Invezz.com - British luxury fashion giant Burberry (LON:BRBY) has embarked on a £40 million cost-saving programme as part of a comprehensive turnaround strategy unveiled by its new chief executive, Joshua Schulman.
Appointed in July following the departure of Jonathan Akeroyd, Schulman aims to stabilize the company after years of declining performance and brand missteps.
“Our recent underperformance has stemmed from several factors, including inconsistent brand execution and a lack of focus on our core outerwear category and our core customer segments,” Schulman said in a statement.
He added that the company is now “acting with urgency to course correct, stabilize the business, and position Burberry for a return to sustainable, profitable growth”.
Shares of Burberry jumped by as much as more than 22% on the back of the turnaround plan announcement, making the luxury retailer the top riser on the FTSE 250.
‘Burberry Forward’ put in motion amid losses
The fashion giant announced a strategic plan called ‘Burberry Forward’ on Thursday to overhaul the revive sales.
The announcement was made along with the announcement of its earnings for six months ending September, which saw it reporting a £41 million loss, a stark contrast to the £223 million adjusted operating profit recorded in the same period last year.
Revenue dropped 22%, landing just below £1.1 billion.
The brand opened 19 new stores but closed 12 during this timeframe, maintaining 429 directly operated stores as of September 28.
In September, Burberry was relegated from the prestigious FTSE 100 index following a challenging period marked by declining sales and a series of leadership changes.
“We recognise there is much to be done in the short term, and we are acting with urgency. We are confident we can get back to generating £3 billion in annual revenue over time while rebuilding margins and driving strong cash generation,” Schulman said.
Schulman’s strategy to boost Burberry’s revenues to £3 billion, with a focus on core products, stands in contrast to more conservative market predictions, which estimate revenues around £2.73 billion by 2027-2028.
Cost-cutting program to save £40m annually
Schulman shared that as part of the turnaround strategy, in the last 90 days, the company has implemented certain actions that include a cost-cutting programme to save £40m annually.
He that approximately £25 million of these savings would be implemented during the 2025 financial year.
While Burberry has been streamlining its operations, including consolidating office-based roles, the company has not disclosed specifics on potential job losses.
Burberry’s chief financial officer, Kate Ferry, noted that the company faces external financial pressures, including the UK government’s recent increase in employers’ national insurance contributions, adding an estimated £3-4 billion to operating expenses.
‘Scarf bars’ rolled out as part of the program
To support the turnaround, Schulman has bolstered Burberry’s leadership team by appointing new managers in marketing, product merchandising, and planning, particularly in key regions like the Americas.
He has also launched an outerwear campaign titled “It’s Always Burberry Weather,” which includes new experiential retail concepts such as “scarf bars,” first introduced at the flagship store on 57th Street in New York.
Schulman commented on the brand’s recent underperformance, attributing it to inconsistent strategy and a drift away from core strengths.
“We have a powerful brand with broad appeal among luxury customers, authority in the outerwear and scarf categories which have remained resilient through this period, and a strong presence in all key luxury markets,” he said.
What do analysts make of the revival plan?
Burberry’s struggles mirror broader challenges in the luxury sector, which has experienced slowing demand.
Competitors like Kering (LON:0IIH), the parent company of Gucci and Balenciaga, and fellow British brand Mulberry have also felt the effects of the global luxury market’s deceleration.
Despite the significant financial headwinds, analysts see potential in Burberry’s renewed focus on its core offerings.
RBC Capital Markets analysts pointed out that a misjudgment of price elasticity in the leather goods segment contributed to the company’s downturn.
They view Schulman’s pivot back to Burberry’s heritage outerwear as a promising move, bringing the brand back to a more authentic, less saturated product category.
Morgan Stanley (NYSE:MS) analysts highlighted that effective execution of the new strategy could help Burberry achieve financial targets akin to its pre-pandemic performance, with a gross margin near 70% and operating margins in the high teens.
They remarked that the management’s confidence, as conveyed in their latest updates, suggested no fundamental obstacles to these goals.
Schulman acknowledged that turning the company around would not yield immediate results.
“In the short term, with our all-important festive trading period ahead and an uncertain macroeconomic environment, it is too early to determine whether our second-half results will fully offset the first-half adjusted operating loss,” Burberry’s statement read.