British luxury house Burberry suffered a sharp sales decline of 35% in mainland China in the three months ending July 2 as Covid cases spiraled in major cities like Shanghai and Beijing leading to prolonged lockdowns in some instances and to temporary store closures. The shares were off by 3.8% at the London market close today.

The China results are a foretaste of what could be in store for rivals like Louis Vuitton owner LVMH, and Gucci’s parent Kering which both report at the end of July. China’s performance dragged down the entire Asia Pacific region which saw a 16% contraction in the first quarter of Burberry’s financial year 2023. Excluding China, the rest of Asia saw 14% growth.

Asia Pacific accounted for more than half of Burberry’s sales in FY22, so the Q1 decline is a worry. However it was offset by very strong growth of 47% in Europe, Middle East, India and Africa (EMEIA) which nudged comparable store sales up by 1%. Currency tailwinds created extra lift to finish the quarter at £505 million ($597 million).

The luxury brand—which in May launched its TB Summer Monogram collection with a campaign fronted by model Gisele Bündchen—said that “a more localized approach” in EMEIA, together with increased tourist spending from Americans helped increase sales above pre-pandemic levels. CEO Jonathan Akeroyd noted in a statement: “Our focus categories, leather goods and outerwear continued to perform well outside of mainland China and our program of brand activations boosted customer engagement.”

Can China rebound strongly in the current quarter?

Sophie Lund-Yates, equity analyst at investment house Hargreaves Lansdown, commented: “Burberry’s first quarter performance has sorely disappointed the market, with concerns around lackluster growth. Mainland China is acting as a serious drag, overshadowing successes elsewhere. The group’s medium-term ambitions for revenue growth are admirable, but exactly how this will be achieved is the big question for CEO Jonathan Akeroyd.”


Pippa Stephens, apparel analyst at GlobalData, added: “Despite investing considerably in growing its customer base through various high-profile celebrity partnerships, community initiatives and a product refresh, Burberry recorded subdued growth in Q1.

“Reliance on EMEIA—particularly the U.K.—has been a main factor in Burberry consistently under-performing other luxury players like LVMH and Kering since the pandemic. Though the company’s affluent shoppers will be less impacted by the cost-of-living crisis, this region is experiencing some of the strongest inflation rates, making Burberry more vulnerable than its more global rivals.”

Not skimping on marketing investments

Burberry is doubling down on its plans to invest in brand and product, and remain tethered to digital, dabbling in the metaverse and adding new NFT collections. In April, the company expanded its Lola handbag range, supported by a series of pop-ups and pop-ins as well as a campaign, starring Bella Hadid, Lourdes Leon, Jourdan Dunn and Ella Richards.

Lola is also appearing as a virtual collection on online gaming platform Roblox via digital fashion designer @Builder_Boy. Meanwhile, to support the TB Summer Monogram collection, Burberry is staging a series of branded takeovers, the first of which is at Loulou Ramatuelle beach club in Saint Tropez where it has created a bespoke version of the collection that is only available at a pop-up store in the resort. In the U.S., the exterior of the Neiman Marcus store in Atlanta will be wrapped in the new TB Monogram and a pop-up will be opened inside.

Most recently, the luxury brand welcomed South Korean Premier
League footballer Son Heung-min as a new brand ambassador. The Instagram announcement achieved the highest level of engagement ever—some 21% ahead of the previous peak. The company is also on track to add 65 newly designed stores this financial year. They will join the 47 that were rolled out last year.

Though Burberry started Q1 with around 40% of its distribution disrupted by lockdowns in China, all stores were fully reopened by the end of the period. “Our performance in mainland China has been encouraging since stores reopened in June and we are actively managing the headwind from inflation,” said the company, which is targeting high-single digit revenue growth and 20% margins in the medium term.


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