Can Burberry Weather the COVID-19 Storm by Discounting?

Burberry, the British luxury fashion house, saw an early recovery this fiscal quarter, thanks to the positive reopening in mainland China and South Korea. The brand said that sales in both markets was already ahead of where they were at this time last year, especially in the handbag and small leather goods category, with growing momentum since the start of April. According to preliminary annual results, retail sales fell 3% on a comparable basis in the 12 months ending March 28. Impacted by the COVID-19 crisis, over half of Burberry’s 421 stores around the world remain closed. Burberry said store closures would likely continue through this peak period of the crisis. Given this, group revenue has declined 3% compared to last year, and free cash flow has also dropped from 301 million pounds last year to 66 million. Jing Take: How sustainable Burberry’s current growth rate is remains questionable. Information given by sales associates from various shopping malls in Beijing disclosed heavy discounts, as much as 50%, on many ready-to-wear and leather handbag goods. Similar sales have been noted in Australia when shopping on the brands’ e-commerce site. Burberry, however, disclosed to Jing Daily that the group doesn't attempt to make any price adjustments for the long-term. As Jing Daily reported previously, contrary to Burberry, other luxury brands like Chanel, Dior, Gucci, and Louis Vuitton have raised their prices, while still experiencing long queues outside their retail stores. It appears to be an effective strategy during this transitional time in the market. However, as the brand reinforced in its earning’s call, in such a challenging time, consumers tend to be polarized between luxury and mass-market brands, but nothing in between. Meanwhile, Burberry’s heavy discounts set a stark contrast, and at lease during the ongoing pandemic, is likely to influence the brand's envisioned positioning. The Jing Take reports on a leading piece of news while presenting our editorial team’s analysis of its key implications for the luxury industry. In this recurring column, we analyze everything from product drops and mergers to heated debates that sprout up on Chinese social media.

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Can Burberry Weather the COVID-19 Storm by Discounting?