Thursday, July 18, 2024

Burberry Job Cuts After Profits Slump As Luxury Brand Seeks Identity

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It never rains but it pours. Luxury British fashion brand Burberry – best known for its iconic trench coat – is reportedly preparing to shed hundreds of jobs under a cost-cutting program amid plunging profits.

The retailer has lost over a third of its stock market value since the start of the year and is reportedly in danger of losing its place on the FTSE 100, prompting the restructuring plans which were announced to staff members in a Zoom meeting during late June. Impacted employees were informed that they were either facing redundancy or would need to reapply for their positions.

As a result, Burberry has started a 45-day consultation, indicating that hundreds of jobs could be axed, mainly at the British brand’s U.K. offices, while union officials are currently understood to be co-ordinating redundancy settlements with some of the company’s workers.

Although the fashion house has not yet confirmed how many staff members will eventually be affected, it has been widely reported in the British press that workers believe that up to 400 roles could be at risk under the plans.

So where did it all go wrong? In the 1990s, Burberry was the epitome of luxury British fashion, with its signature Nova check and the visionary leadership of U.S. executive Rose Marie Bravo, who took over in 1997 and along with creative director Christopher Bailey turned it from a well-respected but traditional British upscale fashion company into a global luxury powerhouse.

She stepped down after a decade at the company, latterly on the board with Angela Ahrdents as CEO, who herself was at the helm between 2006 and 2014 before leaving to return to Apple Inc.

Burberry Struggles For Identity

Since then Burberry has struggled to define its identity and the retailer had already warned of a challenging year ahead, with Burberry’s current chief executive Jonathan Akeroyd citing slowing luxury demand for the brand’s sales slump. Current creative director Daniel Lee has attempted to steer a new contemporary direction for Burberry but a number of controversial campaigns have fallen flat and a failure to fully align with the Chinese market has seen Asian sales slow.

In May of this year Burberry confirmed that its full-year operating profits had plunged 36% to just under $537 million as it grappled with a challenging economic environment amid its strategic repositioning efforts. Like-for-like sales fell 12% in the final quarter, wiping out gains made earlier in the year. Revenue for the year to 30 March was also down by 4% to $3.7 billion.

Sales in Asia grew by just 3% over the year, slowed by a 17% drop in the fourth quarter, and wholesale revenue is estimated to drop by about a quarter in the first half as Burberry looks to increase control of distribution.

Indeed, Burberry has struggled for some time with the aftermath of its phenomenal earlier success. So distinctive was the check design that it became ubiquitous and started to lose some of its exclusive allure. On top of that, in 2018 the label courted environmental controversy when it was revealed that it had destroyed more than $36 million in unwanted products to prevent counterfeiters selling their goods on the grey market.

And more than $115 million of Burberry products have been destroyed over five years since 2018, leaving unhappy shareholders to additionally question why there were not offered the merchandise as private investors. Burberry admitted that it burned unsold stock but insisted that it used specialist incinerators to harness the energy produced.

Shareholders were even less happy about the slump in stock price. A rally last year proved short lived and over the past five years Burberry’s share price has dropped by over half, and by around a third in the year to date, although the announcement of job cuts has seen the stock rally slightly.

With many luxury global labels warning of a more difficult consumer environment worldwide, Burberry needs to find its mojo quickly.

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