Burberry shares plunge on concerns over new high-end luxury strategy

A woman stands in front of a Burberry shop at a shopping mall in Jakarta. Shares in the British fashion icon plunged Thursday after it said sales will stagnate for the next two years. (Reuters)
Updated 09 November 2017
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Burberry shares plunge on concerns over new high-end luxury strategy

LONDON: Shares in British fashion icon Burberry plunged as much as 14 percent Thursday after it said sales will stagnate for the next two years as the company shifts strategy to focus on the high-end luxury market following the departure of designer Christopher Bailey.
Burberry plans to pull back from department stores, starting in the US, and remodel its own shops to enhance “luxury service.” The company said it is responding to a changing market in which the luxury consumer now “demands innovation, curation and excitement.”
Investors were more focused on the cost of the strategy shift, with Burberry saying revenue will remain “broadly stable” for the next two fiscal years and restructuring costs will rise by £51 million ($67 million). Burberry shares fell 9.1 percent in midday trading in London.
“The market is now being asked to back him in a ‘no pain, no gain’ strategy shift,” Steve Clayton, a fund manager at Hargreaves Lansdown in London, said of the CEO, Marco Gobbetti.
“Early evidence suggests (Gobbetti) has not carried the crowd with him.” Bailey, Burberry’s chief creative officer, said on Oct. 31 that he plans to leave the company in 2018, ending a 17-year stint in which he helped transform the brand into a global luxury icon. He previously stepped down as CEO after struggling to reinvigorate sagging sales in the company’s key Asian markets.
Bailey’s ideas influenced all of the company’s operations, from the fashions on the runway to the mood in the stores and a shift toward online marketing.
He banked on Britishness and incorporated it into the look and feel of the offering.
He turned a company that once made trench coats for World War I officers and tents for arctic explorers into the producer of must-have styles for the likes of Kim Kardashian and Cara Delevingne.
He also championed the digital marketplace with innovations such as allowing shoppers to immediately buy online what they saw on fashion show catwalks.
But that didn’t stop Burberry from suffering a sharp fall in sales in Asia, where slower economic growth and a Chinese government crackdown on luxury gifts hurt the brand’s sales under his watch. Investors looked to Gobbetti to jumpstart the company.
“To win with this consumer, we must sharpen our brand positioning,” the company said in its strategy statement. “This will require us to change our approach to product, communication and customer experience. Building on our strong foundations, we will establish our position firmly in luxury enabling us to deliver sustainable long-term value.”


Air France says new strikes put airline’s situation ‘even more at risk’

Updated 53 min 55 sec ago
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Air France says new strikes put airline’s situation ‘even more at risk’

PARIS: The French prime minister and Air France both issued warnings on Thursday over the damage caused to the airline by workers striking over pay, in a dispute that has so far cost Air France some €300 million.
Air France is balloting staff over its offer of a 7 percent pay rise over four years, after unions rejected the proposal as too modest.
Three pilot unions on Thursday called for more strikes over the May 3-8 period — a move condemned by the airline as putting its economic situation “even more at risk.”
Prime Minister Edouard Philippe said Air France faced significant “turbulence” if it lost its battle with unions. The French state holds 17.6 percent of the Air France KLM group.
Air France KLM Chairman and Chief Executive Jean-Marc Janaillac has said it would be hard for him to stay if staff voted against the offer, and he issued an apology to the airline’s customers in a statement on Thursday.
“I have complete faith in the desire of Air France staff to put an end to this destructive situation for our airline,” added Janaillac in his statement.
Philippe said Janaillac had shown “courage” by putting his job on the line but warned that a negative vote could further harm the company.
“If the consultation did not produce the results he hoped for and he took the consequences, everyone should fasten their seat belts because the turbulence will not be minor,” he told Europe 1 radio. “A company that loses its boss in these conditions is not well placed to face the future.”
The industrial action, affecting about 30 percent of Air France flights, has coincided with French railway strikes over the last month, resulting in widespread travel disruption.
SNCF workers have launched a series of protests against reform plans by President Emmanuel Macron’s government, designed to stem the state-owned railway’s losses and cut debt.