lower end. This marketing mix ensures that all customers are served according to their financial ability and class. Burberry Prorsum line serves the apex consumers of Burberry’s hierarchy. Burberry Prorsum “is considered the most fashion forward of the collection and is centered around the runway shows each year. It is considered the high-end couture range and worn by celebrities like Victoria Becham, Gwyneth Paltrow and Liv Tyler” (Gabriel, 2010: p. 2).
One tier down Burberry London serves upper middle class urban professional consumer with this line of week day and work wear, otherwise known as “tailored ready to wear” (Gabriel, 2010: p. 2). Below Burberry London is Burberry Brit. This line is “considered the casual week end wear section” (Gabriel, 2010: p. 2). Outerwear crosses each level of consumer within Burberry’s market segment and remains the core of its business, accounting for more than 50 per cent of all apparel profits (Gabriel, 2010: p. 2).
Challenges
More recently over licensing in the 1990s led to the distinctive Burberry check becoming “over exposed” (Gabriel, 2010: p. 2). The Burberry pattern appeared “on everything from court shoes to baby buggies” (Gabriel, 2010: p. 2). Consumers grew annoyed with said over exposure which led to brand fatigue and backlash, most notably recalled by the infamous banning of Burberry check from pubs in the U.K. in 2004 (Gabriel, 2010: p. 2). Burberry has also come under fire, as have most global brands, for moving their manufacturing and production operations overseas to China, resulting in jobs losses in Britain (Gabriel, 2010: p. 2).
Recession
Burberry took a bold stance and deployed more distinct product delineation within its existing lines, the Burberry London collection and the Burberry Brit collection (Gabriel, 2010: p. 1). Burberry London became the more upscale tailored line and Burberry Brit became the cheaper more casual line of sportswear that included design innovation of the classic Burberry check, and a denim line (Gabriel, 2010: p. 1).
The logic behind this move according to Burberry was to “connect this large casual component to our consistent more modern aesthetic, respecting the core customer while attracting a new, younger luxury consumer to the brand. Secondly we wanted to further contemporise the casual offer and introduce our authentic heritage icons, the Trench and the Check to a new younger customer, while launching new growth categories, such as Denim. Thirdly the rebranding gives us the opportunity to expand” (Gabriel, 2010: p. 1).
Spain
In May of 2009 Burberry reported a £16.1million loss, largely attributable, according to Gabriel (2010), to its Spanish arm (p. 3). The retail market in Spain caused problems for Burberry for two reasons: one, the brand was not properly perceived by its target market. For a luxury goods designer and manufacturer to succeed with its chosen demographic it is imperative that its products are perceived as luxury, as a large part of the luxury sales relate to the class affirmation that customers receive when they purchase and wear the products.
However, in Spain Burberry was “perceived as middle-to-upmarket (premium brand) rather than a luxury brand” (Gabriel, 2010: p. 3) Secondly, Spain itself had suffered under the recession and could no longer support the effort the company was making to keep operations afloat. In a statement, Burberry admitted that with “the continued economic downturn in Spain, it is no longer viable for Burberry to design and sell collections produced exclusively for this market…losses are now expected from Spain in 2009/10 and beyond” (Gabriel, 2010: p. 3).
Counterfeit goods
Similar to many global brands Burberry has had its share of trouble with counterfeiters stealing its designs and profiting from its brand recognition. As Gabriel (2010) points out “brand owners often in the high-end or luxury goods market…argue…for the requirement to deter so-called free-riders, competitors who may benefit from the…marketing that luxury brands carry out without bearing the same costs” (p. 5).
Burberry and other luxury brands have received some encouraging support from the European Union in the form of regulatory changes that address the problem of global counterfeiting. These new European Union rules allow brands such as Burberry, Louis Vuitton, and Armani to prohibit websites from advertising and retailing Burberry apparel unless they have “bricks and mortar high street outlets” (Gabriel, 2010: p. 5). Further to this, the European Commission disclosed amended antitrust rules in the spring of 2010 that permit luxury brand owners such as Burberry to “block online retailers without a bricks-and-mortar shop from distributing their products” (Gabriel, 2010: p. 5).
