Burberry has ventured into the future with its website, and expanded into the world’s largest under-tapped market. How could there be a downside?



“People still buying raincoats.” So ran the sardonic remark of the Financial Times Alphaville blog after Burberry’s trading update on the 12th of October. Trading updates are about a very different kind of modelling to that of merely a month before at London Fashion Week, but are as crucial to the success of a brand as their more glamorous and more widely publicised cousin. As we’ve mentioned previously, fashion is at least as much about the business as it is about the art, and Burberry is very good at both. However, the benefits it gains in some of its strategies are undermined by vulnerabilities in others.

A central component of the Burberry strategy has been integrating technology throughout the 155 year old business. The most recent example of this was the release of the Burberry Body fragrance; pushed heavily to the 573,000 followers of the main Twitter feed, linking to numerous videos of Rosie Huntington-Whiteley. Whilst it was an innovative way to market the product, the trading update asserts the campaign “drove brand awareness”. Which is true, so long as you already follow Burberry; in which case you probably already know at least a little about the brand. The campaign did prompt a number of trending topics over its life, so a closer analysis of the data would help untangle the benefits of a Twitter-centric advertising campaign.

Much more astute was the use of Twitter during the Spring/Summer ’12 show, where pictures of all the outfits were tweeted moments before the models stepped onto the runway, all whilst the show was streamed live on the company website. It has become common for attendees to tweet their own photos of outfits before brands publish their own and the result is usually a blurry mess and a low-quality image; not exactly how any designer wants their hard work to be seen for the first time by a large audience. By getting ahead of the crowd in a very literal sense, Burberry maintained some control over how looks are presented to a wide audience. Significant effort has also gone into the online store, with a very innovative video system. One of the last significant barriers to buying online is guessing how something will move. Stopping short of virtually inserting you into a video, the Burberry site has videos to accompany many of its products to demonstrate what a still image cannot convey. Online sales aren’t listed separately to regional sales in the update, which is unfortunate given just how good the website is. When the internet was first used as a selling tool, commentators often argued it couldn’t be luxury enough for high-paying customers; Burberry has made their website a visual joy and even had the capability to pre-order coats live from the show by clicking on the video. It doesn’t get closer to actually being at the show than that.

The last place computers are being put to obvious good use is stock management. The FT reported Burberry CFO Stacey Cartwright as saying new stock controls give them a much stronger insight to what sells well and where it is selling, allowing them to “move inventory around” much more effectively than before the new software was in place. This drive towards stock efficiency though had a more worrying trend, at least for the creative side of the business, when Ms Cartwright went on to say: “we could also take corrective action on the next season we’re designing.” Often Burberry is characterised as a trend creator; aviator jackets are one of their most recent and lasting impressions on fashion. Hopefully Ms Cartwright’s statement does not imply Burberry will take up the Topshop approach of ‘if it sells out, make more in every colour’, which is surely a recipe for collapsing the hard-won reputation of the brand, clawed back from ignominy by Christopher Bailey’s subtle use of the check.

With all these strengths in the digital sector, there must be some flaw in the knight’s armour. The one highlighted by the share price is China – exactly where the new stock controls are being implemented. The firm relies increasingly on China to drive growth and the region’s revenue increases by around 30% a year. To further compound the problem, UK retail sales also rely on wealthy foreigners buying in the flagship store here. Any downturn in China could then undermine the whole business in two complementary ways. Shares fell around 28% over the days after the London show when rumours China faced a slowdown were compounded by poor American economic data. After the trading update rally of 3%, arguments that fears of the slowdown were overdone became commonplace. In a move that hopefully models the worst-case scenario, Cartwright added that Burberry would still achieve its targets if per-square-foot sales fell by “a double digit percentage”. Whether that means sales can actually fail to meet their targets by 99% and Burberry meets its capital requirement target feels far-fetched. Unfortunately for Burberry, China grew at its slowest rate in 3 years this month, and inflation remains stubbornly high. Whether these trends affect Burberry’s customers will play a crucial part in the firm’s prospects.

Burberry has expanded abroad and invested heavily in its image around the world in a way that capitalises on the expected trends in global shifts in wealth and tastes. The heavy investment in ‘young’ media, like Twitter, and an acute knowledge of how the internet can be used puts it ahead of many other brands chasing the same consumers. Its one obvious risk is exposure to China as a source of growth; as long as the stock controls keep the stores full and don’t interfere with the designs that are crucial to keeping the brand ‘cool’, Burberry will remain a great envoy of British style for years to come.


Alastair Irvine

Photography – Alastair Irvine