Burberry could not be in more of a bad spot for the luxury market recession that followed the post-pandemic boom, with designer Daniel Lee’s initial designs for the British brand beginning to appear in recently renovated stores.

Executives issued a warning on Thursday, citing a deteriorating global macroeconomic environment and the conclusion of a turbulent reporting season for the industry, that they would find it difficult to fulfil Burberry’s yearly revenue projection.

Due to rising living expenses, consumers in the US and Europe are becoming more frugal when making luxury purchases, whilst China’s hunger has been dampened by a real estate crisis and historically high rates of youth unemployment.

Analysts at JPMorgan stated that Burberry is in a “particularly difficult position” in comparison to its peers since it is challenging to elevate the brand’s image at a time when consumers may be more choosy about what they purchase.

Since fewer people are visiting Burberry stores, closing a deal will be crucial. In a conference call with investors, Chief Executive Jonathan Akeroyd stated, “The challenge here is conversion.” He went on to say that the brand will need to put in extra effort to increase the amount of customers who complete a purchase as the industry struggles with decreased foot traffic.

“That’s really what we’re focusing on,” said Akeroyd.

For Burberry, the difficulty has increased.

The business is revamping its look in an effort to increase consumer interest in the brand by offering higher-end, higher-quality items like the medium-sized “Knight” bag, which weighs 2,890 pounds ($3,582).

With an expenditure of about 89 million pounds, it has been renovating stores at a dizzying pace, opening more than one a week or 33 in the first half of the year in locations including Los Angeles, Dallas, Houston, Omotesando in Tokyo, and Bond Street in London.

Executives have also focused on higher-end merchants, reducing the number of department stores where the brand is sold and collaborating with them to manage inventories to prevent a rush of discounts that could damage the brand’s reputation.

The brand has stocked its stores with new styles ranging in price from lower to higher, with a focus once again on its essential outerwear.

According to Akeroyd, there has already been a “nice shift” towards accessories, such as purses and shoes.

Lee’s fashion sense and emphasis on the brand’s British heritage distinguish him from earlier turnaround attempts spearheaded by designer Riccardo Tisci, who left in 2022 after less than five years in the role.

Lee is credited with introducing younger consumers to Bottega Veneta, an Italian brand owned by Kering (PRTP.PA), with trends like quilted leather mules and soft clutch purses. He has used soft ducklings in advertising ads and vibrant dandelion patterns on clothing at Burberry.

The new typeface and monogram of his predecessor have vanished, but the Equestrian Knight logo that Tisci banished has returned—this time in vivid blue.

“We like what Burberry is doing with product and range architecture, however, the timing is not ideal,” said analysts at RBC.

Former CEO Marco Gobbetti prioritised cost control, but rivals like Gucci owner Kering and industry titan LVMH have also indicated that they plan to keep making significant investments in building brand heat, which has led Burberry’s current leadership to increase investment.

After ten years on the job, LVMH has renewed the contract of Nicolas Ghesquiere, the womenswear designer for Louis Vuitton.

Kate Ferry, Chief Financial Officer at Burberry, stated that the business was “absolutely committed to protecting all of the consumer-facing areas”.

“Alongside everyone else, you’d expect us to be careful where we can be but very much committed to marketing spend in particular,” she added.

Executives stated that Burberry will increase expenditure in the second half despite a 10% increase in costs in the first half.

The price of its shares is half what it was two years ago and is the lowest since 2009 at just under 14 times anticipated earnings for the next 12 months. Its PE ratio is the lowest in the luxury industry. The PE ratio is a commonly used metric in financial markets to assess the relative worth of stocks.

Investors have lowered their projections, even for larger companies like LVMH that are thought to be better-equipped to withstand the downturn, as a result of the end of the post-pandemic spending spree that drove the sector’s explosive rise over the previous three years.

“Negative sentiment will likely prevail for luxury turnaround stories for the next 6-12 months,” investment bank Citi said.

(Adapted from BBC.com)

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