Leadership
Burberry’s current leadership includes creative director Christopher Bailey and CEO Angela Ahrendts. Together their leadership strategy stresses the appeal of Burberry “across the classes” (Gabriel, 2010: p. 2). Ahrendts’ goal for the company during her tenure is to unite the several disparate businesses under one roof and place more weight on the earning potential of Burberry’s retail arm, “which has traditionally played second fiddle to its wholesale arm” (Gabriel, 2010: p. 2). Ahrendts intends to boost the number of annual collections from the existing two to eight, and increase the breadth of Burberry’s non-apparel and accessory lines.
Her strategy includes competing with global luxury behemoths Louis Vuitton and Gucci for an increased share in this sector. As Gabriel (2010) states, “competition is increasing…in the area of accessories, with luxury houses such as Chanel and Louis Vuitton moving into the broader market” (Gabriel, 2010: p. 3). Ahrendts aggressively revamped Burberry’s advertising campaign to focus on Hollywood celebrity endorsement. Ahrendts launched the Burberry brand perfume in 2006 “supported by the company’s first ever global television advertising campaign… [that] featured the Hollywood actress Rachel Weisz” while Twilight sex symbol Robert Pattinson appeared in an issue of Vanity Fair in a Burberry coat (Gabriel, 2010: p. 5).
Burberry asserts that the company “has benefited from the PR impact of celebrities wearing the brand…we’ve increased our efforts here to support the re-launch of our Menswear strategy [and] we have benefited from the impact of high-profile events such as Burberry Lights up New York to celebrate the opening of the Americas headquarters in May 2009” (Gabriel, 2010: p. 5). In 2010 Burberry’s Runway show premiered in London and entailed about “£8 million in advertising spend” (Gabriel, 2010: p. 5).
Harry Potter star Emma Watson became the front celebrity for Burberry (Gabriel, 2010: p. 5). Ahrendts’ marketing mix understands the Burberry offering appeals “to both genders and all ages” both through its classic look and “Anglo-Saxon style” as well as its price point. As Gabriel (2010) highlights, “Burberry is positioned in the middle of the luxury market. Burberry handbags…cost more than those from Coach Inc. but less than those from Prada” (Gabriel, 2010: p. 3). Burberry’s leadership banks on the cross class cross demographic appeal that has sustained the brand’s growth and development for the better part of a century and a half.
Digital Marketing
Burberry also embarked on an innovative and effective digital marketing campaign in 2009 which makes full use of the digital space including Facebook, Twitter, and YouTube. Most significantly Burberry spread its appeal to potential online aficionados through its own social networking website, Artofthetrench.com (Gabriel, 2010: p. 6).
Artofthetrench.com interacts between Burberry and its younger consumers by providing this online “forum for people to share photos of themselves wearing its trench coat” (Gabriel, 2010: p. 6). Here again we see the market segmentation strategy of Bailey and Ahrendts at play in the digital arena. The advantage of Burberry’s increased online presence “introduces the iconic trench coat to the digital generation” (Gabriel, 2010: p. 6). The disadvantage is that an increased online presence may lead to overexposure of the brand once again.
Conclusions
Bailey and Ahrendts’ gamble has proven very effective. In its first week Artofthetrench.com boasted “200,000 unique visitors, 3 million page views and most encouragingly, visitors were spending over five minutes on the page” (Gabriel, 2010: p. 6). Burberry also has “more than 700,000 fans on Facebook” says Ahrendts (Gabriel, 2010: p. 6). In Bailey’s words “it’s been so successful that now I actually go to the site for inspiration” (Gabriel, 2010: p. 6).
Recommendations
Burberry may continue to grow having embraced the e-commerce aspect of securing an online presence (Gilligan and Wilson, 2009; Kotler et al, 2009: Jobber, 2001; Baker et al, 1998). As Gabriel (2010) notes “the Web represents the prospect for growth” (Gabriel, 2010: p. 6). Ahrendts and Bailey can certainly expect to reap the benefits of a market segmentation strategy that combines the timeless classic check with digital marketing.
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