By
Bloomberg
Published
November 16, 2024
Burberry Group Plc has spent the last seven years under two successive chief executive officers trying to become the British LVMH. Now, with Joshua Schulman at the helm, it wants to be a combination of Moncler and Ralph Lauren.
This just might work. Moncler SpA is one of the best performing luxury brands, while Ralph Lauren Corp. shares are close to a record high.
Burberry shares rose as much as 23% on Thursday, even as the company reported a pretax loss of £80 million ($101.3 million) in the first half of its fiscal year, compared with a £219 million profit in the year earlier period. The first-half loss included a £29 million charge for unsold handbags and clothes.
But the share-price reaction looks overdone. There are plenty of risks to Burberry’s new look, prime among them an unclear brand positioning combining top-end coats and jackets with cheaper items elsewhere.
Schulman’s “Burberry Forward” strategy majors on the company’s heritage of outerwear, led by the trench coat.
In focusing on the trench, as well as quilted jackets and wool and cashmere coats, the CEO, appointed in July, is taking a leaf out of Moncler’s book. The Italian company, in which LVMH Moet Hennessy Louis Vuitton SE recently invested and which has been mooted as a possible suitor for Burberry, reinvented itself around the padded jacket. Another priority for Burberry will be scarves and capes.
While Schulman is adamant that the company will remain a true luxury player and not an accessible name like Tapestry Inc.’s Coach or Capri Holdings Ltd.’s Michael Kors, its range will span from the entry level, with men’s polo shirts, to $9,000 leather trench coats. Handbags will become cheaper — to about €1,600 ($1,700) from more than €2000.
That approach looks a lot like Ralph Lauren’s, which stretches from catwalk creations to the more affordable Polo brand, as well as outlets. The US company has bucked the luxury downturn after a successful turnaround that has made it more desirable, enabling it to sell pricier items, cut back on discounting and control the amount of stock sent to its outlet stores.
But one of Ralph Lauren’s strengths is its consistency and the relentless focus on the aspirational American lifestyle, embodied by its eponymous founder.
Burberry, in contrast, has flip-flopped from premium under former CEO Angela Ahrendts, to trying to become a true luxury brand under later leaders Marco Gobbetti, and most recently Jonathan Akeroyd. The company hasn’t always emphasized its Britishness either. It was more Italian under Gobbetti, with its history reclaimed by Akeroyd.
Schulman, an American, says he will continue to focus on Burberry’s quintessential Britishness, “equal parts heritage and innovation.” But there is a danger it becomes more Carry On film — a 1960s and 1970s pastiche of the UK — than Cool Britannia. Another uncertainty is whether, with less of a focus on high-end fashion, creative director Daniel Lee will stick around.
It’s worth remembering that a key plank of both Moncler’s and Ralph Lauren’s strategies was elevating their brands, and this will now largely only apply to Burberry’s outerwear.
Luxury also remains in the doldrums, depressed by China. Global personal luxury-goods sales across the whole of the market are expected to decline by 2% this year excluding currency movements, according to Bain & Co. In tough times, consumers tend to gravitate to the names they know best, rather than one that is finding its feet again.
But the most significant drawback is that Burberry risks confusing customers by offering both pricey and more affordable products under one roof. While Ralph Lauren has clearly defined brands at each level, Burberry doesn’t: It jettisoned its high-end label Prorsum and the cheaper Thomas Burberry — the equivalent of Ralph Lauren’s Polo — many years ago. While Schulman wants to emphasize accessibility, he also wants to cut outlet stores.
The new CEO might just get lucky.
Burberry may be able to fill in the white space created by other luxury houses raising prices. Wealthy shoppers also crave newness. Prada SpA and Miu Miu’s reinventions are more mature, while the new Gucci isn’t resonating. Fashion is crying out for another hot name, and Burberry, with its distinctive red, black, tan and white check, could fit the bill.
Meanwhile, the reunion of Oasis should be a boost for any labels associated with the band, including Burberry, which was a favorite of the Gallagher brothers in the ‘90s. Schulman should make sure he is dressing the band or sponsoring the tour. And we’re probably close to the bottom of the bling bust. Any improvement would lift Burberry too.
At least if Burberry Forward doesn’t fire up sales and profits, investors can console themselves with a possible bid. Tapestry’s deal to buy Capri was formally terminated on Thursday. It could turn its attentions to Burberry instead.
The British company’s market value has fallen to about £3 billion today from about £10 billion in April 2023.
And there is another key difference with Moncler and Ralph Lauren. They both in effect have controlling family shareholders. Burberry has no such dominant investor, making it much more likely to be checked out by a predator.
