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Retail-led Strategy by Burberry to Target High Net Worth Individuals in Asia Pacific
During a dark period for retail – when people have become accustomed to hearing about the struggle of many high end brands unable to win market share from more cautious luxury customers – the news of Burberry’s continuing success leaves some wondering how the company is delivering such a strong performance, with a revenue increase of 35%, 105 new stores added and a productivity boost of 11%.
“While the luxury industry faces global challenges in the year ahead, we remain confident in our team’s ability to outperform, underpinned by the consistent execution of our key strategies,” said Burberry’s chief executive Angela Ahrendts in a trading update in 2011.
The sales figures show that the company’s plan to survive the financial crisis by focusing on flagship markets has so far been successful.
Burberry, recognizable as an “iconic British luxury brand”, has transformed in the last few years in an attempt to attract a new, younger customer base while keeping current customers satisfied. Now the company is targeting young, digitally-aware consumers in the world’s wealthier markets.
Burberry’s strategy is based on retail-led growth: the shift from a static wholesale model to a dynamic retail model. As rising internet penetration and increasing familiarity with online shopping is a burgeoning trend, the company’s focus is mainly on digital integration.
The company’s targets are 25 of the world’s wealthier cities (including London, New York and Beijing); according to Burberry these account for more than half of the global luxury fashion trade. These markets also benefit from high levels of tourism and high net worth residents.
The company is investing in underpenetrated markets such as Asia Pacific, Latin America and the Middle East, as these are forecast to see continued growth in consumption of luxury goods as tourism, salaries and store openings increase. The company now has 57 shops in China, and this figure is expected to almost double within the next five years. In Latin America, the group now has three stores operating. Through franchise partners, the first Burberry stores were opened in Armenia, Egypt, Israel and Mongolia during 2010/11.
The company increased the number of directly operated stores by 105 in 2010/11. Overall Burberry store productivity increased by 11% in 2010/11. Average unit retail prices rose in the period, while product flow and replenishment capability improved. About half of the new stores were opened in existing high profile markets.
Burberry recorded a 35% revenue increase in 2010/11 compared to the previous year. China contributed 5% to underlying growth. Non-apparel, including handbags, small leather goods, scarves, shoes, belts and jewelry, remain a key driver of the company’ growth, contributing 40% of retail/wholesale sales during 2010/11.
Burberry’s shift from a wholesale to a retail model is expected to continue in 2012. Capital expenditure on further brand expansion is estimated at £180-200 million (approximately $280-310 million). Burberry plans to increase its average retail selling space by about 14% in the second half of FY 2012. A net eight to ten mainline store openings are planned, including outlets in China, Latin America and a flagship store in Paris.