Burberry Focuses on Core Product Amid External Challenges

Like the monogrammed ponchos before them, those printed cashmere scarves are selling.
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Dhani Mau
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Like the monogrammed ponchos before them, those printed cashmere scarves are selling.
Burberry's spring 2015 campaign

Burberry's spring 2015 campaign

Like many luxury brands, Burberry is dealing with a few pestering challenges within the international retail landscape, like currency fluctuations and decreased travel by Chinese shoppers to Hong Kong, once one of its most successful markets. The British company lowered its 2016 earnings forecast by 40 million pounds ($62 million), and its adjusted pretax profits fell for the first time since 2009 by 1 percent because of exchange rate issues. (Ignoring those, profits rose 7 percent.) Stock in Burberry fell 6 percent upon the news, its steepest decline since Oct. 2014.

While investors probably aren't pleased — an important factor to consider given that this was Christopher Bailey's first full year as CEO of the company — things weren't all bad. Revenue was up 11 percent, led by a 14 percent jump in retail sales. 

Product-wise, a newly introduced range of cashmere scarves, which customers can have personalized, was particularly successful. Not unlike those hot-ticket monogrammed ponchos from fall 2015, the scarves were featured prominently in Burberry's spring 2015 ad campaigns and runway show, suggesting that highlighting one grabby product is a marketing tactic that works well for the brand.

As always, trench coats were a top seller over the past year, but this time Burberry decided to simplify its trench coat offering to only three fits and three colors in an effort to "reconnect the customer" to the style, as Bailey put it during an earnings webcast on Wednesday. He also said that the relatively new fragrance My Burberry, with its Kate Moss and Cara Delevingne-led ad campaign, has been a cash cow. Fragrance now represents 95 percent of the company's overall beauty business.

As for how Burberry plans to offset the currency issues hurting its bottom line, the company said it did in fact wind up adjusting prices on certain products like outerwear and handbags in China, Hong Kong and Europe in April, after playing coy with investors on the subject that same month. It's a move that several of its competitors, including Chanel, have also made. 

Beyond that, Burberry has been investing heavily in merging online and offline, events in flagship markets (like Los Angeles) and analyzing data on how its customers shop.