Pre-tax profits fell 10% to £415.6m for the year to 31 March, while revenues dropped 1% on an underlying basis to £2.5bn. The iconic luxury brand primarily blamed the decline on Asia, citing falling consumption levels, a slowdown in Chinese tourists visiting European stores and weaker demand in Hong Kong.
And Burberry expects growth in the luxury sector to continue to slow, with its CEO Christopher Bailey stating that the luxury sector will grow sales by around 2% this year, down from the 7% growth it has experienced over the last five years.
Speaking during a presentation to analysts this morning (18 May), Bailey said changes to marketing would play a big role as Burberry looks to return to growth.
He explained: “There will be a big effort to rebalance our marketing activity to tell the stories of our products more powerfully. We want people to fall in love with products as much as the brand in our ad campaigns.
“We want to cultivate more local customers and return visits, so that will be a big focus too. The modern luxury customer wants a less transactional relationship and more personalisation as that ultimately improves retention and loyalty. We are certainly lagging when it comes to customer loyalty right now.”
Outlining why Burberry will focus so much on customer loyalty, Bailey said a 10% increase in the rate of customer conversion would be worth £100m in annual revenue, while a 10% increase in customer retention would be worth an additional £50m.
Continued focus on ecommerce
Ecommerce will also be a focus for Burberry, with mobile conversion up 40% for the period. Since 2010, Bailey claimed digital revenues have grown by 40% and he talked up the fact its combined social media following now totals 40 million.
To build on that momentum, Burberry says it will launch a new app for the festive period and will “intensify” its profile on channels such as Snapchat, where it has become the first brand to use features such as Snapcodes.
“The next stage is to extend our digital prowess and ensure it continues to make us a clear differentiator,” added Bailey. “We need to lead the sector for acquisition and retention of customers, and digital has to supercharge those efforts.”
Andy Hall, an analyst at Verdict Retail, says Burberry must now “return to retail basics” and expects marketing spend and streamlined product ranges to be hit as part of a planned £100m in savings over the next three years.
“While the Burberry brand retains appeal globally, wider economic conditions and trading in traditionally lucrative Asian markets has dampened footfall, and hurt luxury players like Burberry the most,” said Hall.
“While Burberry must retain its marketing investment to maintain brand appeal, CEO Christopher Bailey is now looking to create a more efficient retail operation as the British luxury label attempts to weather the storm. A renewed focus on in-store service and productivity would bring Burberry in line with the focus of luxury peers and would create a leaner, fitter operation with which to take the blows being dealt by a declining global demand.”