Burberry, the renowned British fashion house founded in 1856, is facing significant challenges as its valuation plummets to a 15-year low. The company's shares experienced a sharp decline of up to 8% on a recent Monday, following a downgrade from Barclays. This drop has resulted in Burberry's market value shrinking to a mere £2 billion, marking its lowest point since 2009.
The iconic brand, known for its distinctive check pattern introduced in the 1920s, has recently been removed from the FTSE 100 index. This development comes as Burberry grapples with a series of setbacks, including multiple profit warnings that have led to a staggering 70% decrease in its share price over the past year.
Barclays analysts have expressed concerns about Burberry's ability to maintain its status as a high-end luxury brand. They cited the company's "lack of disciplined full-price strategy" as a key factor contributing to their doubts. This assessment suggests that Burberry may be struggling to position itself effectively in the competitive luxury market.
In response to these challenges, Burberry has undergone significant leadership changes. Approximately two months ago, the company suspended its dividend and replaced its chief executive. Joshua Schulman, formerly of Coach handbags and Jimmy Choo, has been appointed as the new CEO with a substantial compensation package worth up to £9.2 million. This "golden hello" includes a £1.2 million salary, bonuses, and a "recruitment share award" valued at £3.6 million.
Burberry's efforts to revitalize its brand have included a focus on "Britishness," led by creative director Daniel Lee. However, this strategy has yet to translate into improved sales figures. The company's chairman, Gerry Murphy, has pledged to take "decisive action to rebalance our offer to be more familiar to Burberry's core customers."
The challenges faced by Burberry are not isolated. The luxury goods market as a whole is experiencing a slowdown in demand, affecting investor confidence across various high-end brands. Kering, the parent company of Gucci and Balenciaga, has also faced a downgrade from Barclays due to concerns about declining demand in China.
Burberry's recent performance has been particularly concerning, with sales dropping by 22% from April to June 2024. Barclays analysts have warned that the company may become loss-making for the first time in the first half of 2025, with potential difficulties in margin recovery in the short term.
Despite these challenges, Burberry has a rich history of innovation and adaptation. The company invented its signature gabardine fabric in 1879 and designed the iconic trench coat for British soldiers during World War I. In recent years, Burberry has embraced digital innovation, becoming the first luxury brand to livestream its fashion show in 2006 and launching the Burberry Acoustic music platform in 2010.
As Burberry navigates this difficult period, it will need to leverage its heritage and innovative spirit to reconnect with consumers and regain its position in the luxury market. The company's ability to adapt to changing consumer preferences while maintaining its core identity will be crucial in determining its future success.
"We still see downside as we have concerns around the ability of Burberry to remain a high-end luxury brand in line with our coverage considering its lack of disciplined full-price strategy."