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Saturday 24 August 2019

Burberry boss swings the axe on stores as retailer targets luxury market

The plans are part of new chief executive Marco Gobbetti’s vision for the company.

Burberry sales
Burberry sales

By Ravender Sembhy, Press Association City Editor

Burberry has announced a store closure programme as part of a strategic overhaul that will see it focus its efforts solely on luxury shoppers.

The plans are part of new chief executive Marco Gobbetti’s vision for the company, in a bid to “sharpen” the brand’s positioning.

Burberry did not say how many stores it will “rationalise” or the number of staff affected by the move, but the closures will mainly affect its wholesale arm, which represents 30% of the group’s business, and will initially focus on the US and Europe.

“To ensure our distribution is consistent with our brand positioning, we will rationalise non-luxury wholesale and retail doors, with an initial emphasis on the US and then EMEIA (Europe, Middle East, India and Africa ).”

Burberry will ditch its outlets within department stores, and shutter shops that are not found in or near communities of luxury shoppers.

The announcement comes after Burberry recently confirmed that former boss and chief creative officer Christopher Bailey will step down from the board next year, ending his 17-year stint at the high-end fashion house.

It clears the path for Mr Gobbetti to stamp his mark on Burberry, as he also embarks on an ambitious cost-cutting plan.

He said: “Now is the right time for Burberry to implement the next phase of its transformation.

“By re-energising our product and customer experience to establish our position firmly in luxury, we will play in the most rewarding, enduring segment of the market.

“We have the foundations to build on and the team to execute our plans. This will enable us to drive sustainable growth and higher margins over time, whilst continuing to deliver attractive returns to shareholders.”

The company will take a £15 million restructuring hit linked to the store closures.

Burberry made the announcement alongside first-half results, which saw the firm book a 26% rise in pre-tax profits to £128 million.

Like-for-like sales rose 4% as revenues came in at £1.26 billion in the six months to September 30.

“I am pleased with our performance in the half, with strong double-digit underlying profit growth,” said Mr Gobbetti.

“Consumers responded positively to fashion and newness, particularly in rainwear and leather goods.

“Digital revenue grew in all regions, led by mobile, while growth was strongest in our own stores in Asia Pacific.”

Shares in Burberry plummeted 10% following the strategy update as investors digested the news.

Steve Clayton, manager of the Hargreaves Lansdown Select UK Growth Shares fund, which holds a 3.8% position in Burberry, said: “The market is now being asked to back him in a ‘no pain, no gain’ strategy shift. Early evidence suggests Mr Gobbetti has not carried the crowd with him.

“Mr Gobbetti wants to take Burberry out of all but the most exclusive stores, starting in the US wholesale channel, and then more widely. Product is to be reinvigorated, and accessories emphasised. It’s a text-book luxury brand repositioning exercise.

“But this will take time and in the near term, sales growth will be held back and the group must invest more to achieve its goals.

“Shareholders are being asked to accept a couple of years of modest progress, in order to build a stronger proposition longer term.”

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