COVID-19 hits Burberry’s profits, but digital channels continue to soar


COVID-19 hits Burberry’s profits, but digital channels continue to soar
Derek du Preez
Fri, 11/13/2020 – 04:41

Summary:
Luxury fashion label Burberry has seen its profits plummet as the COVID-19 pandemic continues to force global store closures.


Burberry Art of the Trench Seoul 2016 Event_001

As has been the case for many retailers in 2020, British luxury fashion brand Burberry has seen a significant drop in its revenues and profits because of the COVID-19 pandemic. The introduction of national lockdowns and subsequent store closures has meant that physical interaction with potential customers has fallen dramatically. 

Luckily, Burberry has a solid background in digital investment and has seen its digital channels soar during the first half of its financial year. Not only this, but the company has been experimenting with new omni-channel offerings and location-specific digital experiences. 

Burberry saw its H1 revenues fall by 31% to £878 million in the six months to the end of September and its operating profit drop by 75% to £51 million. 

The brand’s CEO, Marco Gobbetti, told analysts that the economic outlook is recovering, but is dependent on how governments are responding to COVID-19 in different regions. He said: 

In the first half of fiscal 2021, we navigated through a challenging period. As COVID-19 disrupted our momentum and impacted many areas of our business.

As you will remember, we started the year with strong momentum, delivering 11% growth in the first four weeks of January. This was disrupted by COVID, resulting in a 45% decline in Q1 comp. However, comp sales have since recovered to minus 6% in Q2, accelerating to low single-digit declines in September and returning to growth in October.

Throughout the period, regional performance has been highly polarized. And we have continually adapted our approach to capture opportunities as they arise, driving double-digit growth in Americas and Asia in Q2. Clearly, other regions continue to be challenged, including EMEA, where second lockdowns have recently come into place in many areas, and some parts of Asia, impacted by a structural decline in tourism. COVID has created an unchartered situation with multiple store closures, health and safety considerations and a complete disruption to how we go to market.

However, these challenges are forcing Burberry to adapt to new models and find new ways to reach customers. Gobbetti said: 

At the same time, it also challenged us as a business to respond and adapt quickly and fueled innovation across many areas of the company. As a result, despite the extremely challenging environment over the last six months, we continue to make good progress on our strategy.

Digital investments 

Gobetti said that digital sales have almost doubled during the pandemic, experiencing high double digit growth globally. However, in America Burberry has seen dot com sales soar with triple digit growth. The company said that this shows how customers prefer to engage directly with the brand. Gobbetti said:

We will keep scaling new omnichannel consumer journeys, innovating around new formats to reach consumers at home, like the virtual styling event in Americas you can see here.

We know digital will remain very important for luxury customers, and we’re focusing on two elements going forward. To drive traffic, we will supercharge inspiration online by making dotcom the first release point for bespoke exclusive and localized content and by building digital communities. In terms of product, we will increasingly personalize customer journeys on dotcom, curating online experiences to local preferences. 

These themes would be underpinned by focus on local execution as recovery time lines and domestic policies vary by market, rigorous management of cash and cost as well as organizational agility and operational efficiency.

Not only is Burberry focused on digital as a sales channel, but it is also thinking about how digital technologies can be used to create new immersive shopping experiences for customers. Gobbetti said; 

First, we amplified our collections and capsules through immersive works on dotcom, a good example of which was our interactive online Surf world, which drove high engagement from young consumers. Second, we supported key categories through new formats such as digital pop-ups on dotcom. Finally, we boosted overall digital performance through exceptional visibility activations with third-party platforms to connect with new consumers.

In this environment, success continues to depend on bridging online and offline worlds. Burberry has been a pioneer in this space. And in China, we recently opened our first social retail store in Shenzhen Bay, in an exclusive partnership with Tencent. Since its launch in August, the store has outperformed our expectations, creating considerable brand heat and attracted a high share of new and young customers to the brand. Importantly, the stores cements our partnership with Tencent and demonstrates our commitment to Chinese consumers more broadly.

In the spirit of Shenzhen, we have also used digital to mitigate the impact of reduced traffic and tourist spend on our wider store network. In this environment, we have been amplifying our appointment strategy, launching new formats such as at-home and virtual appointments that deliver a luxury shopping experience and make our clients feel safe. This strategy has already proven to be a commercial success and has driven double-digit growth in sales from appointments in Q2.

Brexit

Finally, Burberry and Gobbetti provided some insight into the company’s preparations for Brexit. The UK officially left the EU earlier this year, but is still following EU laws in a transition period, which is due to end on 1 January 2020. 

Government officials both in the UK and the EU are seeking to establish a free trade agreement before the end of the transition period to avoid a no-deal scenario, which would see the UK and the EU having to trade on WTO terms. However, no agreement has yet been met and time is running out. 

Burberry has invested in new systems to ensure that whatever outcome the company can continue to trade. Gobbetti said: 

As we approach the end of the Brexit transition period, I wanted to bring you up-to-date on the plans we have developed to mitigate the impact. We show the main areas in this slide. Our international supply chain includes many product journeys across the UK-EU border. Post-transition brings operational challenges and potentially incremental duty costs, absent a zero tariff under a free trade agreement. We have already put a number of mitigating steps in place, secured authorized economic operator status in February 2020 to facilitate efficient cross-border flows. And we’ve implemented a new trade-compliance IT system to optimize product movement.

Additionally, we have prepared for the border with the tactical relocation of inventory prior to the end of the year, processes and documentation prepared for the product journeys across the border, identification of backup carriers and alternative transportation routes and established a new process for returns from digital customers in the EU. And finally, we seek to maintain our access to skilled workers critical to our business from outside the UK.

Image credit – Image sourced via Burberry


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