Luxury chill can’t hide Burberry’s homegrown woes

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

When chill winds blow, even purveyors of designer outerwear get frostbite. The UK’s Burberry has warned on full-year profit, on the back of a slowdown in luxury spending. Yet it is hard to shirk the impression that it may be battling homegrown troubles too.

Burberry has clearly had a dismal Christmas. Comparable store sales fell by 4 per cent in the third quarter. That’s a marked reversal from an 18 per cent increase in the first quarter, and 1 per cent growth in the second. Forecast operating profit for the full year to the end of March, which the group had already lowered in November, has been slashed by as much as a quarter, to as low as £410mn. 

To some extent, Burberry’s explanation checks out. There is no doubt that it is particularly exposed to a slowdown. It caters to a more middle-market customer than the uber-wealthy queueing for a Hermes handbag. That makes it more vulnerable in a squeeze. 

It does not help that Burberry is a relative minnow in a sector dominated by giants such as LVMH. That puts it at a structural disadvantage in terms of marketing spend. 

Yet not all brands are cut from the same cloth. Brunello Cucinelli, a very high-end niche brand, raised its full-year sales estimates in December proving that — where quiet luxury is concerned — small is not necessarily out of fashion. And Danish jewellery group Pandora reported a strong end to 2023, highlighting how mid-market brands are not necessarily being abandoned by forlorn customers.

Burberry’s woes are compounded by the fact that, under chief executive Jonathan Akeroyd and new designer Daniel Lee, it is at the early stages of its turnaround plan. It is plausible that consumers with less cash to throw around might prefer to invest in tried and tested brands, rather than taking a punt on a new look. To this point, sales of Burberry’s iconic trenchcoats seem to have held up relatively well.

Burberry hopes that this stumble delays, rather than derails, its revival. It is holding on to its ambition of becoming a £4bn revenue company, up from last year’s £3bn. But its troubles do not bode well for other brands seeking to reposition themselves. Kering saw worse than expected third-quarter sales declines, casting a shadow over its attempts to revive Gucci and Saint Laurent. Old-school favourite Ferragamo, too, has been struggling to gain traction. Investors betting on such turnaround plays must fear that these will be the next luxury pumps to drop.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore