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.”


Asian firms shuffle production around the region as US-China tariffs war rages

Updated 23 September 2018
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Asian firms shuffle production around the region as US-China tariffs war rages

  • Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China
  • Some Asian governments hope for an economic and strategic boost from the US-China conflict

SEOUL/TOKYO: A growing number of Asian manufacturers of products ranging from memory chips to machines tools are moving to shift production from China to other factories in the region in the wake of US President Donald Trump’s tariffs on Chinese imports.
Companies including SK Hynix of South Korea and Mitsubishi Electric, Toshiba Machine Co. and Komatsu of Japan began plotting production moves since July, when the first tariffs hit, and the shifts are now under way, company representatives and others with knowledge of the plans told Reuters. Others, such as Taiwanese computer-maker Compal Electronics and South Korea’s LG Electronics, are making contingency plans in case the trade war continues or deepens.
The company representatives and other sources spoke on condition of anonymity because of the sensitivity of the issue.
The quick reactions to the US tariffs are possible because many large manufacturers have facilities in multiple countries and can move at least small amounts of production without building new factories. Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China.
The US imposed 25 percent duties covering $50 billion of Chinese-made goods in July, and a second round of 10 percent tariffs covering another $200 billion of Chinese exports will come into effect next week. The latter rate will jump to 25 percent at the end of the year, and Trump has threatened a third round of tariffs on $267 billion of goods, which would bring all of China’s exports to the US into the tariff regime.
The tariffs threaten China’s status as a low-cost production base that, along with the appeal of the fast-growing China market, drew many companies to build factories and supply chains in the country over the past several decades.
At SK Hynix, which makes computer memory chips, work is under way to move production of certain chip modules back to South Korea from China. Like its US rival Micron Technology, which is also moving some memory-chip work from China to other Asian locations, SK Hynix does some of its packaging and testing of chips in China, with the chips themselves mostly made elsewhere.
“There are a few DRAM module products made in China that are exported to the US,” said a source with direct knowledge of the situation, referring to widely used dynamic random-access memory chips. “SK Hynix is planning on bringing those DRAM module products to South Korea to avoid the tariff hit.”
Most of SK Hynix’s production won’t be affected, the source added, since China’s dominance in computer and smartphone manufacturing makes it by far the largest market for DRAM chips.
Toshiba Machine Co. says it plans to shift production of US-bound plastic molding machines from China to Japan or Thailand in October.
The machines are used for making plastic components such as automotive bumpers. “We’ve decided to shift part of our production from China because the impact of the tariffs is significant,” a spokesman said.
Mitsubishi Electric, meanwhile, says it is in the process of shifting production of US-bound machine tools used for metal processing from its manufacturing base in Dalian, in northeastern China, to a Japanese plant in Nagoya.
In Taiwan, an executive at notebook PC maker Compal, who declined to be named, said the trade war’s impact had been limited so far, but the company was studying its options.
“We can also use facilities in Vietnam, Mexico and Brazil as alternatives,” the person said. “It won’t be easy because our majority production is in China; no other country can replace that at this moment.”
Smaller companies are exploring their options too. South Korean medical equipment manufacturer IM Healthcare, which makes products including air purifiers, is studying a move to Vietnam or South Korea if the trade conflict intensifies, a source with direct knowledge of the matter said.
Some Asian governments hope for an economic and strategic boost from the US-China conflict. In Taiwan, the government is actively encouraging companies to move production out of China, pledging last month to speed up its existing “Southbound Policy” to reduce economic reliance on China by encouraging companies to move supply chains to Southeast Asia.
Taiwan economics ministry official William Liu told Reuters that the trade war was “a challenge and an opportunity” for the self-ruled island. Taiwan depends on China as an export market, he noted, but at the same time could see a boost in jobs from companies moving operations back home.
Thailand also hopes to benefit from the “flow of technology and investment leaving China during the trade war,” said Kanit Sangsubhan, Secretary-General of the Eastern Economic Corridor (EEC) Office of Thailand, which is coordinating a $45 billion project to attract investment into the country. The EEC last month took some 800 representatives of Chinese companies on a tour around the eastern industrial heartland, and the country’s Board of Investment has done seven roadshows in China this year to woo investors.