Shares of luxury bellweather Burberry have taken a hit along with other companies in the luxury sector on concerns that the European debt crisis and a China slowdown are eroding sales.
Certainly, the global economy has slowed but these stocks have been resilient so far. The luxury sector may be due for a correction.
Burberry reported strong sales in its main line stores for the Greater China region, U.K., France, and Germany. The percentage of like-for-like sales in mainland China rose by mid-teens, led by Beijing, but this is down from about 30 percent in the past.
Chief Financial Officer Stacey Cartwright noted that a slowdown in gift giving in China has impacted sales. “We’ve seen a slowdown in gift giving in China. That’s small leather goods, cashmere scarves, but also trench coats. In China there is a political change later this year and we think some consumers are nervous about spending ahead of that change,” said Cartwright.
Regardless, Burberry is not ready to scale down on China, one of its most robust markets.
Remember, the country currently has about 300 million consumers who can afford luxury products –the size of the whole US population — out of its billion plus population with many moving up the consumption ladder.
Cartwright reaffirms Burberry’s commitment to China and sees “an enormous amount of opportunity” in China. The company may increase its store numbers in China to as many as 100 from 63 now.
The primary reason for the slowdown in Burberry? A shift in strategy. Cartwright attributed it to “tuning up the luxury dial”– taking its product range upmarket and making them more exclusive. For example, the price of its cheapest Asian made trench coat that costs £600 will now be a British made version that costs £800.
In terms of Burberry shares, they fell largely because of the run up in luxury stocks and the heavy expectations placed on this luxury company to deliver astounding results. Many believe if any one luxury retailer can deliver, it is Burberry. The company is often regarded as a cutting edge innovator in luxury retailing.
photo credit: burberry/mario testino