By Helen Reid

Burberry's Revamp Strategy

LONDON (Reuters) – Burberry will leverage its British heritage appeal to win back customers by focusing on trench coats and scarves while adopting a more cautious pricing strategy on bags and shoes. This shift sent its shares soaring.

New CEO Joshua Schulman detailed a turnaround plan after Burberry reported a loss for the first half of its financial year and initiated a £40 million ($50.67 million) cost-saving program.

Burberry's shares jumped 20%, aiming for their biggest one-day gain ever, although they are down 38% so far in 2024, including Thursday's rally.

> "We took pricing too high across the board," Schulman stated, explaining Burberry's previous misstep. He emphasized focusing on timeless British luxury.

Recent campaigns have spotlighted outerwear and scarves, featuring British celebrities like model Cara Delevingne, rapper Little Simz, and actor Olivia Colman.

Citi analyst Thomas Chauvet noted significant anticipated changes in product design, merchandising, pricing, distribution, and communication. He sees Burberry putting greater emphasis on its own stores and online sales over wholesale and outlets.

The luxury brand has faced declining consumer interest in China and beyond, lagging behind competitors.

Schulman, formerly CEO at Coach and Michael Kors, is Burberry's fourth CEO in a decade, overseeing three creative directors within seven years, each introducing different styles.

Pricing Strategy Shift

Schulman announced the introduction of more affordable "entry-level" products. He indicated Burberry has greater pricing power in outerwear but less in handbags.

"In the last 18 to 24 months, we attempted to elevate pricing across the range," Schulman clarified, noting potential in handbags priced under €2,000 ($2,109.00), with an optimal price point around €1,600.

Despite the shift, Burberry will maintain its luxury positioning and has no plans to become an "accessible" luxury brand.

Creative director Daniel Lee, who previously gained acclaim at Bottega Veneta, saw less success at Burberry. Leather goods and shoes underperformed, while outerwear exceeded expectations.

Burberry recorded an adjusted operating loss of £41 million in the first half, with the holiday period approaching, it's uncertain if the company will turn a profit for the full year.

The company announced a £29 million inventory writedown aiming to reduce excess stock. Despite criticism of Burberry's outlet strategy, Schulman argued that outlets are essential for stock clearance during challenging times.

Sales for the second quarter ending September 28 declined at the same rate as the first, with a reported 20% revenue drop in constant currencies.

Regional Sales Performance

Asia Pacific witnessed the steepest decline in the second quarter, with sales falling 28%. The Americas saw an 18% drop, while Europe, the Middle East, India, and Africa declined by 10%.

Burberry is often viewed as a potential takeover target. Recent media speculation regarding a bid from Moncler has raised stock prices, although sources denied ongoing discussions.

When asked about the possibility of a sale, Schulman refrained from comment but emphasized that Burberry's independence from luxury conglomerates is a valuable asset.

Burberry aims to restore annual revenues to £3 billion without specifying a timeline.

($1 = 0.9483 euros)

($1 = 0.7894 pounds)