The stock price of UK luxury retailer Burberry took a huge hit last week after the company reported a huge decline in same-store sales in Hong Kong and mainland China during the first half of this year. During the same period last year, sales grew 10% while this year they plummeted to 1%. The stock is down almost 10% since the news was reported on Thursday.
What’s different this year? Well, something we’ve discussed at length here on the blog. According to Burberry’s CFO, it turns out that Chinese shoppers are making a greater percentage of their purchases in Europe, and more recently, Japan. Burberry is in the process of expanding their Japanese presence and plans to open new stores in Japan over the upcoming years. The coupling of China’s stock market turmoil with broader global currency trends is really shaking up the luxury industry. We’ve seen brands like Chanel and Hermes choose different paths in confronting these financial issues, but Burberry’s struggles might not just be confined to economic trends.
As pointed out in Bloomberg , an analyst on the company’s investor call questioned whether Burberry might be suffering from “brand-specific fatigue,” and argued for a shift in creative direction. The latest Burberry SS16 was a mishmash of concepts with lots of military inspired silhouettes and strong influences from the nineties. Overall, the looks did not consistently adhere to one season as many delicate, lacey dresses were paired with heavy cashmere jackets and capes. CEO Christopher Bailey claims the contrast was trying to embodying the “global view that social media gives everyone” where there are no boundaries and different seasons occur at the same time around the world. However, many fashion critics have come to the consensus that this idea was a little more confusing than creative. It’s hard to say whether Burberry has produced any innovative or standout pieces within the past few seasons.
In response to the bad news, Burberry is freezing new hiring, cutting travel spending and reducing their CEO’s pay package. A decade ago, weak sales figures from China would’ve never caused such a panic, but Burberry, like many other luxury brands, is increasingly dependent on the rising Chinese consumer. It will be interesting to see if they can recover in the second half of 2015. If not, we may see a new leader, and importantly, creative director by London fashion week next year.