What's ailing Burberry in Asia-Pacific?

ASIA-PACIFIC - British luxury brand Burberry’s profits are struggling on the back of a slowdown in Hong Kong amid political unrest and currency volatility that forced Chinese consumers to shop in Japan and Europe, where Burberry has a smaller presence than competitors.

Sales in Hong Kong fell 20 percent last year.  Burberry’s over-exposed retail network in China has also eaten into profits. On top of that, other luxury brands have started shifting their focus to the digital space, diminishing Burberry's early mover advantage.

As the company announces it will soon have some new leadership, what can it do to recapture attention and loyalty?

DIAGNOSIS 1:
Samuel Coopersmith, associate, SmithStreet Solutions

When we look at Burberry’s stagnating business in Asia, and China specifically, we can attribute it to three key factors. The first is market conditions and a shift in consumer behaviour. The bottom line is that Chinese consumers don’t shop for luxury goods the way they used to. Chinese consumers, at the moment, are spending less on luxury and more on experiences, and when consumers do decide to shop often times they are doing so online (both domestic and international) or abroad.

The second factor is their retail network. In Burberry’s case they have an expansive network where retail locations serve predominantly as points of sale. Having an over exposed store network in a stagnating/declining market will of course lead to a decreased profit margin and we should expect to see Burberry adjust/consolidate their retail network over the coming months/years.

The third is that their brand enjoyed a competitive advantage due to their leading position in China’s digital space (i.e. WeChat). As other brands shifted their focus toward digital, Burberry’s edge from being an early mover has diminished creating a more level playing field.

With this being said, there is a silver lining and that is the rise of the Chinese middle-class consumer. As this group begins to expand and develop a taste for high quality goods, Burberry is priced in a way that will be attainable for these consumers while still holding onto the brand’s status as true luxury.

Serving these consumers properly will require Burberry to continue innovating and leading the way toward an omni-channel solution. This will include sophisticated social/digital CRM capabilities, transitioning retail locations into “showrooms” and having a variety of digital and social information channels/points of sale—allowing consumers new and old to always be in a Burberry store.

DIAGNOSIS 2:
Peter Pek, chief executive, World Branding Forum

Burberry sales have been weak across all key divisions, but the slump is particularly painful in Asia Pacific, the largest part of its business. Hong Kong in particular, has taken a bad hit, with sales down by 20 percent. China accounts for around 40 percent of its sales, but the market is dealing with political uncertainty, the devaluation of the yuan, and a major crackdown on luxury spending, gifts and travel.

To be fair, Burberry is not alone. All luxury brands have been experiencing declines in the Greater China region, and all are affected by certain factors beyond their control.

What does Burberry need to do to see a change in fortunes? For a start, the brand will have to rethink the number of stores it is operating. While having a lot of stores increases brand presence and is convenient for shoppers, it can also dilute a brand’s desirability and value. This is why you don’t see Rolex shops on every corner. Stores are also expensive. Exane BNP Paribas analyst Luca Solca lists Ermenegildo Zegna, Givenchy, Moncler, Tod’s and Dolce & Gabbana among some of the most over-exposed brands in China, with Versace taking the prize. This is Burberry’s problem in Greater China.

The other challenge is the online marketplace. Luxury brands were slow to come to the party, and that was a huge mistake. Alibaba handles more e-commerce than Amazon and eBay combined, and expects to reach 423 million online shoppers this year. Brands will need to amplify and target their online communications to win and retain customers in cyberspace.

Burberry has done well in terms of the use of technology, for example, its use of WeChat and Weibo, and it will need to continue to do so. In a land of 1.35 billion people, Burberry’s ability to personalise products for individuals is an advantage, but monograms alone will not be enough.