Burberry’s move to cut discounting may not pay immediate dividends

Opinion Image: Burberry Discounting is the bain of most luxury brands, which is why many companies have increased their focus on direct to consumer sales while simultaneously reducing wholesale partners. Burberry is one of those brands, like Ralph Lauren - which it aimed to emulate under Rose Marie Bravo's leadership - where there was always ample product available at outlets and at discounted prices from various vendors and licensee holders. Prestige brands operate a tight pricing module, and Burberry, under new CEO Jonathan Akeroyd, is keen to steer away from markdowns and be regarded in the same esteem as Louis Vuitton, Hermes and Versace, the latter the brand he left to return to the U.K. Focusing on exclusivity, this strategy may well work if the markets where Burberry can achieve these margins are aligned. China, a path to growth China has been Burberry’s path to growth, however the second quarter of 2022 has seen the country’s key urban areas in lockdown, affecting the bottom line of most luxury brands. Despite China's announcement that from June it will ease restrictiosn to facilitate a gradual re-opening of Shanghai, China's premier luxury shopping destination, the impact of an economic slowdown has ricocheted across the luxury sector. Gemma Boothroyd, Freetrade analyst, commented to FashionUnited: “Akeroyd’s ability to hit the ground running heavily depends on demand from the Chinese market. Today’s results show the demand is there, the problem is, China’s Covid policies are out of his control.” “With some Shanghai residents now in their sixth week of lockdown, spending in the luxury hub is inevitably muted. That means Burberry’s cut off, and it’s feeling the heat, with March sales taking a tumble.” A digital pioneer in the luxury sector It is too early to comment on Akeroyd’s gameplan, having taken over the role only in April this year. Burberry under Marco Gobbetti made great leaps in technology, prioritising digital innovation to be a digital pioneer amongst other luxury brands. But even as it accelerated digital growth and drove traffic to its own e-commerce channels during Covid-19, overall growth in 2021 was less than other luxury companies at just 21 percent from 2020 to 2021. After all the lockdowns and restrictions, this was only a modest increase. Boothroyd says China is a long-term investment for Burberry, and that the current situation of restrictions are “short-term hurdles. Akeroyd’s overarching goal is to reposition the brand, redefining its reputation.” Let’s see how that transformation takes shape.
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