An icon of British luxury, Burberry has been suffering for months from a lack of global appetite for high-end products and from unfortunate strategic choices: its stock market value has collapsed, to the point of soon being ousted from the leading index of the British market.
After a series of poor results – last annual profit practically halved – the brand with the famous tartan is facing, like the whole sector, the slowdown in Chinese demand last year and sluggish consumption in the United States and Europe.
But Burberry has also been weighed down by its (failed) bet to move even further upmarket.
The creator of the legendary trench coat, immortalized by Audrey Hepburn, Humphrey Bogart and Inspector Columbo, was unable to avoid the stock market storm: investors lost confidence and the fall was dizzying. In one year, the company saw its value on the British market collapse by 70%.
After 15 years on London’s flagship FTSE 100 index, it is about to be demoted to the less prestigious FTSE 250.
The relegation will take effect “from the opening of trading on Monday, September 23,” the London Stock Exchange Group (LSEG) announced in a statement on Wednesday.
– “Bad decision” –
The FTSE 100, the main index of the London stock exchange, groups together the listed companies with the highest value on the stock market. Regularly revised, it sees certain companies enter or leave according to the variation of their share price.
Burberry is not the only luxury player facing difficulties: after prosperous post-Covid years, the entire sector is being caught up in a slowdown in consumption, particularly in one of its main markets, China, which is tarnishing the profits of large groups, including LVMH and Kering, the parent company of Gucci.
Furthermore, the idea “of offering more premium Burberry products before selling them off massively to clear unsold stock was a bad decision” for the British brand, comments Dan Coatsworth, analyst at AJ Bell.
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Briton Jonathan Akeroyd, after just over two years, stepped down as chief executive in July “with immediate effect”, in the words of Burberry, which deplored “disappointing performance”.
Mr Akeroyd was immediately replaced by an American, Joshua Schulman, former boss of the Michael Kors and Coach brands, who spent his career at Yves Saint Laurent and Gucci.
– Queen of England –
For the new management team, “the road ahead doesn’t look any easier,” notes Susannah Streeter, an analyst at Hargreaves Lansdown, who notes that the dividend has been suspended.
The announcement of this suspension came on top of a 22% drop in quarterly turnover and the departure of Mr Akeroyd in mid-July, leading to a fall in Burberry’s stock market share of more than 16% in a single day.
Burberry hopes that further measures, including “cost reductions”, will begin “to produce improvement in the second half of the year”.
In the meantime, its low market value makes it an ideal target for a potential takeover bid, warns Mr Coatsworth of AJ Bell.
Because the company founded in 1856 in Basingstoke (southern England) by an apprentice draper can still count, he says, on “the enduring appeal of its products” and an iconic brand that “has stood the test of time”.
The Queen of England herself had awarded the company a “royal warrant” in 1955, making Burberry a regular supplier to the royal family.
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