Discounts are a bane for most luxury brands, which is why many of them are increasingly focusing on selling direct to consumers while reducing the number of their wholesale partners.
Burberry is one of those brands that, like Ralph Lauren – whom the company, under the leadership of Rose Marie Bravo, wanted to emulate – always had plenty of products available in stores, as well as at discounted prices at various retailers and licensees.
Prestige brands operate on a tight pricing model and Burberry, under the stewardship of new CEO Jonathan Akeroyd, is striving to stay away from discounts and enjoy the same respect as Louis Vuitton, Hermes and Versace. The latter brand left Akeroyd to return to the UK.
This strategy, which relies on exclusivity, could well work if the markets in which Burberry can achieve these margins are aligned.
China growth path
China has been Burberry’s growth path, but in the second quarter of 2022 the country’s key urban areas went into lockdown, impacting the bottom line for most luxury brands. Despite China’s announcement that it would ease restrictions from June to allow for a gradual reopening of Shanghai, the country’s top luxury shopping destination, the impact of the economic slowdown has spilled over into the luxury sector.
“Akeroyd’s ability to get off to a good start depends heavily on demand in the Chinese market. Today’s results show that the demand is there, but the problem is that China’s Covid policy is beyond its control,” Freetrade analyst Gemma Boothroyd commented to FashionUnited.
“With some residents of Shanghai now well into their sixth week of lockdown, spending in the luxury metropolis is bound to be subdued. That means Burberry is also cut off and the company is feeling the effects as March sales are already collapsing,” Boothroyd added.
Digital pioneer of the luxury industry
It’s too early to comment on Akeroyd’s plan as he only took up the position in April this year. Burberry has made great leaps in technology under Marco Gobbetti and prioritized digital innovation to become a digital forerunner among luxury brands.
Even as the company accelerated its digital growth during the pandemic and increased traffic to its own e-commerce channels, overall growth in 2021 was lower than other luxury companies at just 21 percent from 2020-2021. After all the lockdowns and restrictions, this was only a modest increase.
According to Boothroyd, China is a long-term investment for Burberry and the current lockdown situation with its restrictions is only a “short-term hurdle”. Akeroyd’s overarching goal is to reposition the brand and redefine its reputation. It remains to be seen how this change will be implemented.
This article originally appeared on FashionUnited.uk. Translated and edited by Simone Preuss.