Date
17 November 2017
Burberry's introduction of a scarf bearing the Chinese word for good fortune made the brand a hot topic on social media in the mainland. Photo: Weibo
Burberry's introduction of a scarf bearing the Chinese word for good fortune made the brand a hot topic on social media in the mainland. Photo: Weibo

Why is Burberry doing better than its luxury peers?

Suffering from the uncertain global economic outlook and as fewer Chinese consumers consume luxury goods, many luxury giants, such as Louis Vuitton, Hermes and Prada, are struggling with slower growth and even sales decreases.

Why, despite this, has Burberry achieved double-digit percentage growth in sales?

Prada reported preliminary sales for the financial year to January 31 of 3.55 billion euros (US$3.84 billion), 1 percent less than in the previous year. Business worsened in the second half of the financial year.

However, Burberry’s retail revenues climbed 14 percent to £604 million (US$912.3 million) during the last quarter of 2014.

Several high-profile British models, including Kate Moss, Cara Delevingne and Romeo Beckham, Victoria and David Beckham’s son, posed for Burberry’s winter and Christmas campaigns.

Successful celebrity endorsement is valuable for luxury fashion brands and helped Burberry to outperform recently.

Chinese people consume one-third of the world’s luxury goods and even half the products in some luxury categories.

Burberry introduced a new scarf embroidered with the Chinese character “fu” (福), which means good fortune, during the latest Lunar New Year.

The move led to a heated online discussion and drew the attention of the public to the brand. 

The business of Burberry in South Korea grew by medium to high single-digit percentage points.

As the country becomes more attractive for visitors from mainland China because of the depreciation of the won against the renminbi and South Korea’s policy of welcoming Chinese tourists, the sales of luxury goods there will grow.

Hong Kong accounts for about 10 percent of Burberry’s global turnover. Sales were hit by the Occupy protests in the last quarter of 2014.

The sale of luxury goods to tourists from the mainland will be dampened by continuing small protests in the city, so the outlook will be negative in Hong Kong this year.

In Japan, the yen has depreciated, attracting more tourists from mainland China, South Korea, Taiwan and Hong Kong last year.

A licensing contract with apparel company Sanyo Shokai will expire in June. Burberry will then increase the number of its directly operated stores from 16 to between 30 and 55 from 2016 to 2018.

The Japan market will be a growing star for Burberry.

Although Burberry has an edge in the global luxury market, its lower gross profit in the final quarter of 2014 is still making investors hesitant and worried about its outlook.

If the firm tries to tackle its rivals by offering more affordable prices for luxury goods and developing proactive marketing programs, the pressures on its gross profit and net profit may persist.

Still, Burberry is expected to achieve significant growth in the Japanese, South Korean, mainland Chinese and US markets, and other Asian markets as well.

This year, the worldwide luxury goods market is tipped to reach US$280 billion.

The growth of the middle-class population in Asian countries and regions is a golden opportunity for luxury brands that none can afford to miss.

– Contact us at [email protected]

FL

Contributor of the Hong Kong Economic Journal

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