Burberry to stick to its (digital) strategy in the face of slowing sales

Burberry today said it would stick to a strategy that has included a strong focus on digital commerce, as it warned that profits would be lower than hoped.

The luxury brand, which sells clothes, accessories and leather goods with a distinct British heritage, today said that profits in the year to March 2013 would be “at the lower end of expectations” in what it described as a “challenging external environment”. The update came as Burberry reported retail sales growth for the second quarter of its financial year that was less buoyant than previously. Sales grew by 6% in the 10 weeks to September 8, with 6% of that growth coming from new store openings. Like-for-like store sales, said Burberry, were flat compared to last year and had slowed in recent weeks.

Burberry chief executive Angela Ahrendts said the second quarter sales growth had slowed in comparison to high growth in sales at the same time last year. “Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short-term profitability while continuing to execute on our proven five key strategies,” she said.

Those five strategies include leveraging the franchise, focusing on accessories and other non-clothing lines, accelerating its retail-led growth – which includes digital sales, investing in under-penetrated markets while aiming for operational excellence.

In May, when Burberry reported its full-year results, it promised to continue investing in growth. That would include digital innovation in its stores as well as in marketing, where the brand has established a lead in social media.

Tristan Rogers, chief executive of ConcretePlatform, said: “The news that Burberry’s growth is tapering off should not be viewed as anything more or less than predictable. In the midst of a far reaching recession, Burberry has become the pin up of luxury retail, and as a result it has become a victim of its own success.

“In reality, however, it is a niche brand of expensive product that can only be bought by people with higher disposable incomes. That’s a niche market. Yet, to post an estimated 6% like-for-like growth and estimated profits of $430 odd million sounds pretty robust to me, when put in context. This kind of performance is demonstrative of a brand that understands how to embark on a journey to reach every potential customer in the world with a consistent and well oiled brand message.

“It has maximised its brand equity, and the stellar performance we have witnessed over the last three years has been the unfolding of that journey. But now we may be witnessing a flattening off of market penetration; a saturation of current market availability. That is not a bad thing, just a reality thing. If this is the case, it now needs to manage its finite market share and turnover and profit. This is an operational issue that will require an inward focus, rather than the outward focus of global expansion.

“The fact that Burberry’s share price dropped is a sad indication of the City’s facile attraction to growth. Growth is ultimately unsustainable. Sustainability is sustainable, but that is not volatile commodity that traders can trade. Burberry appears robust, and may now just be entering a new phase of its new dawn.”