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.”


EU and China vow to uphold global trade order despite disagreements

Updated 14 min 18 sec ago
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EU and China vow to uphold global trade order despite disagreements

BEIJING: The European Union and China pledged on Monday to uphold a rules-based international trade system, making an oblique criticism of growing protectionism in Washington despite their own disagreements.
The two sides held high-level economic meetings in Beijing as both face rising trade tensions with the United States. Brussels and Beijing recently announced new tariffs on US goods in retaliation for moves by the Trump administration.
“Both sides agreed to resolutely oppose unilateralism and protectionism and prevent such practices from impacting the world economy and even dragging the world economy into recession,” said Chinese Vice Premier Liu He, responsible for shepherding the world’s second largest economy.
Liu had led China’s three rounds of trade talks with the US, negotiations that have broken down over the Trump administration’s pledge to move forward with tariffs despite an agreement in May to put the duties on hold.
“Unilateralism and trade protectionism is on the rise and tensions have appeared in the economic relations between major economies,” Liu told an audience of European and Chinese officials.
European Commission Vice President Jyrki Katainen echoed Liu’s words, describing the World Trade Organization “as the center of the rules-based international trading system.”
Even as the two sides seek common ground on combating the US moves, there are deep divisions between them. EU companies and officials harbor concerns about Beijing’s policies that are shared by their counterparts in Washington.
“We need more than just talk, we need to demonstrate adherence to international trading rules,” said Katainen, proposing reforms to develop new rules for a “global level playing field” in key areas such as “industrial subsidies.”
Beijing’s industrial policies such as the “Made in China 2025” project, which is designed to transform China from a maker of sports shoes and denims into high-tech goods, is a major concern in Washington and stands at the heart of proposed new US tariffs on China.
“The two sides committed to defend the multilateral trading system that is centered on the WTO and based on rules,” said Liu, acknowledging the need to maintain fair market access.
Katainen called on Liu to go further in removing market access barriers for companies and preventing overcapacity in high-tech sectors “covered by the Made in China 2025 strategy.” He demanded that all industries enjoy equal treatment.