Can Burberry’s turnaround plan put it back in fashion?

This morning, Burberry announced an ambitious turnaround plan called ‘Burberry Forward’ designed to rescue the luxury brand from the trenches.

It aims to “reignite brand desire, improve performance and drive long-term value creation,” and will see Burberry double down on its strengths as a British brand.

Burberry has already appointed new leaders across its marketing, product merchandising and Americas divisions, and laid out plans to remove £40m of costs. 

The brand will also pivot to outerwear, ironic given the recent rumours that Burberry was going to be subject to a takeover by Italian luxury outwear brand Moncler.

RBC analysts said the new strategic plan, with an additional pivot towards outerwear, was the focus “we have been waiting for” and added that the move “offers more authenticity in a less competitive category”.

Analysts have long been calling for Burberry to return to its roots and focus on basics to improve brand strength, with strategist Robert Heads calling the label’s recent performance “a symptom of the brand losing sight of what it stands for”.

AJ Bell investment director Russ Mould agreed that Burberry “was in need of a reset”.

Burberry’s share price has risen nearly 20 per cent today, after a 14-month slide which saw it fall out of the FTSE 100.

“Unsurprisingly Schulman is pulling the cost cutting lever but he has also made new hires in marketing and merchandising and it looks like there will be a greater emphasis on outerwear – an area of traditional strength which presumably could yield higher margin sales,” Mould said.

“Time is clearly of the essence to help stabilise a business which is bleeding cash and racking up material losses,” Mould added.

He said the only thing out of Schulman’s control is Chinese consumer sentiment, which Burberry has historically relied on. China’s reduced appetite for luxury goods amid a downturn in its economy has been a key driver for the wider luxury downturn in the last year.

Mamta Valechha, consumer discretionary analyst at Quilter Chevio, said that “Asia remains a particular weak spot for Burberry”, despite improvement in Europe and the US.

“With hope, [Burberry’s strategy] could present a turning point in what has been a very difficult period, Valechha said.

Research from Bain & Company has found that the luxury consumer base has fallen by 50m in the last two years, or around 12.5 per cent, the first drop in the number of customers in at least a decade.

However, Bain partner D’Arpizio has suggested the tide may be turning in luxury’s favour as economies stabilise and consumers become more confident, with China’s recent fiscal stimulus also a positive factor.

“People who didn’t trust in the future have been saving money… this is not a typical trait of American citizens,” D’Arpizio said. “The money was there… they were not just spending [it]”.

The question is whether Burberry’s strategy will bear fruit quickly enough to allow the brand to take advantage of this swing towards more expensive goods again.