Luxury fashion retailer Burberry saw its sales dive almost 40% in Europe in the run-up to Christmas amid impact of the the pandemic and impending Brexit issues. However, in order to turn around its fortunes, the firm has turned to Manchester United striker Marcus Rashford MBE.
Retail revenue fell 5% to £688m in the third quarter. That reflects a planned reduction in sale items and reduced tourist traffic in outlets because of the pandemic. These factors offset high single-digit growth in full price sales.
The group is “encouraged” by its Q3 progress, but acknowledged that headwinds persist because of continued store closures. Burberry also said the VAT retail export scheme, which allowed VAT refunds for non-EU tourists, has stopped because of Brexit. This is expected to have a “more significant impact” when travel patterns begin to normalise.
Retail comparable store sales declined 9% as planned reductions in markdown and reduced tourist traffic in outlets offset high single-digit full-price sales growth.
Marco Gobbetti, Chief Executive Officer, said: “Despite the challenging external environment, we made good progress on our strategic priorities in the quarter. We saw a strong increase in full-price sales as our collections and communication resonated well with new, younger clientele as well as existing customers. Our localised plans and digital capabilities helped drive growth in rebounding markets and we implemented our planned reduction in markdown. While the short-term outlook remains uncertain due to COVID-19, we are well placed to accelerate when the pandemic eases.”
A statement from Burberry read: “We are proud to join forces with Marcus Rashford MBE on this initiative. His work to support the UK’s youth sits at the heart of our partnership and embodies our commitment to community and going beyond. Like Thomas Burberry, he is a pioneer – an innovator and a freethinking trailblazer who uses his success to give back and nurture the next generation.”
The shares rose 3.5% following the announcement.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown
The scrapping of the non-EU VAT scheme will disrupt Burberry’s established revenue patterns. The scheme made the UK a popular destination for retail tourists from the Middle East and Asia alike, and these shoppers made up a significant chunk of revenues. The question now is whether these sales will be recouped in other regions. With tourism patterns significantly disrupted this year because of the pandemic, the effect of this unhelpful policy change won’t really be felt. But Burberry will be busy trying to cook up ways to stem any potential sales outflow for when travel normalises. Achieving that looks a likely outcome, with new ranges resonating well, suggesting the group’s artistic direction has the ability to stand in good stead.
Underlying performance is strong, despite the dip in sales caused by the pandemic. Crucially, Burberry is steaming ahead with its planned reduction in markdowns. This won’t only help margins in the long run, but is an integral part of elevating the brand. That’s a key element of Burberry’s strategic shift to locate itself further up the luxury chain. Full price sales are doing well, helped in part by a strong reaction to the group’s savvy campaign with footballer Marcus Rashford over Christmas. Such a move is indicative of Burberry’s plan to entice a younger clientele.
Store closures and Brexit headwinds mean the short term picture is rather messy for Burberry. But zoom out and the bigger picture is smoothing itself out, as the strategic turnaround continues to gather pace despite all the difficulties.